STATEMENT: Weathering the Storm: A Commentary on Armenia and the Economics of Defense (armenianow.com)

In a region that has only recently witnessed a war between Russia and Georgia, defense and security issues remain priority concerns. But over the past few years, the increase in defense spending among the countries of the region has raised new concerns over the implications from such an arms race.

In addition, there is a related worry over the long-term impact from such a militarization of the region, especially for Armenia, as Azerbaijan has been using its oil wealth to fuel ever-larger defense budgets. Most worrying for Armenia, the constant drone of Azerbaijan’s militant rhetoric to “solve” the Nagorno Karabagh conflict by force has been bolstered by several years of billion-dollar-plus defense budgets. That combination of militant rhetoric and military spending now poses one of the most serious threats to regional security and stability.

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The Risk of Hostilities & the “Hostilities of Risk”

The second factor of defense economics is the relationship between the risk of hostilities and the “hostilities of risk.” Notably, there is an inverse relationship between an increasing level of the risk of hostilities and an increasingly hostile level of risk, affirmed by the fact that international capital may pull out of a region once it becomes too dangerous to operate or too unstable to protect investments.

Ironically, this rather basic business maxim poses more of a threat to Azerbaijan than to Armenia. It also means that by aspiring to replace Armenia as the region’s dominant military power and threatening to retake Karabakh by force, Azerbaijan may soon face a worried group of investors who may decide that the risk outweighs the profit in Azerbaijan. And Azerbaijan is especially vulnerable to any downturn in investor confidence because of its over-reliance on foreign capital amid falling oil prices and due to a lack of industry beyond its energy sector.

Richard Giragosian is the director of the Yerevan-based Armenian Center for National and International Studies (ACNIS), and has worked as a consultant for various international organizations including the OSCE, World Bank, and regularly contributes to Jane's, RFE/RL, and Newsweek International, among other publications. Giragosian is a former professional staff member of the US Congress. "Weathering the Storm" is a weekly column exclusively for ArmeniaNow.