THE FULL RESEARCH PAPER available on http://gpf-europe.com/

1. "A Pragmatic Review of Nagorno-Karabakh Conflict Resolution: Could Economic Incentives Help Break the Current Stalemate?" Dr Marat Terterov, Principal Director and co-Founder & George Niculescu Head of Research The European Geopolitical Forum-EGF, Brussels, ROYAL UNITED SERVICES INSTITUTEBREACHING THE IMPASSE: DISCUSSING WAYS FORWARD IN NAGORNO-KARABAKH 17 APRIL 2013, LONDON

2. THE FULL RESEARCH PAPER available onhttp://gpf-europe.com/

3. Why talk about economic incentives in a territorial conflict? • Little “light at the end of the tunnel” to peaceful settlement for Karabakh in the current climate; • Azerbaijani-Armenian negotiation process and the wider relationship governed by a severe lack of trust; • Confidence building measures and steps towards conflict resolution are extremely difficult to develop; • Little compromise from either side, with heightened risk of a ‘spark’ coming from incidents or provocations • A ‘political settlement’ alone is unlikely to be sufficient • Economic incentives might be amongst the most appealing aspects of a wider-’Grand Bargain’;

4. A basis for deepening the discussion ?: • Major gains for all sides from regional economic cooperation • Both Armenia and Azerbaijan are in transition towards modernisation and nation building • War has not stopped Georgia and Russia from economic cooperation, nor Israel and the Arabs • South Caucasus yet to ‘take off’ economically • How much money would a joint Baku-Yerevan Olympiad in 2024 bring into the region ? • Madrid Principles not incompatible with economic cooperation • For Armenia, can the geopolitical status quo last ? • Could the type of pragmatism which lies “just under the surface”, in the Caucasus, be brought forward ? • Would there be added value in starting talk about “jumping over the fire”?

5. The Aim and the Method • To test the idea of whether economic incentives could help break the current deadlock over Nagorno-Karabakh. • A questionnairesubmitted to local and international experts inquiring on whether “a return of land for access to infrastructure projects” could contribute towards breaking the current stalemate.

6. The Overall Finding of the Research: • Economic incentives, CANNOT, on their own, provide a substitute for a political settlement to the conflict, including its territorial dimensions. • Economic incentives CAN contribute towards conflict resolution as an element of a broader deal between the parties. • Economic incentives CANplay a key role in confidence building by ‘toning down the heat’ and forging a ‘shift of gear’ in the current narrative

7. We found the following arguments from our survey respondents supporting the utility of economic incentives: • They can help break the current ‘economic isolation’ of Nagorno-Karabakh and Armenia; • They can provide economic benefits for Azerbaijan by creating new markets via regional integration; • They can offer Nagorno-Karabakh with a broader range of economic options and opportunities; • They can forge economic interdependencies which could serve as ‘mutual security guarantees’; • They could provide a stronger basis for the economic and humanitarian rehabilitation of the seven districts around Nagorno-Karabakh; • They could turn current "zero-sum game" thinking into a "win-win" solution.

8. More scope to be cautious than bullish ? • They would not lessen Armenia’s position in calling for recognition of status/the independence of Nagorno-Karabakh Republic; • Armenian ‘hard liners’ would never accept a territorial compromise; • "Lowland-Karabakh“ is the only place to safely resettle 400,000 Armenian IDPs; • We have largely “missed the bus” on new cross-border oil and gas pipeline projects with joint Armenian and Azerbaijani participation; • Russia (a key external power broker) would, for the most part, oppose, given its regional economic and political interests.

9. How to use economic incentives in N-K conflict management? • Applied as a confidence building measure and synchronized with the work of the Minsk Group, which (despite its imperfections) remains ‘the only game in town’. • Establish a Regional Development Agency (RDA) in charge of preparing and implementing economic cooperation projects at the regional level; • Identify the scope for regional energy and infrastructure projects which could be open to Armenian participation; • However many practical obstacles hindering possible Armenian participation in regional infrastructure pilot projects remain, not just at the political level;

10. An agenda for expert level discussion groups: • Starting a comprehensive dialogue on post-conflict scenarios involving joint regional energy and infrastructure projects; • possible topics for the agenda: • joint rehabilitation of infrastructure both in Nagorno-Karabakh and in the occupied districts. • priorities, joint management, sources of funding, inter-operability of technical standards and other challenges to planning and implementing regional infrastructure projects. • how to help the process of resettlement of IDPs and refugee communities? • role of RDA remains critical as a driver, regulator and monitor

11. The Potential Role of the EU and of Other International Stakeholders: • Providing frameworks for dialogue; • Guaranteeing security and political aspects of economic pilot projects and associated confidence building measures; • Compelling both sides to take a more flexible and constructive approach towards the conflict; • Focus creative energies on fostering regional economic cooperation; • Bringing in experience from the Balkans on conflict dissuasion and fostering economic cooperation; • Does the EU have the will to develop a mandate ?

12. “Economic incentives are a key element of a new vision for peace in the new South Caucasus, comprised of states and entities, less hung up on sovereignty and hard power, whilst reinforced by comprehensive, integrated and sustainable cooperation, which would ultimately enable free movement of people, goods, services and capital at the regional level, lead to economic integration and the opening of all closed borders.“ Is this vision feasible? How could it be implemented? The road ahead for Karabakh: pragmatism or ‘warrior nationalism’ ? The Next EGF Research Project?

13. DISCUSSION