Navigating Shifting Tides: China’s Advance, Russia’s Retreat, and the Evolving Power Dynamics in the South Caucasus

Executive Summary

New power dynamics are emerging in the South Caucasus. The region is becoming increasingly vital in global trade, the interplay of infrastructure development, geopolitical narratives and positioning, and international investments forms a complex geopolitical landscape. Russia’s power in the region is weakening and other powers are moving in to fill the gap left behind. Among them are China. This text examines the changing power dynamics in the region, focusing on Azerbaijan, Armenia, and Georgia, while also illustrating the complexities of Russia and China’s “strategic coordination”.

Azerbaijan is positioning itself as a vital node in the Chinese Belt and Road Initiative (BRI), fostering a deepening partnership with China to diversify its economy beyond oil and gas production. Georgia’s strategic partnership with China, while providing economic prospects, raises concerns about the potential compromise of its “pro-Western” orientation. As Azerbaijan aligns with China in narratives regarding sovereignty; China, however, remains cautious to openly take sides in the conflicts regarding Nagorno-Karabakh, and the occupied territories of Georgia, opting instead to promote peace and stability. While Azerbaijan and Georgia are emerging as pivotal hubs for infrastructure projects and geopolitical strategies, the absence of significant infrastructure projects in Armenia raises questions about China's strategic hesitancy, largely attributed to the lingering effects of the Nagorno-Karabakh conflict and regional power dynamics.

As China becomes an increasingly important actor in the South Caucasus region, questions arise about the challenges this poses for regional stability – especially as Russia’s power decreases – and the EU’s long-term strategic interests. China is becoming part of an authoritarian bloc that sits right on the EU’s borders. Furthermore, although Russia’s power is weakening, it is unlikely to willingly give up power in the region; currently, Russia and China are forming a strategic partnership around the common goal of counteracting the so-called “US hegemony”, but as China’s power increases in the Southern Caucasus, it is risking a forceful reaction from Russia.

Introduction

The geopolitical landscape is changing in the South Caucasus. As Russia’s war against Ukraine is dragging into its third year, its relative power in the region is decreasing. Armenia, reliant on Moscow for security guarantees, has increasingly criticized Russia for neglecting its duty as peacekeeper in Nagorno-Karabakh. After Azerbaijan’s offensive on the 19^th September 2023, where it retook control of the territory, Armenia and Azerbaijan have, in a clear message of distrust, circumvented both Russia and the West in peace talks – opting instead for bilateral discussions. Simultaneously, Azerbaijan is carefully maneuvering into a position of power in the region, positioning itself as a node on several trade routes between Asia and Europe, trading gas and oil from the Caspian Sea, and otherwise balancing its relationship with several big powers: the EU, Russia, Iran, and Türkiye. Georgia, through its rapprochement with Russia and increasingly illiberal politics, is looking for new partners who do not stipulate on democratic development as a requirement for cooperation. It is in this geopolitical landscape that China is maneuvering. Russia’s power is in decline, the balance is shifting, and new opportunities arise.

Following the large-scale Russian invasion of Ukraine in 2022, trade routes that circumvent Russian territory entirely are increasingly of interest as sanctions increase costs of transport through Russia. China, the EU, and the South Caucasus countries are seeking ways to circumvent Russia in trade, which further decreases Russia’s regional influence. So far, Chinese interest in Armenia has been lesser, which can be attributed to economic rationale and geographical realities – Armenia is neither geographically nor economically part of a major trade route – or it could be attributed Chinese aversion to instability, as the conflict with Azerbaijan has isolated Armenia from the world, making it an unstable and undesirable trade partner. As signs of normalization between the conflicting countries appear, China’s interest in Armenia might increase.

China’s incursions into the Southern Caucasus have so far been met with peace from Russia – as opposed to its aggressive reactions to closer relations between Georgia and the EU. On a global scale, Chinese and Russian interests align as they fight the “US-led world order”, but Russia’s power in its “near abroad” is a sore spot and it will eventually have to react and challenge China’s increasing influence; the question is how.

