Murad Nasibbeyli

Policy Analyst


28.08.2018 / What could be potential risks of sanctions on the regional powers for Azerbaijan?

When Azerbaijan restored its independence in 1991, it had only one neighbour facing Western sanctions - Iran. But now Azerbaijan finds itself surrounded by 3 US-sanctioned countries, namely Iran, Russia, and Turkey, all of which are key regional players, with the latter two being key economic partners. Undoubtedly, such a situation has specific economic and political implications, not only for the country’s foreign policy but also its economy and internal politics. This article attempts to analytically explore just the potential political impact of the situation for Azerbaijan while leaving aside economic implications and issue-based analyses. Before doing that, it is important to elaborate on the most recent state of US sanctions on Iran, Russia, and Turkey, as well as Europe’s position.

US Sanctions on Iran

Iran has a long history of US sanctions, starting with the hostage crisis in 1979. It was not until 2013 that negotiations began between Iran and six nations, including the US, the UK, China, France, Russia and Germany. A deal was struck in 2015, with sanctions being lifted in 2016. However, this did not last long.

On 8 May 2018, Donald Trump signed a National Security Presidential Memorandum which unilaterally withdrew the US from the Joint Comprehensive Plan of Action (JCPOA) reached between Iran and other six nations on the former’s nuclear program. This memorandum foresaw re-imposing and revoking specific sanctions on Iran, which were lifted to effectuate the JCPOA sanctions relief, on or after 7 August 2018, or on or after 5 November 2018, following 90-day and 180-day wind-down periods. The first batch targets trading in automobiles, gold, and other metals; the second, Iran’s oil exports and transactions with the central bank.

US Sanctions on Russia

Since 2014, Russia has faced wave after wave of US and EU sanctions due to its interference in the eastern regions of Ukraine and its annexation of Crimea. However, the Trump administration, despite inconsistencies in its policy towards Russia, has been particularly eager to impose further sanctions on Russia.

On 6 April 2018, the US imposed a new wave of sanctions on Russia, covering seven Russian oligarchs, 12 businesses, and 17 government officials. These groups were put on the Treasury's Specially Designated Nationals (SDN) list, freezing their U.S. assets and forbidding U.S. persons and companies from doing business with them. This was then followed by yet another wave of sanctions on 11 June 2018, targeting five Russian companies and three individuals, some of whom are accused of directly supporting Russia’s intelligence agency, the Federal Security Service, in its efforts to carry out cyber-attacks.

On 15 August, the US government introduced new sanctions on Russia's port service agency, Profinet Pte Ltd, and the company's director general, Vasili Kolchanov, a Russian national, along with two shipping companies in Singapore and China, for violating restrictions on trade with Pyongyang. According to the US government, the company has provided port services at least six times to DPRK-flagged vessels that had been previously sanctioned.

More importantly, on 8 August 2018, the US announced a new wave of sanctions on Russia over the Salisbury nerve agent attack, starting around August 22, about a month after a congressionally mandated deadline. The new wave of sanctions will limit exports to Russia of goods and technology considered to be sensitive on national security grounds, which will add up to hundreds of millions of dollars in export.

“Pastor” Crisis between the US and Turkey

On 1 August, the US imposed sanctions on two Turkish ministers over the continued detention of an American pastor in Turkey, Andrew Brunson. He had been arrested in 2016 and accused of being a spy with links to the outlawed Kurdistan Workers’ Party (PKK) and to Pennsylvania-based Muslim preacher Fethullah Gulen, whom Turkish authorities blame for the coup attempt. Before that, in June, the US Senate decided to withhold the delivery of F-35 fighter jets to Turkey as long as Brunson is not released.

