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DOMESTIC POLITICS - STILL ON THE RUSSIAN PATH FOLLOWING PM SWITCH
Caucasus Business Forecast Report
May 20, 2014 Tuesday
BMI View: The appointment of Hovik Abrahamyan as Prime Minister of
Armenia is unlikely to result in any significant alteration in the
country ' s policy direction. Armenia remains on course to join the
Russian-led customs union, ensuring some degree of military security
but also cementing the country within Moscow ' s sphere of influence.
Following the resignation of Armenian Prime Minister Tigran Sargsyan
in April, we do not believe the new administration of his successor,
former Speaker of the Parliament Hovik Abrahamyan, will engender in
any significant alteration in the country's policy direction. While
cosmetic changes to some policies are likely, the fact that executive
power resides with President Serzh Sargsyan (no relation of the former
Prime Minister), whose second five-year term ends in 2018, means the
country is set to remain on the path towards forging closer political
and economic links with Russia.
Tigran Sargsyan offered no warning in the lead up to, or reason behind,
his sudden resignation on April 3. One possible factor behind his
departure was the large public protests Sargsyan's government had faced
against reforms to Armenia's pensions system, in which payments are
automatically deducted from individuals' salaries. These protests, in
combination with the reported rising exasperation among the Armenian
public regarding the stagnation of the Armenian economy following
the 2008 global financial crisis, could have led to support within
the Cabinet and presidency for Sargsyan draining away.
Security Risks Remain Prevalent Armenia - Short-Term Political Risk
Score and Components, Out of 100
However, a more likely scenario is that given the upcoming accession
of Armenia to the Russian-led customs union, there may have been
increasing pressure from Moscow on President Sargsyan to install a
more openly pro-Russian politician at the head of the Cabinet. Tigran
Sargsyan had been one of the most vocal cheerleaders for furthering
EU Association Agreement talks, and following President Sargsyan's
unexpected volte-face in September, when he announced that Armenia
would instead seek membership of the customs union, the former Prime
Minster may have found his position untenable in light of such a
sharp policy reversal.
While Tigran Sargsyan has publicly stated that his resignation was
his own decision, his departure from office continues the pattern of
increasing Russian influence in Armenian politics and the economy.
This is highlighted by the takeover of Armenian gas firm ArmRusgasprom
by Russian energy-giant Gazprom. The latter already had an 80% share
in the firm, with the remainder being held by the Armenian government.
This takeover ensures that Russian gas supplies will have dominance
in the Armenian power market, despite recent attempts to increase
inflows from Iran.
While an increase in Russian influence is likely to hinder domestic
policy-making, it will ensure a relative degree of security for Armenia
in relation to the ongoing frozen conflict between the country and
neighbouring Azerbaijan over the disputed Nagorno Karabakh region.
The Armenian military remains woefully ill-equipped when compared
to the Azerbaijani armed forces ( see ' Glimmer Of Hope To Prove
Short Lived ' , 8 November 2013), and by joining the customs union
Armenia will likely receive increased military funding from Russia or
an increased Russian troop presence at bases in Armenia. While this
will not resolve the frozen conflict (in our view it will diminish
the prospect of peace talks), it is likely to deter either side from
renewing open hostilities.
Risks To Outlook
Tigran Sargsyan had been Prime Minister from 2008 until April of 2014,
making him the second-longest serving Prime Minister since Armenia
declared independence in 1991. Given the changes within the Cabinet,
we cannot rule out a shift in policy direction. This is most likely
to occur in the field of economic policy, where Karen Chshmarityan
(a former industry and trade minister) and Gagik Khachatryan (former
head of the state revenue committee) have been installed as Economy
and Finance Ministers respectively. There have also been changes to the
ministers for the departments of justice, environment, sport and youth
affairs, energy and natural resources, urban development, and health.
While the individuals promoted are likely to prove loyal to Prime
Minister Abrahamyan and President Sargsyan, we cannot rule out a
shift in specific policies relating to these departments.
Long-Term Political Outlook - Q3 2014
Mitigation Of Regional Tensions Key To Stability
BMI View: Armenia will continue to have difficult relations with
neighbours Turkey and Azerbaijan through the medium term, as a result
of sensitive historical grievances and strong domestic pressure groups
on both sides. Nagorno-Karabakh will remain a particular potential
flashpoint given the high profile of the region and ongoing talks,
which are set to test commitment to peace in both Yerevan and Baku.