China and the countries in the Southern Caucasus also find common ground in ideology. Narratives regarding China and Taiwan, Azerbaijan and Nagorno-Karabakh, as well as Georgia and the occupied territories of Abkhazia and South Ossetia mirror each other, and the countries go to great lengths in order to appease China. China, on the other hand, prove to be fickler with its loyalty, deliberately promoting peace and stability above picking a side in the conflict. This strategy is tried and true: China’s approach to the war in Gaza is another example of their “anti-Western neutrality”, playing both sides of the conflict for their own gain; not only does it siphon U.S. attention away from the Indo-Pacific, it is also an opportunity for China to showcase its diplomatic leadership and, by highlighting humanitarian issues, position itself as a “humanitarian” global superpower.

These developments are of course not isolated to the Southern Caucasus. As the EU is looking for alternatives to Russia, both to trade oil and gas with and to enable trade between Europe and Asia, the South Caucasus becomes a key player. As Chinese interest in the region is also on the rise, the EU’s and China’s paths will converge, linking them together. On the one hand, this is desirable – China, the EU, and the U.S. are the world’s three largest trading partners – but on the other hand, the EU are making efforts to de-risk from China, aiming to reduce their dependency. Contrarily, then, will further investments into the South Caucasus region bring the EU closer to China, not only going against the goal of reducing dependency but also effectively trading dependency on one authoritarian power with another.

Furthermore, by exerting greater influence in the region, China aligns itself with an increasingly concerning authoritarian bloc, situated right on the borders of the EU. EU investments into the South Caucasus might help, if welcomed by the countries, but as it stands, China is a more convenient partner to have. For the Georgian Dream government, China could provide an alternative to the democratic process that the EU requests, for Azerbaijan, China provides a powerful, like-minded partner, and for Armenia, it could provide a welcome boost in the economy.

Unraveling the Impact of Infrastructure Developments

The BRI is a global development strategy that the Chinese government adopted in 2013. In the South Caucasus, it regards connecting East Asia and Europe through several trade routes. Amongst these trade routes is the Trans-Caspian International Transport Route, or more commonly, the Middle Corridor. Its development links the containerized rail freight transport networks of China and the EU through Central Asia, the Caucasus, Türkiye, and Eastern Europe, linking Caspian and Black Sea ferry terminals with rail systems. Following the large-scale Russian invasion of Ukraine in 2022, the Middle Corridor has gained considerable attention as it circumvents Russian territory entirely. Both China and the EU are seeking ways to enhance and streamline trade through the Southern Caucasus, making it a focal point in the post-2022 geopolitical landscape.

The idea of a land-based transport corridor between Europe, South Caucasus, and Asia has existed for thirty years, but investments in, for instance, the Middle Corridor have until recently been scarce. However, infrastructure projects to connect Europe to Central Asia and China has gained attention after Russia’s 2022 full-scale invasion of Ukraine. Amongst other efforts, such as the EU signing a energy deal with Azerbaijan in 2022, the Middle Corridor is becoming an important component in international efforts to bypass Russia. As the EU makes intentional efforts to circumvent Russia, Chinese trade with Russia[1] has increased over the last few years, with import especially escalating in 2022. Still, the EU is a more lucrative trade partner for China and the infrastructure projects in South Caucasus facilitate trade with Europe as trade routes through Russia become undesirable to use due to sanctions.

Through investments in the region, China’s power is not only increasing in the Southern Caucasus but also in relation to the EU; Europe is not able to isolate the benefits of the Middle Corridor, investments are inevitably benefiting other countries in the region – China, Iran, Azerbaijan – and are likely to cause friction with other countries, such as Armenia and Ukraine, democracies who, especially in the case of Ukraine, want to deepen cooperation with the EU. Furthermore, Russia’s attempts to elbow itself into infrastructure projects in the South Caucasus make evident that it is not willing to let go of its regional power. If Russia succeeds, the EU’s investments into the Middle Corridor will directly benefit Russia – causing more friction with Ukraine. Simultaneously, further circumventing Russia in projects risks causing a forceful reaction; the projects could become targets for various Russian hybrid warfare campaigns.