After a round of failed talks between the sides, the US doubled aluminium and steel tariffs against Turkey, all of which have harshly hit the Turkish lira. Turkey responded with retaliatory sanctions on two American officials and President Erdogan called for the boycott of US electronic products. Thus far, there is no sign of either side giving in. On the contrary, on 17 August, Trump threatened Turkey with new sanctions, while Turkey pledges to respond in kind to any US sanctions or tariffs. On 17 August, the Turkish court rejected Brunson’s appeal for release. The Turkish government does not seem to be willing to bow to US sanctions, while the Trump administration is unlikely to stop insisting on the release of the American pastor. In July, in one of his speeches, President Erdogan hinted at a plan to swap Brunson for Turkish cleric Fethullah Gulen, who is based in Pennsylvania. However, swapping Brunson and four other US citizens detained in Turkey for Hakan Atilla, a Turkish banker jailed for violating US sanctions against Iran is reported to be on the table, and seems to be the more viable option of the two.

Europe’s position

Europe does not seem to be in agreement with the US regarding sanctions. Although both the EU and the US agreed to impose economic sanctions on Russia in 2014, since then, different voices have emerged within the EU.

Regarding the US sanctions on Russia, diverse voices can be heard in Europe, particularly in Germany, where companies are said to suffer from these sanctions. Germany reportedly sought special treatment from the US over the sanctions on Russia, as it is hugely dependent on materials imported from Russia. In addition to the US sanctions, the EU has also imposed what it calls “restrictive measures” on Russia in response to the annexation of Crimea by the latter. On 5 July 2018, following a meeting between President Macron and Chancellor Merkel, the European Councils extended the restrictive measures imposed on Russia until 31 January 2019. However, not all European politicians have taken as strict a stance on the issue as Chancellor Merkel, both at local levels and national levels.

The US’ decision to re-impose and revoke sanctions on Iran was not welcomed in Europe, in particular France, whose energy giant “Total” have signed a 5 billion deal with Iran and whose airplane manufacturer “Airbus” has already been delivering jets to Iran Air under a multi-billion contract, resulting in increased tensions between the EU and the US. A meeting was held in Vienna on 6 July 2018, chaired by the EU High Representative Federica Mogherini and attended by the foreign ministers of China, France, Germany, Russia, and the UK, as well as the Iranian Minister of Foreign Affairs. The JPOA Joint Commission reaffirmed their commitment to the deal, despite the US’s unilateral withdrawal. The appeal by Britain, France, and Germany for the exemption of European companies was also rejected by the US. As of 7 August, the EU deployed its old but updated tool - the “blocking statute” - to nullify US legal actions against European companies in connection with Iran, the effectiveness of which is largely controversial. This tension added to the trade war between the US and the EU, which only seemed to slow down with Donald Trump and European Union officials stepping back from a trade war as they struck a deal to work towards “zero” tariffs, barriers and subsidies on 25 July, despite being short on details.

Turkey, Russia, and Iran are three large economies in Europe’s neighbourhood and therefore, unlike the US, it is not generally in the interest of Europe’s business to have them sanctioned. Following the eruption of the “Pastor” crisis between the US and Turkey, German Chancellor Angela Merkel expressed interest in the stabilisation of Turkish economy at a conference in Berlin. Amid the “Pastor” crisis, French president Macron also gave support to developing Franco-Turkish economic ties in a phone conversation with his Turkish counterpart. All this came when Taner Kilic, former Chairman of Amnesty International’s Turkey office, and two Greek soldiers were released by Turkey, an issue which had previously caused similar tensions between Turkey and the EU.

Potential risks for Azerbaijan

All these sanctions bear both economic and political implications for Azerbaijan, as Azerbaijan is neither economically and nor politically isolated from regional or global economies and politics. The nose-dive of the Iranian rial, the Russian ruble, and the Turkish lira undoubtedly affect Azerbaijan’s economy, which had not yet recovered fully from the fall of oil prices in the world markets in 2014. However, as already stated above, it is not the aim of this article to discuss economics, but rather general political implications in the light of discussions made in the paragraphs above. The potential political consequences of sanctions will be considered in the three mutually related contexts of regional geopolitics, democratisation, and the Azerbaijan-Armenia conflict.

