The Caucasus, at the strategic geographic nexus of Russia, Turkey, and Iran, has grown in importance since the end of the Cold War. The Southern Caucasus is home to three post-communist states: Georgia, Armenia, and Azerbaijan. The Northern Caucasus harbors Chechnya and a hodgepodge of other autonomous republics and enclaves of ethnic tension reminiscent of the Balkans. The Northern Caucasus remains under Moscow's rule, although Russian control is evaporating as new players like Iran and Turkey assume more prominent roles and the specter of radical Islamic fundamentalism looms.

Once part of the Silk Road--the famous trade route between East and West--the region is now a potential engine of economic growth that will connect the Pacific Rim and Europe. But American jobs and investment opportunities¹ are threatened by a potential wave of bloody ethnic conflicts and the anti-Western policies of the region's two principal powers, Russia and Iran.

To secure its position in the Caucasus, the United States should:

• Promote and strengthen independence, sovereignty, and democratic governance in the three South Caucasus states;

• Increase its diplomatic involvement in the resolution of regional conflicts such as those in Nagorno-Karabakh and Abkhazia; and

• Promote market reforms and assist in the development of secure energy resources, communication, and transportation links to help create a viable East-West axis.

Such steps are outlined in the Silk Road Strategy Act (S. 1344 and H.R. 2867), spearheaded by Senators Sam Brownback (R-KS) and Gordon Smith (R-OR) and House International Relations Committee Chairman Benjamin Gilman (R-NY). This comprehensive policy would result in enhanced cooperation among the countries in the South Caucasus while fostering American investment and trade in the region.

Armenia has made further peace negotiations extremely difficult. The Armenian government now demands that Azerbaijan recognize Karabakh's independence and deal with the Karabakh leadership directly as a full-fledged party to the conflict. Moreover, it refuses to promise that the territorial integrity of Azerbaijan will be restored.² Meanwhile, the government in Baku, the Azeri capital, insists on preserving its territory.

In a worst-case scenario, Baku expects Armenia to renew hostilities against Azerbaijan, possibly in the region of the three borders (those of Azerbaijan, Armenia, and Georgia) near the cities of Yevlakh and Kazakh. Such a move would cut off the route for the East-West Caspian oil pipeline (from Baku to the Georgian port of Supsa on the Black Sea or from Baku to the port of Ceyhan on Turkey's Mediterranean coast) and force Azerbaijan to export oil by way of Russia or Iran.

Baku accuses the Armenian government of coddling the Dashnak socialist-nationalist movement that is popular in the Armenian diaspora, including among Armenians who settled in the United States. Senior Azeri officials allege that the Dashnaks have provided assistance to radical Armenian anti-Turkish terrorist groups, which since the 1970s have maintained ties with the most radical Arab terrorist organizations.³

Russia and Iran are key supporters of Armenia. According to the late General Lev Rokhlin, former chairman of the Duma Defense Committee, Russia supplied Yerevan with over $1 billion in weapons from 1996 to 1998, including T-80 tanks, large-caliber field artillery, possibly Scud-2 missiles, and other heavy equipment. Moscow tried to claim that the weapons pipeline was unauthorized.

Influential Moscow insiders of imperialist persuasion were also behind Ter-Petrossian's ouster. For example, a member of Russian President Boris Yeltsin's Presidential Council, Andranik Migranian, called repeatedly in the Armenian media for the ouster of President Ter-Petrossian. He castigated Ter-Petrossian as willing to compromise too much in order to achieve peace and called for ever-closer Russian-Armenian ties aimed against the United States and the West.

Members of the Azerbaijani foreign policy elite, on the other hand, see Azerbaijan as part of a pro-Western regional bloc. This bloc, which provides a strategic nexus between the Middle East and the Caucasus and further into Central Asia, includes Turkey, Israel, and Georgia. It is opposed by Russia, Iran, and Armenia. Iran is supplying part of Armenia's fuel needs and, according to sources in Baku, pays for some Armenian arms purchases.⁴ This makes routing Azeri oil through Iran even more problematic, not only because of the ongoing hostility between Tehran and Washington, but also because of the ongoing atmosphere of suspicion between Baku and Tehran.