The relationship between China and Armenia has experienced "rapid development" in recent years, particularly within the framework of the BRI. However, the absence of the BRI’s key components, such as the Middle Corridor and the Trans-Caspian Gas Pipeline, in Armenia is notable. Despite Armenia’s participation in the North-South Road Corridor project, which aimed to establish a railway connecting trade routes from the Black Sea to the Persian Gulf, insufficient funding has impeded progress. In contrast, Russia, Iran, and Azerbaijan have strengthened their ties, announcing plans to enhance railway infrastructure. This collaboration allows Azerbaijan to reach its exclave, Nakchivan, through Iranian territory, and sidelines Armenia from the development of the North-South Road Corridor project.

In the South Caucasus, Armenia’s relative power is weak, and it is often overlooked by foreign investors. The geographical reality of Armenia plays a part; it is not connected to the oil-rich Caspian Sea nor the Black Sea, disconnecting it from the path of the BRI[2]. Furthermore, Armenia’s conflict with Azerbaijan and dependency on an unreliable and dishonest partner – Russia – has made it vulnerable to strategies of isolation. Neither Azerbaijan nor Russia is interested in allowing Armenia to build cooperation with other countries and thus are its infrastructure and its international trade relations stunted. China’s aversion to instability likely makes it hesitant to engage with Armenia. Instead, China appears to be strategically aligning with energy-rich Azerbaijan, potentially favoring the stability it offers. However, in May 2024, China has expressed interest in expanding its cooperation with Armenia.

The reported closeness of Armenia and Azerbaijan to a historic peace agreement introduces the prospect of peace in the region after decades of conflict. However, Azerbaijan's interest in keeping Armenia sidelined may limit its options, even in the face of newfound stability. Russia, aiming to maintain Armenia’s dependence on them for trade and security, remain Armenia's primary import and export partner. China, emerging as the second-largest import and third-largest export partner, presents a potential new partner for Armenia[3]. However, the realization of this partnership would necessitate substantial investments from China into the Armenian economy and infrastructure, a move that would challenge Russia's perceived territorial influence in the region.

Azerbaijan is carefully positioning themselves as a key node on the BRI and in the Middle Corridor. Azeri president Ilham Aliyev have stated that Azerbaijan and China are “true strategic partners”, and Azerbaijan is actively seeking Chinese engagement in projects in the industrial sector and to diversify the economy away from its long-standing dependence on oil and natural gas production. Baku and Beijing are expanding their cooperation; in 2019, they signed contracts worth $821 million on the sidelines of the second Belt and Road Forum, and Chinese companies are hungry for opportunities in electricity production; in September 2023, China’s ambassador to Azerbaijan stated that Chinese contractors had been hired to build Azerbaijan’s first large-scale renewable power stations. In May, 2024, China and Azerbaijan vowed to lift bilateral relations to new heights, emphasizing the importance of the BRI. Furthermore, China-Azerbaijan bilateral trade reached $3.1 billion in 2023, a year-on-year increase of 43.5 percent; China became Azerbaijan’s second largest source of imports for the first time, ahead of Türkiye.

In 2015, Azerbaijan was granted the status of a dialogue partner in the Shanghai Cooperation Organization (SCO) – a multilateral association spearheaded by China in an attempt to increase influence in Eurasia and create organizations that challenge the “US-led liberal world order”. For Azerbaijan, the SCO creates a large economic space and facilitates its role in trade and economic cooperation between Asia and Europe and has helped Azerbaijan develop important components of the Middle Corridor; the SCO becomes a forum for Azerbaijan to consolidate its status as a middle power.

Azerbaijan is also developing its strategic partnerships with Iran and Russia, positioning itself as indispensable in the latter two’s efforts to evade sanctions. The relationship is, however, plagued by animosity, as both Iran and Russia use hybrid instruments to destabilize the region in classic “divide and conquer” fashion. In this context, Azerbaijan and Türkiye’s alliance allows Azerbaijan to increase its regional influence and “risk” a closer relationship with Russia and Iran. Furthermore, forging an alliance with China could offer another countermeasure for Azerbaijan. Such a partnership not only provides Baku with a means of deterrence but aligns with China’s foreign policy emphasis on stability to foster economic ties. It would be in China's vested interest to promote Baku’s stability, making it a powerful partner in mitigating regional tensions.