Given the size of the country and its limited importance in world politics, the regional geopolitical context appears to be the most relevant for this analysis. Besides being a regional power, Turkey emerged long ago as a face of West, balancing Russia’s and Iran’s influences in the South Caucasus region since the collapse of the Soviet Union. In recent years, growing tension between Turkey and the West over several issues, as well as the general drift of Turkish foreign policy away from the West, have already ended this.

When Azerbaijan’s two most influential partners are in confrontation with West, facing US sanctions, it would be natural to observe growing anti-West sentiments within the Azerbaijani government and society, which have indeed occurred from time to time in recent years. Taken together Russian and Turkish confrontation with West, in a sense, provides a kind of shield to anti-West sentiments in Azerbaijan.

In particular, possible future increases to US sanctions on Turkey would trigger more scepticism towards West in Azerbaijani society, where the majority of the population is exposed to Turkish government’s discourses through Turkish TV channels, and many support Turkish President Erdogan’s stance. If the nose-dive of the Turkish lira is also significantly felt in Azerbaijani society, which is no less probable, this would further contribute to the growth of anti-West sentiments in the parts of society where the Turkish government’s discourse is embraced. Such a situation could pave the way for further strengthening of pro-Russian ties in the country.

In these conditions, it emerges as an essential strategy for local European representatives in the country to distance themselves from US sanctions and better communicate their message to Azerbaijani society. Considering that democratic forces in the country are usually equated with a pro-Western stance, US sanctions on Turkey could serve to marginalise them in society further, too. Therefore, it would be vital for them to show that their pro-democratic stance does not equate to support for US sanctions on Turkey.

In general, it should also be noted that the normalisation of sanctions as a US foreign policy tool on the regional and global level by the Trump administration also raises risks for Azerbaijan, since it has from time to time faced similar calls in both Europe and the US.

Azerbaijan is now not only surrounded with at least-US sanctioned countries, but its neighbours are also facing growing criticisms from West due to their poor human rights records and state of democracy. In particular, with the worsening of respect for human rights, and authoritarian slide in Turkey, there is a strengthening image of a non-democratic and anti-Western bloc in the region, which Azerbaijan appears as part of, along with Turkey, Russia and Iran.

The unilateral withdrawal of the US from the JCPOA and re-imposition of sanctions on Iran challenges the trilateral balance of Azerbaijan, Russia, and Iran. It raises questions about the transport projects between Iran and Azerbaijan, for which Azerbaijan has agreed to provide a $500 million loan. Pursuing such projects could put Azerbaijan in a problematic situation vis-à-vis the United States, although European parties to the JCPOA confirmed their commitment to the deal following the US sanctions. In a recently released statement, the Iranian side excluded the possibility of the railway projects being affected by the US sanctions. Iran has also recently invited Azerbaijan to join a new railroad project that would link the border town of Parsabad in Iran’s Ardabil Province to Mugan Plain in northwestern Iran and the southern part of the Republic of Azerbaijan. However, given the US sanctions, the Azerbaijani government may not be in a hurry to provide a definitive response to this offer.

However, the Southern Gas Corridor has received an exemption from the US sanctions, where Iran’s NICO has a 10% share in the Shah Deniz 2 consortium that is developing Shah Deniz 2 gas deposit – the starting point for the Southern Gas Corridor. Unlike the Southern Gas Corridor, the US and its allies have no interest in the rail projects, which are part of the International North-South Transport Corridor and will instead serve to facilitate trade between Russia and India.

In general, it will be no less challenging for Azerbaijan to respond to growing Russia-supported Iranian cooperation demands and manage their consequences. However, much will also depend on what kind of path Europe will follow regarding cooperation with Iran vis-à-vis US sanctions.

These are but a few suggestions on the general political implications of a new wave of US sanctions in the region on Azerbaijan. By no means does it endeavour to provide a comprehensive frame of analysis; but rather it serves to trigger discussions and debate on said implications.