The Iranian regime has been severely criticized by policymakers in the region for its support of Armenia. One leader claimed that "the mullahs preach morality-but practice immorality. Repression at home undermines prestige abroad; the bad image [negatively] affects foreign investment."⁵ Beyond the current criticism, many in Baku have expressed long-standing resentment toward Iran as one of Azerbaijan's former imperial masters. The administration of Heydar Aliev has to compete at home with the rhetoric of the National Front of Azerbaijan (NFA), the main opposition coalition led by Abulfaz Elchibey, who was ousted by Aliev in 1993. The NFA promotes reunification with Southern Azerbaijan, an area in northwestern Iran populated by ethnic Azeris.

The United Nations has proved to be of little assistance in Abkhazia, despite its ongoing involvement in the peace talks since 1994. The U.N. Mission for Georgia (UNOMIG), which is active in Abkhazia, has been unable to resolve the conflict and bring about the re-integration of Abkhazia into Georgia. Former U.N. Secretary General Boutros Boutros-Ghali, in a slip of the tongue, in 1993 actually informed the Georgian delegation that "the key to the Abkhaz problem lies in the USSR."¹⁰

Tbilisi has offered the widest possible autonomy to the Abkhaz, but so far they have rejected the overtures. Despite Russia's support, the Abkhaz nationalists no longer are satisfied with Moscow's position. They are now looking for allies among the Abkhaz residing in Turkey and would like to ignite a balance-of-power conflict between Russia and Turkey.

Without a credible military deterrent, all of Georgia's diplomatic efforts to resolve the situation may be fruitless. The Abkhaz are not interested in matters that concern a modern nation-state, like foreign investment or developing a market infrastructure; in fact, the nationalist leaders of Abkhazia would rather be poor, proud, and independent from Georgia. Thus, conventional economic and diplomatic incentives may not work, especially as long as support from Russia and revenues from cigarette smuggling and bootleg liquor continue to pour into the region.

Trouble in the Autonomous Regions. Friction continues between the central government in Tbilisi and the local pro-Russian leader, Aslan Abashidze, in the Georgian region of Ajara near the Black Sea, encouraged by Russian military personnel based there. Tbilisi also questions the loyalty of the Armenian population in the region of Djavakheti near the Armenian border, where a Russian military base is located near the town of Akhalkalaki.¹¹

Meanwhile, terrorism continues in the autonomous Georgian province of South Ossetia. The Deputy Prime Minister of that province, Valerii Khubulov, was murdered on May 31, 1998, across the border in Northern Ossetia, which is a Russian autonomous territory.¹² Some of the Ossetians residing in Georgia are interested in reuniting with co-ethnics in Russia.

Moscow's Footprints. The common denominator of these secessionist movements--as in the case of Karabakh--is Moscow's support. Russia is still suffering "phantom pains" over the loss of territories it once controlled. Even as the Kremlin is undergoing an extreme fiscal crisis, the Russian government somehow manages to find the money to pay its troops stationed in the Caucasus.

According to Georgian Foreign Ministry sources, Moscow finances the local governments in Abkhazia and Ajara, while other subversive activities are funded by cigarette smuggling and drug trafficking.¹³ The president and senior officials in Georgia have accused hard-liners in Russia of masterminding the February 1998 assassination attempt against Shevardnadze, despite the fact that Chechen guerrilla leader Salman Raduev has claimed responsibility for the attack. Russia still hopes that a weak Georgia will scare off Western investors in oil and gas pipeline projects, forcing Tbilisi to capitulate and ask for Moscow's protection against separatism.

Civic and Economic Recovery. If not for Russian intervention, Georgia might well have recovered much more rapidly from the post-communist crisis. As things stand today, however, most of the Georgian government's attention remains dedicated to fighting insurgency.

Nevertheless, even in these difficult conditions, the country is undergoing a promising economic transition. The privatization of most small enterprises has been accomplished, and large concerns are scheduled for privatization in 1998-1999. Market-oriented economic legislation has been adopted by the Parliament, although its implementation will be difficult. Corruption is so widespread that many Georgians, according to recent opinion polls, think it is the government's number-one problem.

Despite these challenges, President Shevardnadze and his government have made significant progress. The government has disbanded the armed militias headed by convicted criminals such as Djaba Yoseliani and former Defense Minister Tengiz Kitovani, and has jailed their leaders. The level of political stability is higher than at any time since 1991. Democratic parliamentary and presidential elections took place in 1995 and 1996 with far fewer electoral irregularities than in neighboring Armenia and Azerbaijan.

