The year 2023 is now engraved in Azerbaijan’s history as one of the four pivotal years since the dissolution of the Soviet Union, alongside 1991 (the restoration of independence), 1993 (Heydar Aliyev’s return to the country’s leadership) and 2020 (the 44-day War). In the past year, Azerbaijan accomplished a historic feat by successfully restoring the country’s territorial integrity and securing full sovereignty within its internationally recognized borders. This completed the liberation process of the Azerbaijani territories occupied by Armenia in the early 1990s and solidified President Ilham Aliyev’s role as the chief strategist of this mission. During this period, Azerbaijan attained several other notable accomplishments across various spheres, including the reconstruction of liberated territories, energy exports, and economic diversification. Overall, 2023 stands out as a remarkably successful year for Azerbaijan.
Restoration of Territorial Integrity
20 percent of the internationally recognized territories of Azerbaijan (the Karabakh region and seven adjacent districts) had been occupied by the neighboring Armenia in the early 1990s. The occupation had displaced more than 700,000 Azerbaijanis who were expelled from their homelands through violent ethnic cleansing and massacres. For up to three decades, Baku sought to return the occupied territories through internationally mediated negotiations. These efforts delivered no practical results due to Yerevan’s refusal to de-occupy the territories and its disregard to the international resolutions including the four resolutions of the United Nations Security Council (1993).
In 2020, Azerbaijan had to use military force to put an end to this illegal occupation and liberated significant part of the region in the course and aftermath of the war which went down in history as the Second Karabakh War or the 44-day War (September 27 – November 10). The war, however, left a part of the Karabakh region under the joint control of the local separatist regime and the peacekeeping mission of the Russian Federation that had been deployed to the area following the 44-day War.
Since then, Baku sought to reintegrate the remaining part of the Karabakh region and the local Armenian community through negotiations that were mediated by Russia, the European Union, and the United States. These negotiations delivered notable outcomes to normalize the Armenia-Azerbaijan relations, and Armenia recognized Karabakh as part of Azerbaijan. However, these efforts had no impact on the reintegration of the Karabakh region, as the local separatist regime refused all calls from Baku for talks. This ended up with another military operation by Azerbaijan which lasted less than 24 hours on September 19-20, 2023 and resulted in the dissolution of the separatist regime on September 28.
The collapse of the separatist entity undeniably stands as one of the most historic achievements in Azerbaijani history, as the nation shattered the shackles of frozen conflicts in the former Soviet space, setting a model for other countries (e.g. Georgia and Ukraine) who are facing similar challenges. This firmly cements the position of the country’s leader, President Ilham Aliyev, in Azerbaijani history, making an accomplishment that few would have deemed possible even a couple of months prior to the 2020 war. Despite the highly confrontational geopolitical landscape in the South Caucasus and the external powers’ manipulation of the conflict, Aliyev’s strategic approach proved remarkably successful and boosted his popularity amongst the citizens.
Reconstruction of liberated territories
The liberation of the Karabakh region and surrounding territories disclosed all the destruction and plundering committed by Armenia in those areas during the years of occupation. “Everything is devastated – the infrastructure is destroyed, residential and administrative buildings are demolished”, President Aliyev declared in his address to the nation on December 1, 2020. Immediately following the war, Baku launched extensive reconstruction process to bring life back to once vibrant cities and villages of the Karabakh region.
The reconstruction of the liberated territories is a costly and lengthy process which is being carried out in the face of a number of challenges. On the one hand, the contamination of the region with landmines and other explosive materials and Armenia’s refusal to provide all accurate maps of the mined areas dramatically delay the reconstruction and increase its costs. On the other hand, the reconstruction of the cities and villages from scratch requires huge financial resources which will take several years for Azerbaijan to deliver.