The heavy troop presence on both sides of the border will remain a
key risk. That said, the willingness of regional heavyweights Russia
and Turkey to support the ongoing peace process means that a 'hot war'
is not inevitable.
Armenia is a small, landlocked country, mainly surrounded by
hostile or unstable neighbours, which will weigh heavily on the
country's risk profile through the medium term. That said, we hold
a relatively sanguine outlook on Armenia's future, with a gradual
mitigation of regional tensions, strong Russian support and the
potential for reasonable economic growth set to support increased
political stability.
Challenges And Threats To Stability
Nagorno-Karabakh: Armenia's relations with Azerbaijan will remain by
far the single biggest threat to political stability until a resolution
on Nagorno-Karabakh is found. Exchanges of small arms fire between
the countries' armed forces stationed along the border are common;
and an outbreak of war, although far from inevitable, cannot be ruled
out. The situation is exacerbated by the provocative rhetoric often
employed by both sides in relation to the issue.
All Eyes On Nagorno-Karabakh Europe - Map Of Caucasus Region Europe -
Map Of Caucasus Region
Relations With Turkey: Armenia has had no official diplomatic relations
with Turkey since 1993, when its war with Azerbaijan prompted Ankara to
close the border in solidarity with Baku. Although progress has been
made, including the signing of two protocols on the re-establishment
and development of diplomatic relations in October 2009 (yet to
be ratified), the issue of relations with Turkey remains a hugely
sensitive topic in domestic Armenian politics. This is a result of
the early 20th century mass killings of ethnic Armenians by Ottoman
forces, which Armenia refers to as genocide.
Growing Domestic Opposition: Widespread perceptions of fraud during
the February 2008 presidential elections led to mass protests and a
violent crackdown by the authorities. While tensions have subsided,
the subsequent period has seen the growth of a stronger and more active
opposition movement both within parliament and among civil society
and other groups. The presidential election in February 2013 has
generally been regarded as peaceful and received considerable praise
from international observers. However, although this has the potential
for a positive outcome in the long run, the still closed nature of
Armenian politics means that opposition groups have little outlet for
their frustration at present, which poses risks to political stability.
Wealth Disparity: Aside from perceptions of fraud in the political
system, much of the opposition is driven by frustration at the large
wealth disparity in society, which is considered by many to be among
the most pronounced in the region. According to the International
Crisis Group, more than 50% of Armenians live below the poverty line,
which creates the potential for growing resentment among disadvantaged
groups to spill over into outright protest. Poverty is most widespread
and most extreme in rural areas, where as many as one-quarter of
households are supported by family members working abroad, mainly in
Russia. The over-dependence on remittance inflows was highlighted
particularly starkly in 2009 as a result of the downturn in the
Russian economy, which forced many migrant workers to return home,
increasing the burden on public services.
Corruption: The perception of public sector graft has been a major
factor driving resentment against the regime in the past two years.
Armenia's Soviet legacy means administrative practices are inefficient,
highly bureaucratic and open to large-scale abuse. The public sector
functions particularly badly at a local level in rural areas, driving
widespread distrust among the population.
Russian Focus: The decision by the Armenian government to join the
Russia-Belarus-Kazakhstan customs union may improve security prospects
in the medium term, with Russian troops set to remain on Armenian
soil for the foreseeable future. However without a strong European
Union policy anchor we may see the drive for further democratisation
and economic development slow in the coming years.
Political Risk Ratings
Our long-term political risk rating for Armenia is 59.6 out of 100,
placing it 17th out of 31 countries in emerging Europe. That said,
it ranks higher than neighbours Russia (57.0), Azerbaijan (49.0)
and Georgia (46.8).
Armenia is strongest on our 'characteristics of society' component,
where it scores 77.5 out of 100, reflecting its highly homogeneous
society and relative lack of religious or ethnic tensions. It also
scores well (60.0 out of 100) for 'policy continuity', given its broad
historical policy stability. Weaker is the 'scope of state' component,
where it scores 55.0 out of 100. This reflects low government spending
on infrastructure and development (due in part to poor tax collection)
and the extent to which policy is influenced by neighbouring states,
particularly Turkey and Azerbaijan.
