Azerbaijan : Increasing tension with Armenia following helicopter shot down
At the beginning of November, Azerbaijan shot down an Armenian military helicopter near the mined and heavy guarded line of contact around Nagorno-Karabakh. The Azeri military officer has been honoured for shooting down the helicopter.
It is the first time an aircraft has been shot down in the zone since 1994. This incident comes amid increasing tensions in the region. So far, the ongoing negotiations to settle the conflict have failed.
Impact on country risk
The Nagorno-Karabakh dispute with Armenia dates back from 1991 when the region dominated by Armenians declared its independence from Azerbaijan. It was followed by an armed conflict between Armenia and Azerbaijan that ended with a UN ceasefire agreement in 1994.
Since then, negotiations with Armenia on the status of the Armenia-supported breakaway republic of Nagorno-Karabakh remain in a deadlock. Ceasefire violations have intensified recently and clashes this year have been the worst since 1994. Hence, the risk of armed conflict with Armenia still exists given the sharp increase in military capabilities by Azerbaijan over the past years and Russia’s military presence in Armenia.
On the domestic side, President Aliyev’s power is unlikely to be challenged as the opposition is severely repressed and he exercises strong control over the political, economic and social life. On the economic side, Azerbaijan’s growth performances have been impressive but are unlikely to be repeated in the future as oil reserves are expected to be depleted in 20 years and gas reserves are unlikely to be sufficient to compensate for lower oil revenues.
In this context, more efforts need to be done to diversify the economy, besides strengthening the banking sector and consolidating public finances. That being said and despite the vulnerability of the country to falling oil prices, the MLT political risk is mitigated by the fact that Azerbaijan is by far a net external creditor.
Hence Credendo Group has recently upgraded its MLT political risk to category 4.
Credendo Group , Pascaline della Faille