During a meeting in July and August 2023, Tbilisi and Beijing announced a strategic partnership. Although the partnership did not explicitly mention the Anaklia deepwater seaport project in the Black Sea, suspicions are arising that it may pave the way for Chinese investments in this endeavor. Currently seeking investors for the project, Georgia is poised to commence construction in 2024. The Anaklia deepwater seaport holds immense significance in Georgia’s commercial infrastructure, addressing the current lack of a deepwater seaport in the Black Sea, which hampers trade with Türkiye (and Europe) through Georgia. In 2017, a consortium featuring US-based Conti International and Georgian TBC Holding had agreed to construct the seaport. However, the involvement of American investors in the project has evolved into a geopolitical standoff involving Russia and China. Given Georgia's recent anti-Western orientation, there is a tangible risk that Chinese businesses may play a predominant, if not exclusive, role in the construction of the port. This potential shift signifies a clear departure from cooperation with the West on Georgia's part. Moreover, in recent years, China has come to view Georgia as crucial to the Middle Corridor.

Geopolitical Crossroads

Another area of intersection between China and the South Caucasus region involves narratives related to territorial integrity. As Georgia and China signed their strategic partnership, part of the package that Georgia unconditionally subscribed to was the One China Principle (OCP); the principle that there is only one sovereign state under the name China, with the People’s Republic of China being the sole legitimate government of said China, and that Taiwan is an inalienable part of the state. While many states adhere to the One China policy, a US policy that takes a more ambiguous stance on Taiwan, the OCP is more controversial. The discourse surrounding sovereignty and the imperative of full territorial control holds particular significance in Georgia, given the situation in Abkhazia and South Ossetia—regions effectively functioning as autonomous entities under Russian separatist influence. Beyond recognizing the OCP, the Georgian Dream government stands out globally as the sole government refusing entry to citizens holding Taiwanese passports. The parallel between the occupied territories of Abkhazia and South Ossetia and Taiwan is evident: if Tbilisi were to accept Taiwanese passports, signaling acknowledgment of Taiwanese independence, it could prompt Beijing to reciprocate by recognizing Abkhazian passports.

Despite Georgia’s staunch stance for the OCP and against Taiwan, China typically abstains or votes against UN resolutions that call for the unconditional return of internally displaced persons from the occupied territories of Georgia. The UN asserts that the resolutions are solely driven by humanitarian concerns, advocating for the establishment of lasting peace and unrestricted access for humanitarian aid to areas affected by the conflict across Georgia. In contrast, Russia contends that these resolutions are inherently political in nature, designed to hinder the normalization of the situation in the region and impede the development of amicable relations between Abkhazia, South Ossetia, and Georgia. China's decision to abstain from the vote sends a clear message to both Georgia and Russia, indicating a stance similar to the “pro-Russian neutrality” it displays in Russia’s war against Ukraine. It underscores that China is not aligning itself with Georgia.

The strategic partnership with China is harmful for Georgia’s relations with the US and the West. For instance, Georgia expressed support for China’s Global Security Initiative (GSI), a global leadership initiative which critics say will serve as a political mechanism to contest the Western-led rules-based international order and decrease the influence of NATO worldwide, focusing on deficits in peace, development, security, and governance; as such, Georgia’s support for the GSI indicates an interest in China’s role as a security provider. Such a stance from Georgia is entirely incompatible with its ambitions to join NATO. Furthermore, the published document about the partnership states that Georgia “believes that Chinese modernization offers a new path and a new option for mankind to achieve modernization” – pointing towards a turn in Georgia’s development path, diverging from the Western model of democratic development and modernization. This opens opportunities for the anti-democratic Georgian government to consolidate its power while still moving towards ‘modernization’ and increasing regional power. Moreover, the burgeoning alignment with China mirrors its entanglement with Russia. The Georgian Dream government not only exhibits a concerning drift towards illiberalism but is also diligently working to enhance ties with Russia. This democratic regression poses a significant risk to Georgia's European aspirations, steering it towards authoritarianism.