Scenarios For Political Change
Until 2008, the Armenian population had appeared willing to accept
regular flawed elections and a lack of democratic accountability, with
disengagement and apathy dominant. However, following the February
2008 presidential elections, something of an awakening took place as
thousands of supporters of Levon Ter-Petrossian, the main opposition
candidate, took to the streets to protest against the result. This
culminated in violent clashes with the police, resulting in hundreds
of arrests and more than 100 prosecutions of opposition supporters.
Although there has been no repeat of protests on this scale, the
Armenian population has nevertheless shown itself to be increasingly
engaged in politics in the past four years, demonstrated by a
pronounced increase in the number and profile of protest groups. This
has been met by restrictions on political groups and further efforts
to censor the media, although the 2013 presidential elections were
praised by international observers.
As a result of this and ongoing regional tensions, Armenia faces
a daunting set of external and domestic political challenges over
the next decade. A strengthening and united opposition at home, and
continuing tensions with powerful and aggressive neighbours (Turkey and
Azerbaijan respectively), will provide a stern test of the country's
institutions and the leader's abilities. Despite the clear risks of
further instability, however, we have a relatively sanguine outlook
on political stability and believe that significant potential exists
for democratic advances at home and a mitigation of tensions abroad.
Best Case Scenario - Big Strides Forward: The best case scenario
for Armenia over the next 10 years, and one that we feel is eminently
possible, is for a significant mitigation of domestic and international
political risk factors. At home, this has been backed up by the
successful presidential election in February 2013 that was free of
major irregularities and allowed a smooth transition of power.
Under this scenario, the domestic opposition would continue to
channel its views through parliament and a broader development of
the legal and regulatory framework would take place. This would mean
increased meritocracy and efficiency, boosting public trust in state
institutions and therefore mitigating the risks of further outbreaks
of public protest.
Internationally, this would require a major breakthrough on
Nagorno-Karabakh, which will be extremely difficult given the lack of
common ground on many aspects of the dispute between Yerevan and Baku.
A land corridor between Armenia and Nagorno-Karabakh and the terms of
a referendum for the enclave's inhabitants will remain the biggest
sticking points. Any significant progress on Nagorno-Karabakh would
increase the potential for the ratification of two protocols on the
re-establishment and development of diplomatic relations with Turkey,
which have stalled since October 2009.
Lachin A Solution Europe - Map Of Nagorno-Karabakh & Surrounding Area
Europe - Map Of Nagorno-Karabakh & Surrounding Area
Should these scenarios play out, we would expect a vast improvement
in Armenia's risk profile, increasing investor confidence in
the country and boosting foreign direct investment inflows. More
importantly, a mitigation of regional tensions would allow vast
new trade opportunities, particularly with Turkey, paving the way
for a significantly higher growth trajectory. The upshot of all of
this would be rising per capita incomes across the board, boosting
living standards.
Intermediate Scenario - 'Same Old': Our intermediate scenario,
and one that we also feel has a strong chance of playing out, is a
continuation of the status quo. Certainly, with progress on relations
with Azerbaijan and Turkey threatening to aggravate domestic and
regional tensions, we expect governments on all sides to remain
extremely cautious. Domestically, the government may also decide to
resist calls for political and legal reform.
Should this scenario play out, we would expect it to limit Armenia's
growth potential through the medium term. Ongoing tensions with
Azerbaijan over Nagorno-Karabakh, as well as continued deadlock
with Turkey, would keep investor risk aversion elevated and severely
limit Armenia's export growth potential. This, in combination with
frustration over the lack of reform at home, would likely increase
domestic political tensions, with further public protests possible.
Worst Case Scenario - Armed Conflict: We refuse to rule out the
possibility of further armed conflict between Armenia and Azerbaijan.
Large troop presences on both sides of the border, heightened
sensitivity and provocative statements from the two parties have
served to keep tensions high, which have often resulted in exchanges
of small arms fire in the past. We highlight the potential for this to
escalate into a bigger conflict, particularly given Azerbaijani threats
to use all means to win back Nagorno-Karabakh if diplomatic efforts
fail. However, this remains an outside bet for two main reasons. First,
the Armenian army remains fairly well equipped and trained, thanks to
Russian support, which is likely to dissuade Azerbaijan from launching
an attack. Second, regional powers Russia and Turkey have gradually
stepped up their involvement in the conflict in the past two years
and we expect the leverage that Moscow and Turkey have over Armenia
and Azerbaijan respectively to prevent an outbreak of full-scale war.
