After the Washington summit of August 8, Armenia and Azerbaijan entered a new phase. The post-Washington situation can be described by what some conflict resolution specialists call “narrow peace.” There are no military clashes and little expectation of them, though cooperation is yet to begin. This “narrow peace” represents significant progress compared to war or the “neither war nor peace” stalemate that shaped the lives of Armenians and Azerbaijanis for decades. The Washington agreements present a chance to broaden this peace, most realistically through economic cooperation. I write this not as an economist, but as a historian and political analyst devoted to peacebuilding. My goal is not economic development itself, but lasting peace built on economic cooperation.
Since the late 1980s, Armenian and Azerbaijani societies have been locked in violent conflict. Periods of large-scale war alternated with “frozen conflict” and sporadic violent incidents. Even during calmer periods, economic warfare persisted.
The economic consequences for both countries have been severe. Military expenditures diverted resources from productive investments, while isolation and insecurity deterred foreign investment and stunted growth. The conflict sustained “no war, no peace” economies, producing long-term fiscal pressures, lost opportunities, reduced trade, and instability. Millions of Armenians and Azerbaijanis were forced to seek employment in third countries, especially Russia, where they often faced harsh conditions, discrimination, and exploitation.
While the economic warfare affected both countries, it did not affect them equally. And while geopolitics generally favored Azerbaijan, perhaps the hardest-hit region was the Azerbaijani exclave of Nakhchivan (Nakhijevan). Transport arteries were closed and goods were barred from crossing state boundaries. At times, Armenian brandy was smuggled into Azerbaijan and Azerbaijani tea into Armenia, but these were rare exceptions.
Sustainable peace could bring substantial benefits to both countries. A joint report by Armenian and Azerbaijani experts for the Switzerland-based GCSP in 2023 highlights the potential of reduced military expenditures, which currently rank among the highest in the world relative to GDP. Freed resources could be redirected toward social welfare and infrastructure. Although large cuts in defense spending are unlikely soon due to lingering mistrust, even halting the ever-increasing arms race between the two countries would be progress. In Armenia there is fear that Azerbaijan might use its military advantage to force concessions, while in Azerbaijan there is concern about a revanchist turn in Armenia, with possible Russian backing. Armenia has also traditionally viewed Türkiye as a threat, while Azerbaijan remains cautious of Iran and Russia. Still, limiting the arms race would free much-needed resources.
Peace is also likely to boost foreign direct investment (FDI) by lowering risk perceptions. As the GCSP report notes, peace could raise FDI inflows by at least 20 percent, lifting Armenia’s GDP by 5 to 6 percent. Stronger public finances and lower interest rates on government debt would follow. These positive trends coincide with growing instability elsewhere in Eurasia. With peace, the South Caucasus could become a safe haven for investors, contrasting with the turmoil in regions once seen as stable. Perceptions have already shifted since the Russian invasion of Ukraine in 2022. Meanwhile, some multinational corporations, including NVIDIA, have already taken note of these new realities.
The largest economic benefits will come from opening connectivity routes. According to some estimates, TRIPP (The Trump Route for International Peace and Prosperity) could generate up to 45 billion dollars in infrastructure and energy opportunities, diversifying Azerbaijan’s export routes and offering Armenia a way out of economic isolation. For Armenia, this would mean expanded trade volumes and reduced costs; for Azerbaijan, reliable connectivity with the Nakhchivan exclave, along with the longer-term advantages of opening all regional roads. This all comes against the backdrop of geopolitical rivalry between Russia and NATO and the EU, which is likely to continue for years, Since Russia is unlikely to serve as the main connection between Chinese producers and European markets, at least one major route will need to pass through the South Caucasus. In this context, uncertainty in Georgia’s foreign policy and its potential drift toward Russia could further raise the importance of regional connectivity through Armenia and Azerbaijan.
Energy cooperation is another possibility, including the prospective supply of Azerbaijani natural gas to Armenia. Today, Armenia receives most of its natural gas from Russia with some smaller amounts also coming from Iran. Proposals for Turkmen gas imports via Iran remain unrealistic. Direct purchases from Azerbaijan still appear politically and psychologically difficult; yet history shows that once unthinkable steps can become reality. To ease the transition, initial cooperation could occur through third parties, for example via Georgia, thereby reducing domestic backlash. In exchange, Armenia could offer water and hydropower resources.
More important than any individual project, however, is the potential feedback loop that peace could create. The economic dividends of cooperation increase the costs of renewed conflict, while making sustained political cooperation more attractive. Economic ties can build trust, reduce fear, and weaken the dehumanizing narratives that have shaped both societies.
Maintaining momentum is key. If the everyday benefits of peace are not felt quickly, agreements signed in Washington may remain on paper, borders could stay closed, and connectivity might fail to materialize. Limited benefits could still emerge, but the danger is that unresolved mistrust could eventually trigger renewed violence.
Swift implementation is therefore vital. Timing matters. The current U.S. administration has invested in Armenia-Azerbaijan normalization, but its longer-term stance as well as the stance of future US administrations is uncertain. At the same time, Russia remains bogged down in Ukraine, limiting its influence in the South Caucasus. Before Russia has the ability to potentially rebuild its influence in the region, Armenia and Azerbaijan should move beyond narrow peace to build deeper trust and cooperation, best achieved through developing direct economic ties.
Equally important is ensuring that the benefits of peace are felt broadly on both sides and fairly distributed within each society. Without inclusivity, excluded and marginalized groups will lack a stake in peace and may instead channel their grievances into nationalism and renewed cycles of conflict. The most obvious group in this respect is Armenian refugees from Nagorno-Karabakh, but this risk extends to other groups in both countries. At the national level, if either Armenia or Azerbaijan believes it is going to lose rather than win from the implementation of the peace accord or connectivity, it may disengage from the process. Extending outwards, regional neighboring states must also perceive peace as beneficial; otherwise, they may be tempted to act as spoilers.
Of course, economic cooperation alone cannot guarantee peace after decades of conflict. Political will, confidence-building measures, and new approaches to identity and memory are just as critical. Yet economic cooperation remains the area where societies are arguably most open to collaboration and where historical sensitivities play a lesser role. For that reason, the economic sphere may serve as the locomotive of peace in the South Caucasus.