Executive Summary

Geopolitics in the Caucasus is constantly shifting, showing both division and lasting patterns. Despite pressure and diplomatic confrontation, particularly with Azerbaijan and Armenia, Russia retains influence in the South Caucasus through economic and cultural ties.

While strategically important, Armenia’s Western and EU orientation carries substantial domestic political, economic, and electoral risks. Recent controversies have strained Azerbaijan’s post-2022 strategic partnership with Russia, prompting questions regarding Baku’s foreign policy and ability to sustain an economic confrontation with Moscow.

Through infrastructure development in Abkhazia and seizing political opportunities in Georgia, Russia is merging its power in the Western Caucasus. Asymmetric influence, unresolved hostilities, and fragile equilibria are defining features of the region.

Key Takeaways

1. Despite increasing friction, Moscow still has influence in the South Caucasus through economic and social ties.
2. Armenia’s Western shift faces internal opposition, Russian economic and diplomatic pressure, and an uncertain peace with Azerbaijan.
3. Local arrests of Russian and Azerbaijani citizens, a tourism drop, and project disputes harm Azerbaijan-Russia relations, jeopardising trade and INSTC.

Geopolitical Context

Armenia

• Formal agreements signed in 2025 moved Armenia closer to the European Union, both economically and politically. The agreements include provisions for greater financial help, infrastructure upgrades, and enhanced political cooperation.
• Armenia is still a member of the Eurasian Economic Union (EAEU), and Russia remains one of its key trading partners, particularly in energy, remittances, and logistics. A sudden decoupling from the Russian economy could trigger significant domestic shocks.
• Strong cultural and political links between some Armenians and Russia, coupled with a significant and active Russian community in the Caucasian republic, contribute to ongoing support for alignment with Moscow.
• Rising domestic political crisis in June–July 2025 stemmed from the arrests of opposition figures and religious figures accused of plotting to overthrow the Pashinyan government. These arrests fuel concerns about political stability and the democratic legitimacy of the current government.
• The political future of Armenia may hinge on the 2026 parliamentary elections. Pashinyan’s political coalition may be in jeopardy if his Western-leaning policies do not deliver noticeable economic and security benefits, including a lasting peace agreement with Azerbaijan.

Azerbaijan

• Following the 2022 Declaration on Allied Interaction between Russia and Azerbaijan, both countries maintained strategic coordination, particularly in energy, transport, and regional connectivity.
• Strained relations, highlighted by arrests of Azerbaijanis in Russia, diplomatic fallout, and negative media, have damaged the partnership.
• Strained Baku-Moscow relations could cause a significant drop in Russian tourism to Azerbaijan in 2025, affecting a key revenue stream. Friction could jeopardise Azerbaijan’s role in the International North-South Transport Corridor (INSTC), affecting Moscow’s transport strategy and Baku’s logistic role in Eurasia.
• Despite President Ilham Aliyev’s firm grip on domestic affairs, Azerbaijan needs a more diverse economy and wider range of international partnerships to withstand the economic shocks coming from a contraction of trade with Russia.

Georgia and Abkhazia

• The Sukhum airport’s reopening in May 2025 gives Russia a strategically important base in Abkhazia, boosting both its security and Black Sea transport links.
• In Georgia, the ruling Georgian Dream continues its confrontation with EU institutions. The current local scenario in Georgia offers Moscow a renewed opportunity to expand its influence in the region.
• Political proxies, information operations, and economic incentives are the major ways Moscow is extending its sway over Tbilisi. Georgia’s experience could foreshadow challenges for Armenia as it aligns itself with the West.

Geopolitical Risk Analysis

• Armenia’s Strategic Dilemma. Yerevan’s move toward the EU and US marks a dramatic break from its past reliance on Moscow. However, this trajectory is fraught with uncertainty. Trade, remittances, and the EAEU maintain Armenia’s economic dependence on Russia. Reduced cooperation with Russia, a major energy and financial partner, could destabilise the economy. Pashinyan’s government has invested significant political capital, demanding clear results: lasting peace with Azerbaijan, Western investment, and a stable economy.
  The government’s arrest of political and religious leaders shows growing internal dissent, fuelled by the country’s controversial shift in foreign policy. Pashinyan might face a legitimacy crisis in 2026 if the Armenia-Azerbaijan peace deal fails to deliver long-term security or economic benefits. The risk of political fragmentation, driven by pro-Russian, nationalist, or clerical factions, remains credible.
• Azerbaijan’s Geopolitical Balancing Act. Although Azerbaijan has strong ties to Turkey and has recently been more assertive toward Russia, its economy is still heavily reliant on Russia. The 2022 bilateral strategic agreement, the sizable Azerbaijani diaspora in Russia, and regional transit infrastructure projects all highlight the strong foundation of this relationship.
  Baku’s main long-term goals are economic diversification and greater strategic independence. Cutting ties with Russia, or weakening them, could harm trade, logistics, and regional projects such as the INSTC. Baku requires a finely tuned foreign policy to manage risks and strengthen relationships with Central Asia, Turkey, and China and, simultaneously, strengthen its commercial partnership with European countries.
• Russia’s Asymmetric Position. Although Russia has faced diplomatic challenges in Yerevan and Baku, its leverage remains substantial. Cultural, economic, and strategic interdependencies prevent any rapid severance. Moscow maintains significant relevance because of its geographical location, intelligence network, and continuing influence within organisations such as the CSTO and EAEU. In the Western Caucasus, the Kremlin is exploiting fissures in Western alignment. Reopening the Sukhum airport and renewed efforts to engage Georgian stakeholders provide opportunities to strengthen control of the Black Sea corridor. This two-sided trend, with erosion in some parts of the South Caucasus and consolidation in others, can represent a strategic change, not a retreat.

Indicators to Monitor

• Armenia’s economic performance in energy, remittances, and transport is significantly affected by its trade relationship with Russia.
• Political mobilisation in Armenia related to the 2026 elections and response to peace talks with Azerbaijan.
• Russian-Azerbaijani economic activity: cargo volumes, tourism flows, and public rhetoric around bilateral initiatives.
• Georgian-EU relations and legislative developments under Georgian Dream; public protests and elite alignments.
• Frequency of Russian military or paramilitary activity in Abkhazia and Georgia’s border regions.
• Implementation or delays in INSTC infrastructure linking Dagestan to Azerbaijani transit hubs.

Conclusion

The Caucasus remains a contested and volatile geopolitical theatre. While facing pressure, Russia maintains a significant, albeit diminished, influence in the South Caucasus. Armenia’s shift westward and Azerbaijan’s resistance have changed the regional story, but economic and strategic ties limit their actions. Moscow’s influence in Georgia can increase thanks to the widening political rift between Tbilisi and Brussels.

For Armenia, the path forward is uncertain: it must reconcile economic reality with its strategic ambitions. Georgia’s tense relationship with the EU provides a valuable warning. Balancing a variety of partnerships with its crucial strategic ties is vital for Azerbaijan to maintain its economic and diplomatic independence. Even with its perceived weakening, Russia still wields significant long-term influence and shows adaptability in navigating the increasingly fractured political landscape of the Caucasus.