Caucasus Business Forecast Report
May 20, 2014 Tuesday
BMI View: The appointment of Hovik Abrahamyan as Prime Minister of
Armenia is unlikely to result in any significant alteration in the
country ' s policy direction. Armenia remains on course to join the
Russian-led customs union, ensuring some degree of military security
but also cementing the country within Moscow ' s sphere of influence.
Following the resignation of Armenian Prime Minister Tigran Sargsyan
in April, we do not believe the new administration of his successor,
former Speaker of the Parliament Hovik Abrahamyan, will engender in
any significant alteration in the country's policy direction. While
cosmetic changes to some policies are likely, the fact that executive
power resides with President Serzh Sargsyan (no relation of the former
Prime Minister), whose second five-year term ends in 2018, means the
country is set to remain on the path towards forging closer political
and economic links with Russia.
Tigran Sargsyan offered no warning in the lead up to, or reason behind,
his sudden resignation on April 3. One possible factor behind his
departure was the large public protests Sargsyan's government had faced
against reforms to Armenia's pensions system, in which payments are
automatically deducted from individuals' salaries. These protests, in
combination with the reported rising exasperation among the Armenian
public regarding the stagnation of the Armenian economy following
the 2008 global financial crisis, could have led to support within
the Cabinet and presidency for Sargsyan draining away.
Security Risks Remain Prevalent Armenia - Short-Term Political Risk
Score and Components, Out of 100
However, a more likely scenario is that given the upcoming accession
of Armenia to the Russian-led customs union, there may have been
increasing pressure from Moscow on President Sargsyan to install a
more openly pro-Russian politician at the head of the Cabinet. Tigran
Sargsyan had been one of the most vocal cheerleaders for furthering
EU Association Agreement talks, and following President Sargsyan's
unexpected volte-face in September, when he announced that Armenia
would instead seek membership of the customs union, the former Prime
Minster may have found his position untenable in light of such a
sharp policy reversal.
While Tigran Sargsyan has publicly stated that his resignation was
his own decision, his departure from office continues the pattern of
increasing Russian influence in Armenian politics and the economy.
This is highlighted by the takeover of Armenian gas firm ArmRusgasprom
by Russian energy-giant Gazprom. The latter already had an 80% share
in the firm, with the remainder being held by the Armenian government.
This takeover ensures that Russian gas supplies will have dominance
in the Armenian power market, despite recent attempts to increase
inflows from Iran.
While an increase in Russian influence is likely to hinder domestic
policy-making, it will ensure a relative degree of security for Armenia
in relation to the ongoing frozen conflict between the country and
neighbouring Azerbaijan over the disputed Nagorno Karabakh region.
The Armenian military remains woefully ill-equipped when compared
to the Azerbaijani armed forces ( see ' Glimmer Of Hope To Prove
Short Lived ' , 8 November 2013), and by joining the customs union
Armenia will likely receive increased military funding from Russia or
an increased Russian troop presence at bases in Armenia. While this
will not resolve the frozen conflict (in our view it will diminish
the prospect of peace talks), it is likely to deter either side from
renewing open hostilities.
Risks To Outlook
Tigran Sargsyan had been Prime Minister from 2008 until April of 2014,
making him the second-longest serving Prime Minister since Armenia
declared independence in 1991. Given the changes within the Cabinet,
we cannot rule out a shift in policy direction. This is most likely
to occur in the field of economic policy, where Karen Chshmarityan
(a former industry and trade minister) and Gagik Khachatryan (former
head of the state revenue committee) have been installed as Economy
and Finance Ministers respectively. There have also been changes to the
ministers for the departments of justice, environment, sport and youth
affairs, energy and natural resources, urban development, and health.
While the individuals promoted are likely to prove loyal to Prime
Minister Abrahamyan and President Sargsyan, we cannot rule out a
shift in specific policies relating to these departments.
Long-Term Political Outlook - Q3 2014
Mitigation Of Regional Tensions Key To Stability
BMI View: Armenia will continue to have difficult relations with
neighbours Turkey and Azerbaijan through the medium term, as a result
of sensitive historical grievances and strong domestic pressure groups
on both sides. Nagorno-Karabakh will remain a particular potential
flashpoint given the high profile of the region and ongoing talks,
which are set to test commitment to peace in both Yerevan and Baku.