The Azerbaijani political ideology also mirrors China’s narratives regarding territorial integrity. Like Georgia, Azerbaijan adheres to the OCP. The conflict regarding Nagorno-Karabakh, de facto Azerbaijani territory but until September 2023 controlled by Armenian separatists, has throughout many years defined Azerbaijan’s foreign policy. China’s narratives surrounding Taiwan and sovereignty resonate deeply within Azerbaijan. In an interview by the China Media Group media corporation, Azerbaijan’s president Ilham Aliyev was asked about Sino-Azeri bilateral relations: “If we take basic issues on global international agenda, [China’s and Azerbaijan’s] positions coincide. They coincide on issues related to sovereignty, independence, territorial integrity, non-interference into affairs of other countries.” (24 July 2023). This quote not only echoes Chinese narratives regarding territorial integrity and sovereignty, but also Russia’s. Especially the latter, regarding non-interference into affairs of other countries, is a veiled criticism of NATO and EU expansions.

Azerbaijan, alongside Türkiye and other Central Asian countries, appear willing to overlook China's human rights abuses and possible crimes against humanity against the Uyghur population in Xinjiang. From a geo-strategic standpoint, Azerbaijan, under Aliyev's autocratic rule, prioritizes regime survival and power maximization. Criticizing China's human rights practices holds little appeal, as aligning with China serves Azerbaijan's interests in building a world where military might takes precedence over rules-based liberal values. The alliance with China represents a strategic move toward these goals, illustrating the pragmatic approach adopted by Azerbaijan in the pursuit of its national interests.

The Nagorno-Karabakh conflict was a possible contention point for Chinese and Russian tools of power. China, prioritizing stability to foster business opportunities, finds itself at odds with Russia's approach in the region. Russia, aiming to maintain unresolved tensions in Nagorno-Karabakh, seeks to retain influence and a legal basis for troop presence. In 2022, China's UN Ambassador, Geng Shuang, addressed Nagorno-Karabakh developments, emphasizing the importance of regional peace and stability: “Armenia and Azerbaijan are inseparable neighbors. Maintaining stable bilateral relations and developing forward-looking friendly cooperation is not only in the fundamental interests of the two countries and the two peoples, but also conducive to peace and stability of the whole region.”

On December 7, 2023, Armenia and Azerbaijan released a joint statement, providing renewed hope for comprehensive peace between the two nations. Notably, this breakthrough was achieved through direct bilateral negotiations between Baku and Yerevan, without the involvement of any third party. Prior to this, both sides had voiced criticism towards Russia, traditionally seen as the peace broker in the region. The pursuit of peace and normalization aligns with the interests of both Yerevan and Baku, offering opportunities for economic development and diminishing Russia's principal tool of hybrid warfare in the region. This development also opens doors for China. As the region stabilizes, the normalization of Armenian-Azerbaijani relations could create avenues for cooperation and investment within the BRI framework.

China's expanding influence in the South Caucasus has been met with relative calmness from Moscow, particularly evident in the case of Georgia; while Russia displayed hostility towards Georgia's NATO application and EU membership process, its attitude towards Georgian and Chinese tightening bonds has been less apprehensive. The convergence of narratives and worldviews between Russia and China becomes apparent, particularly evident in China's stance toward Russia's actions in Ukraine. Both nations share similar perspectives on global politics, considering NATO and similar organizations as significant threats to their own national security. China is increasingly portraying NATO and “NATO-like organizations” as a serious threat to its own security, emphasizing narratives regarding “indivisible security” and the need to respect the security concerns of all nations. These narratives align with Russia’s perception on NATO and the West as the main driver of insecurity and aggression in the world. In their joint struggle against the “US global hegemony”, China and Russia find themselves as partners.

However, both Russia and China harbor maximalist ambitions of attaining global superpower status, and neither is likely to willingly share power in its respective sphere of influence. While Moscow is currently preoccupied with Ukraine, its long-term goals for the entire post-Soviet space remain unchanged. The strategic partnership between China and Russia, born out of convenience in their shared resistance against U.S. hegemony, may not endure indefinitely. While beneficial in their current struggle, the partnership is unlikely to withstand the complexities of the relationship. The dynamics in the Southern Caucasus is a microcosm of some of these complexities, highlighting the tenuous grounds on which China and Russia are standing united.

