BAKU, Azerbaijan, August 6. A diplomatic turning point may be quietly approaching in the South Caucasus. According to reports, Azerbaijani President Ilham Aliyev and Armenian Prime Minister Nikol Pashinyan could meet at the White House this week to discuss what may be the most consequential breakthrough in the region since the collapse of the Soviet Union: a preliminary agreement, formally ending decades of hostility between their two countries.
For U.S. President Donald Trump, who has made conflict resolution a key foreign policy priority ahead of the 2026 election, facilitating this deal could deliver a symbolic foreign policy win. His administration has invested considerable diplomatic capital since early July to mediate between Baku and Yerevan — an effort that culminated in a U.S.-drafted 12-point proposal, reportedly leaked to The Washington Post, centered on mutual recognition of borders, demarcation mechanisms, and international security guarantees. Notably, Washington has offered to act as both facilitator and guarantor — a first in this long-standing dispute.
While previous peace efforts have faltered, the geopolitical context is now ripe for change. Russia, the traditional power broker in the region, is increasingly preoccupied with its war in Ukraine and weakened influence across the former Soviet space. This has created an opening for the U.S., the EU, and Türkiye to push for a post-conflict framework that is as much about integration as it is about reconciliation.
From battleground to transport hub
A genuine peace between Armenia and Azerbaijan would transform more than just bilateral relations. It would reshape the geoeconomic architecture of the entire South Caucasus — a region that sits at the intersection of Europe, Central Asia, and the Middle East. This is where pipelines meet railways, where high-voltage lines run parallel to ancient trade routes, and where geopolitics and logistics are inseparable.
A signed treaty would unlock a cascade of infrastructure and investment opportunities. Central among them is the Zangezur corridor — a transport link connecting mainland Azerbaijan to its Nakhchivan, then onwards to Türkiye and Europe. According to the International Transport Forum, regional freight turnover could increase by 30–40% over the next five years if these routes are fully modernized and reopened. Azerbaijan alone estimates that the Zangezur corridor could handle up to 15 million tons of cargo annually.
For Armenia, historically isolated due to closed borders with both Azerbaijan and Türkiye, peace could provide a lifeline. Restoring rail lines like the Yerevan-Julfa-Ordubad-Meghri-Horadiz route would offer Armenian exporters access to Iranian, Indian, Chinese, and Central Asian markets. According to the World Bank, Armenia’s economic blockade costs it over 2.5% of GDP annually — nearly $400 million — a figure that could be reversed if borders reopen and trade resumes. Some projections suggest Armenian exports could double within five years under a peace dividend scenario.
Energy, investment, and connectivity
The South Caucasus is already an energy corridor of global significance. The Southern Gas Corridor — spanning the Caspian to Europe via Azerbaijan, Georgia, and Türkiye — delivered 17% of the EU’s gas imports in 2024, with that share expected to reach 25% by 2030. But further development hinges on regional stability. Discussions around expanded gas flows from Turkmenistan and the potential for regional electricity markets underscore the urgency of securing peace.
Armenia, long reliant on Russian energy and political patronage, stands to gain a strategic alternative. Access to Azerbaijani gas (potentially through Nakhchivan) could reduce its dependency on volatile Russian supplies and ease long-term inflationary pressures on Armenian consumers. Shared infrastructure — if handled pragmatically — could replace zero-sum security postures with interdependence.
The broader investment picture is equally compelling. A 2024 McKinsey report estimated that unresolved conflicts cost the South Caucasus up to $7 billion annually in lost foreign direct investment. Multinationals hesitate to enter markets where ceasefires can collapse overnight. But a stable, demarcated region could attract investment across sectors: logistics, green energy, agribusiness, and tourism among them.
Azerbaijan is already laying the groundwork. Baku is transforming parts of the liberated Karabakh region into specialized economic zones: Agdam as a tech cluster, Fuzuli as a logistics hub, and Lachin and Kalbajar as a renewable energy center. If Armenia normalizes relations, its businesses could eventually participate in such projects — a step that would require not just political agreement, but also vision.
A post-Russian order?
Beyond economics, this moment marks a geopolitical rebalancing. Should a peace deal be signed without Moscow’s involvement, it would be the first major post-Soviet agreement in the South Caucasus reached without Russian mediation — and a clear sign that the Kremlin’s influence is eroding.
This has broad implications. For the U.S., it would represent a rare opportunity to reshape security dynamics in Eurasia. For the EU, it offers a corridor bypassing Russia and Iran — an existential issue in the wake of sanctions, supply chain shocks, and strategic decoupling from Moscow. For Türkiye, the Zangezur corridor is a strategic ambition: a direct land route to the Turkic world and the realization of Central Asia connectivity plans that underpin Ankara’s broader regional doctrine.
Iran remains ambivalent. While Tehran fears being sidelined by Zangezur, Iranian analysts estimate that open borders could bring in $1.5 billion annually for Iranian logistics operators via increased trade with the Caucasus and Central Asia. A peaceful South Caucasus is not necessarily a threat — it may well be a lucrative opportunity.
Gulf states are watching closely too. The UAE is investing heavily in Georgian ports and has shown interest in expanding through Azerbaijan. Saudi Arabia is eyeing overland routes that bypass Iran altogether. Peace in the Caucasus is a prerequisite for such ambitions.
Humanitarian stakes
The stakes are not just strategic — they are deeply human. Over 12,000 displaced Azerbaijanis have already returned to Karabakh as part of the government’s “Great Return” program. But hundreds of thousands more remain in limbo, their futures dependent on the durability of peace. In Armenia, economic stagnation, closed borders, and mass emigration have contributed to a social malaise. In 2024, UNICEF reported that 37.6% of Armenian children lived below the poverty line — the highest in the South Caucasus. Reopening trade and employment opportunities could reverse this trend.
More importantly, peace could foster generational reconciliation. Shared infrastructure can mean shared interests. Cross-border university programs, retraining schemes, and cultural exchanges could begin rebuilding trust between societies that have only known conflict.
The cost of failure
The alternative is bleak. Rising revanchism in Armenia, pressure from nationalist hardliners in both countries, and unresolved territorial sensitivities threaten to derail the process. Without a formal agreement, even minor incidents along the border could spiral into renewed hostilities — with devastating economic and humanitarian consequences.
The South Caucasus risks becoming yet another example of frozen conflict morphing into perpetual instability — a lesson already writ large in Ukraine. But the Balkans offer a more hopeful model: that with political courage, international support, and a focus on development, even post-war regions can integrate and thrive.
The road ahead
Peace in the South Caucasus should not be seen as the end of conflict — but as the beginning of reconstruction. A signed memorandum in Washington would need to be followed by rapid, tangible steps: infrastructure financing, border demarcation, customs protocols, joint commissions, and investor guarantees.
Azerbaijan appears ready. It has shifted focus from battlefield victories to rebuilding lives, spending billions on reconstruction and connectivity. It is now waiting for Yerevan to show political resolve.
Ultimately, this is not just about two countries normalizing relations. It is about turning the South Caucasus from a geopolitical cul-de-sac into a Eurasian crossroads. If Washington succeeds, it won’t just be a diplomatic win. It will be the start of a new economic geography — one where roads matter more than resentments, and the past finally gives way to the future.