The nation is undertaking the reconstruction of the liberated territories using its own resources, with no international assistance and without resorting to loans. To date, 7 billion USD from the state budget have been invested in reconstruction and restoration efforts. A further allocation of 2.4 billion USD is planned for 2024. As outlined in the state program aimed at facilitating the return of internally displaced people (IDP), an estimated total of approximately 30.5 billion Azerbaijani manats (equivalent to around 18 billion USD) is anticipated to be expended between 2022 and 2026. In accordance with this program, 34,500 families or 140 thousand of Azerbaijani citizens are planned to be resettled in this region by 2026. More than a thousand families have already returned to different parts of the liberated territories.
Energy exports and economic diversification
Over the past year, the Azerbaijani economy successfully rebounded from the challenges posed by the Covid-19 pandemic. The country managed to uphold macroeconomic stability and stimulate economic growth, particularly within the non-oil and gas sector. This achievement is also reflected in the reduced inflation rate and the surplus in the balance of payments. Currently, Azerbaijan boasts strategic foreign exchange reserves totaling 68.3 billion US dollars, equivalent to 97 percent of the GDP. These reserves surpass the country’s direct foreign debt, which is 10 percent of the GDP, by a factor of 10.
Official estimates project a positive macroeconomic outlook for 2024, anticipating real growth in the country’s economy, a manageable inflation level, and a surplus in the balance of payments. The budget for the upcoming year sets the price of oil at 60 US dollars. The government expects that the non-oil revenues of the state budget will exceed 75% of current expenses in 2024. Thus, the predicted average annual rate of economic growth is 2.9%, as well as 4.8% for the non-oil sector.
Nevertheless, the energy sector maintains its pivotal role in the Azerbaijani economy. In 2023, Azerbaijan has built upon the achievements it has already realized in this field since the early years of the country’s independence. This year, Serbia joined the countries purchasing natural gas from Azerbaijan after the Serbia-Bulgaria Gas Interconnector was launched in the Serbian city of Niš on December 10. The launch of this interconnector played a critical role in the expansion of the geography of Azerbaijan’s gas exports in Europe.
“We currently export our natural gas to eight countries, and Serbia is the ninth country. Seven of these nine countries are European, and, of course, today’s ceremony, the launch of the interconnector will make an important contribution to European energy security,” President Aliyev said in his speech at the inauguration of the Serbia-Bulgaria Gas Interconnector.
The Azerbaijani government is confident that the amount of natural gas exports will steadily grow in the upcoming years and reach the target of 20 billion cubic meters (bcm) per year by 2027, as envisioned in the energy deal between Azerbaijan and European Union (EU) in 2022. “The numbers already show that we are confidently moving towards this goal,” President Aliyev said in his afore-mentioned speech, explaining that Azerbaijan exported just over 8 billion cubic meters of gas to Europe in 2021 which will rise to about 12 billion cubic meters for this year.
In 2023, Azerbaijan advanced in the development of the renewable energy sector, recognized as a key avenue for economic diversification in the country. Presently, Azerbaijan’s renewable energy potential surpasses its installed capacity by a factor of four. By the close of 2023, the country has achieved an installed electricity production capacity of 7.5 GW, yet its economically viable renewable energy potential is notably higher, reaching approximately 27 GW.
The significant strides achieved by Azerbaijan in the field of renewable energy played an important role in the country’s successful bid to host the 29th Conference of Parties (COP29) to the UN Framework Convention on Climate Change, a highly prominent international event. The symbolic and politically significant support extended by Armenia in favor of Azerbaijan’s candidacy added another layer of significance. This support materialized as part of a bilateral agreement between Baku and Yerevan on December 13, wherein both nations committed to the mutual release of prisoners detained at various times since the end of the Second Karabakh War.
As the Azerbaijani government prepares to take center stage at COP29 next year, the conference will not only serve as a platform for global collaboration against climate change but will also stand as a symbol of peace and cooperation in the South Caucasus. The resolution of the Armenia-Azerbaijan conflict and full restoration of Azerbaijan’s territorial integrity in 2023 opens a new chapter in the interstate relations of the South Caucasus.
Dr. Vasif Huseynov is a senior fellow at the Center of Analysis of International Relations (AIR Center) in Baku, Azerbaijan.