The heavy troop presence on both sides of the border will remain a
key risk. That said, the willingness of regional heavyweights Russia
and Turkey to support the ongoing peace process means that a 'hot war'
is not inevitable.
Armenia is a small, landlocked country, mainly surrounded by
hostile or unstable neighbours, which will weigh heavily on the
country's risk profile through the medium term. That said, we hold
a relatively sanguine outlook on Armenia's future, with a gradual
mitigation of regional tensions, strong Russian support and the
potential for reasonable economic growth set to support increased
political stability.
Challenges And Threats To Stability
Nagorno-Karabakh: Armenia's relations with Azerbaijan will remain by
far the single biggest threat to political stability until a resolution
on Nagorno-Karabakh is found. Exchanges of small arms fire between
the countries' armed forces stationed along the border are common;
and an outbreak of war, although far from inevitable, cannot be ruled
out. The situation is exacerbated by the provocative rhetoric often
employed by both sides in relation to the issue.
All Eyes On Nagorno-Karabakh Europe - Map Of Caucasus Region Europe -
Map Of Caucasus Region
Relations With Turkey: Armenia has had no official diplomatic relations
with Turkey since 1993, when its war with Azerbaijan prompted Ankara to
close the border in solidarity with Baku. Although progress has been
made, including the signing of two protocols on the re-establishment
and development of diplomatic relations in October 2009 (yet to
be ratified), the issue of relations with Turkey remains a hugely
sensitive topic in domestic Armenian politics. This is a result of
the early 20th century mass killings of ethnic Armenians by Ottoman
forces, which Armenia refers to as genocide.
Growing Domestic Opposition: Widespread perceptions of fraud during
the February 2008 presidential elections led to mass protests and a
violent crackdown by the authorities. While tensions have subsided,
the subsequent period has seen the growth of a stronger and more active
opposition movement both within parliament and among civil society
and other groups. The presidential election in February 2013 has
generally been regarded as peaceful and received considerable praise
from international observers. However, although this has the potential
for a positive outcome in the long run, the still closed nature of
Armenian politics means that opposition groups have little outlet for
their frustration at present, which poses risks to political stability.
Wealth Disparity: Aside from perceptions of fraud in the political
system, much of the opposition is driven by frustration at the large
wealth disparity in society, which is considered by many to be among
the most pronounced in the region. According to the International
Crisis Group, more than 50% of Armenians live below the poverty line,
which creates the potential for growing resentment among disadvantaged
groups to spill over into outright protest. Poverty is most widespread
and most extreme in rural areas, where as many as one-quarter of
households are supported by family members working abroad, mainly in
Russia. The over-dependence on remittance inflows was highlighted
particularly starkly in 2009 as a result of the downturn in the
Russian economy, which forced many migrant workers to return home,
increasing the burden on public services.
Corruption: The perception of public sector graft has been a major
factor driving resentment against the regime in the past two years.
Armenia's Soviet legacy means administrative practices are inefficient,
highly bureaucratic and open to large-scale abuse. The public sector
functions particularly badly at a local level in rural areas, driving
widespread distrust among the population.
Russian Focus: The decision by the Armenian government to join the
Russia-Belarus-Kazakhstan customs union may improve security prospects
in the medium term, with Russian troops set to remain on Armenian
soil for the foreseeable future. However without a strong European
Union policy anchor we may see the drive for further democratisation
and economic development slow in the coming years.
Political Risk Ratings
Our long-term political risk rating for Armenia is 59.6 out of 100,
placing it 17th out of 31 countries in emerging Europe. That said,
it ranks higher than neighbours Russia (57.0), Azerbaijan (49.0)
and Georgia (46.8).
Armenia is strongest on our 'characteristics of society' component,
where it scores 77.5 out of 100, reflecting its highly homogeneous
society and relative lack of religious or ethnic tensions. It also
scores well (60.0 out of 100) for 'policy continuity', given its broad
historical policy stability. Weaker is the 'scope of state' component,
where it scores 55.0 out of 100. This reflects low government spending
on infrastructure and development (due in part to poor tax collection)
and the extent to which policy is influenced by neighbouring states,
particularly Turkey and Azerbaijan.