Another concerning trend unfolding in the South Caucasus is China's integration into an already troubling bloc of authoritarian powers in the region. Iran, Russia, and Türkiye are solidifying their influence through the BRI and the Middle Corridor, investing significantly in critical infrastructure. China’s entry fosters collaboration with Russia and bolsters their collective aspirations of forging an illiberal coalition to counterbalance the EU. The authoritarian bloc underscores Russia and China's shared long-term strategic goals, coupled with their resistance against perceived U.S. hegemony and the established “liberal world order.” As they explicitly designate the U.S. as their adversary, and by extension, the West and the EU, the Russia and China’s partnership aims to consolidate power and challenge existing geopolitical dynamics.

Azerbaijan, strategically positioned, emerges as a pivotal player in this coalition. While it is carefully maintaining its neutrality, it is also showcasing a growing alignment with China – particularly underscoring the two countries’ “shared values”. While these shared values are not necessarily the same as China and Russia’s worldview, Azerbaijan might inadvertently be pulled into the “us-against-them” mindset purported by Russia and China, as it forges closer relations with them.

Conclusions and Policy Implications

The regional dynamics of Southern Caucasus are changing. As Russia’s power is waning, others are moving to fill the vacuum. Simultaneously, however, are the countries in the region themselves – particularly Azerbaijan and Georgia – “filling the gap” by solidifying power through trade agreements and strategic partnerships. As they do, Azerbaijan and Georgia are looking to diversify their trade agreements, focusing not only on the EU but also eastward, on China and on the BRI. Becoming vital on the trade routes from Asia to Europe is a priority for both Azerbaijan and Georgia.

For the EU, these developments have a few consequences: first, the power dynamics between Russia and China in the Southern Caucasus showcase both strengths and weaknesses of their strategic partnership. The question is not if Russia will react to its diminishing regional power, but rather how and when; Russia will undoubtedly turn its attention back to the South Caucasus and there is significant risk that it will respond forcefully to China’s rising power; although there is some precedent in Central Asia, where China and Russia are carefully balancing and navigating each other in order to manage their differences, Russia’s influence in its “near abroad” is a sore spot and a potential powder keg for the Sino-Russian relationship. Perhaps the most significant risk, however, is that Russia targets the countries in the South Caucasus and the Middle Corridor itself with hybrid methods, in order to disrupt the trade flow and once again make themselves relevant as a trade partner, a potentially catastrophic scenario for both the South Caucasus countries and the EU.

Second, the European path of the South Caucasus is increasingly at risk. Especially Georgia’s, whose democratic backsliding is raising alarm bells across the EU, and China’s budding partnership is worrying. With the development of the Middle Corridor in Georgia, its role as a transit state for cargo and energy will be rising, increasing its relative power in the region. By strengthening these ties, the unattainability of EU membership might no longer matter at some point, opening up for a revision of Georgia’s foreign policy.[4] Armenia, looking for a stable partner in place of Russia, could easily turn to China in order to increase its relative power and break the isolation it experienced on behalf of Russian and Azerbaijani efforts of strategic isolation.

Third, and lastly, as other powers are investing into the Southern Caucasus, an authoritarian bloc consisting of Russia, China, Iran, Türkiye, and Azerbaijan is consolidating on the EU’s borders. Russia and China are forming a strategic partnership with the explicit goal of opposing the “US-led liberal world order” and counteract the “power-hungry” US. The EU needs a comprehensive plan on how to navigate the new dynamics that are emerging in the region – and seriously consider whether it is a good idea to become dependent on one or several of the countries of this authoritarian bloc. Furthermore, anti-Western narratives and sentiments are permeating the South Caucasus region, where both Georgia and Azerbaijan are taking geopolitical stances away from the EU: Georgia, for instance, is willing to adhere to China’s model for modernization, a model in which democratic development is non-existent. The EU’s long-term strategic and ideological goals of global democratic development are, as it stands, becoming increasingly unattainable as China is advancing in the South Caucasus.

Notes

[1] Note that trade data until 2023 are gathered from UN Comtrade, while 2023’s data are gathered from the General Administration of Customs of the People’s Republic of China. Russia stopped publishing its customs data in April 2022. Chinese customs data should of course be treated with caution.

[2] As it stands now, if there is normalization between Armenia, Türkiye, and Azerbaijan, it could be possible to connect railways between three countries – instead threatening Georgia’s status as a transit hub on the Middle Corridor.

[3] Source: data from UN Comtrade.

[4] There is still powerful political and popular support for EU membership in Georgia, to which the government still must take heed.

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