Scenarios For Political Change
Until 2008, the Armenian population had appeared willing to accept
regular flawed elections and a lack of democratic accountability, with
disengagement and apathy dominant. However, following the February
2008 presidential elections, something of an awakening took place as
thousands of supporters of Levon Ter-Petrossian, the main opposition
candidate, took to the streets to protest against the result. This
culminated in violent clashes with the police, resulting in hundreds
of arrests and more than 100 prosecutions of opposition supporters.
Although there has been no repeat of protests on this scale, the
Armenian population has nevertheless shown itself to be increasingly
engaged in politics in the past four years, demonstrated by a
pronounced increase in the number and profile of protest groups. This
has been met by restrictions on political groups and further efforts
to censor the media, although the 2013 presidential elections were
praised by international observers.
As a result of this and ongoing regional tensions, Armenia faces
a daunting set of external and domestic political challenges over
the next decade. A strengthening and united opposition at home, and
continuing tensions with powerful and aggressive neighbours (Turkey and
Azerbaijan respectively), will provide a stern test of the country's
institutions and the leader's abilities. Despite the clear risks of
further instability, however, we have a relatively sanguine outlook
on political stability and believe that significant potential exists
for democratic advances at home and a mitigation of tensions abroad.
Best Case Scenario - Big Strides Forward: The best case scenario
for Armenia over the next 10 years, and one that we feel is eminently
possible, is for a significant mitigation of domestic and international
political risk factors. At home, this has been backed up by the
successful presidential election in February 2013 that was free of
major irregularities and allowed a smooth transition of power.
Under this scenario, the domestic opposition would continue to
channel its views through parliament and a broader development of
the legal and regulatory framework would take place. This would mean
increased meritocracy and efficiency, boosting public trust in state
institutions and therefore mitigating the risks of further outbreaks
of public protest.
Internationally, this would require a major breakthrough on
Nagorno-Karabakh, which will be extremely difficult given the lack of
common ground on many aspects of the dispute between Yerevan and Baku.
A land corridor between Armenia and Nagorno-Karabakh and the terms of
a referendum for the enclave's inhabitants will remain the biggest
sticking points. Any significant progress on Nagorno-Karabakh would
increase the potential for the ratification of two protocols on the
re-establishment and development of diplomatic relations with Turkey,
which have stalled since October 2009.
Lachin A Solution Europe - Map Of Nagorno-Karabakh & Surrounding Area
Europe - Map Of Nagorno-Karabakh & Surrounding Area
Should these scenarios play out, we would expect a vast improvement
in Armenia's risk profile, increasing investor confidence in
the country and boosting foreign direct investment inflows. More
importantly, a mitigation of regional tensions would allow vast
new trade opportunities, particularly with Turkey, paving the way
for a significantly higher growth trajectory. The upshot of all of
this would be rising per capita incomes across the board, boosting
living standards.
Intermediate Scenario - 'Same Old': Our intermediate scenario,
and one that we also feel has a strong chance of playing out, is a
continuation of the status quo. Certainly, with progress on relations
with Azerbaijan and Turkey threatening to aggravate domestic and
regional tensions, we expect governments on all sides to remain
extremely cautious. Domestically, the government may also decide to
resist calls for political and legal reform.
Should this scenario play out, we would expect it to limit Armenia's
growth potential through the medium term. Ongoing tensions with
Azerbaijan over Nagorno-Karabakh, as well as continued deadlock
with Turkey, would keep investor risk aversion elevated and severely
limit Armenia's export growth potential. This, in combination with
frustration over the lack of reform at home, would likely increase
domestic political tensions, with further public protests possible.
Worst Case Scenario - Armed Conflict: We refuse to rule out the
possibility of further armed conflict between Armenia and Azerbaijan.
Large troop presences on both sides of the border, heightened
sensitivity and provocative statements from the two parties have
served to keep tensions high, which have often resulted in exchanges
of small arms fire in the past. We highlight the potential for this to
escalate into a bigger conflict, particularly given Azerbaijani threats
to use all means to win back Nagorno-Karabakh if diplomatic efforts
fail. However, this remains an outside bet for two main reasons. First,
the Armenian army remains fairly well equipped and trained, thanks to
Russian support, which is likely to dissuade Azerbaijan from launching
an attack. Second, regional powers Russia and Turkey have gradually
stepped up their involvement in the conflict in the past two years
and we expect the leverage that Moscow and Turkey have over Armenia
and Azerbaijan respectively to prevent an outbreak of full-scale war.