Eduard Shevardnadze presides over an unprecedented transfer of power to the Georgian "yuppie" generation: The chairman of the Parliament, Zurab Zhvania, a biologist by training and a free marketeer, is 33. The architect of legal reform and the leader of the coalition in the Parliament, Misha Saakashvili, is a 30-year-old Columbia University and George Washington Law School graduate who worked for a New York law firm. The newly appointed Finance Minister, Michael Chkuaseli, is only 28 years old, and the chairman of the national bank, Iraklii Managadze, is 30. The new Prime Minister, Vazha Lortkipanidze, appointed by President Shevardnadze on July 27, 1998, will focus the government's efforts on furthering economic reforms.

In addition to the peaceful and progressive changes in government, there is a small construction boom going on in Tbilisi. Subtropical Georgia boasts good wineries, citrus groves, and tea plantations. The absence of an agricultural bank credit system has prevented these enterprises from thriving, but economic reform and the famed entrepreneurship of the Georgian people hold great promise for these agricultural sectors.

A religious revival also is underway. Shevardnadze and Patriarch Ilya II of the Georgian Orthodox Church are personal friends and political allies. Culturally, Christian Georgia sees itself as part of the West; both European and American cultures are understood and deeply appreciated among the elite. Georgia shows real promise as a pivotal pro-American democracy in the Caucasus.

• Foster security cooperation with Georgia. Georgia is the most pro-Western and pro-American country in the region, and has progressed much farther with democratic and economic reforms than its neighbors. But it also is under the greatest pressure, both from local separatists and from hard-line elements in the Russian military and political establishments.

To sustain its sovereignty, Georgia needs the ability to protect itself from Russia, enforce its territorial integrity, and defend its borders. The recent assassination attempt against President Shevardnadze and the outbreak of fighting in Abkhazia in May 1998 prove that Georgia needs more political and military support. Diplomacy, of course, is always preferable to military action, but as long as Tbilisi is viewed as powerless, the challenge of separatism and terrorism will continue.

Washington is offering Tbilisi important help in building border controls, and patrol boats for the Georgian Coast Guard have been donated by the United States, Ukraine, and Turkey. U.S. assistance totaling some $20 million in 1998 is allowing Georgia to get rid of its Russian border guards and set up maritime and land border controls. But the real challenge lies elsewhere: Georgia needs to build a modern, mobile force capable of defending its territory in the forbidding mountainous terrain.

The nascent Georgian military forces need total restructuring, including officer training at home and abroad--preferably in the United States. Further help is needed in creating a corps of non-commissioned officers (NCOs) and building military education institutions for NCOs and officers. The Georgian Foreign Minister wants language training for the army, and Tbilisi could also benefit from the creation of command, control, communications, and intelligence (C3I) capabilities and special forces training. These programs are not prohibitively expensive and can be accomplished either within the current U.S. assistance and Partnership for Peace budgets or with moderate increases in the level of aid.

• Lift sanctions against Azerbaijan. At the height of the war between Armenia and Azerbaijan, the U.S. Congress imposed sanctions on Azerbaijan as an incentive to stop the fighting. The sanctions were outlined in Article 907 of the 1992 Freedom Support Act. They remain in force--even though hostilities subsided in 1994 and a cease-fire is in place.

Thus, while Moscow is reinforcing Armenia and Armenia is reinforcing Karabakh, Washington is weakening Azerbaijan. One million Azeris became refugees as a result of the fighting, and 20 percent of Azeri soil is now occupied by Armenia and Karabakh. As co-chairman of the "Minsk Group," a forum created by the OSCE to settle the Karabakh issue, the United States has a responsibility to function as an honest broker. Neither of the other two co-chairmen, France and Russia, imposes sanctions against Azerbaijan.

The Clinton Administration has stated repeatedly that Article 907 runs counter to U.S. national interests and has called for its repeal. Both Assistant Secretary of State for European and Canadian Affairs Marc Grossman and Special Advisor to the Secretary of State for the New Independent States Stephen Sestanovich, for example, stated this position recently in testimony before the Subcommittee on International Economic Policy, Export, and Trade Promotion of the Senate Foreign Relations Committee.

Lifting the sanctions is also endorsed strongly by Dr. Zbigniew Brzezinski, former U.S. National Security Advisor and an expert on the region. The House Appropriations Committee voted to repeal Section 907 on September 10, 1998, but the measure failed to win approval by the full House.

President Clinton could lift the sanctions by issuing a "finding" that the conditions stipulated in the sanctions no longer apply. It does not make sense to maintain sanctions on a friendly country that desperately needs American assistance to preserve its independence, especially when U.S. companies are about to invest billions of dollars in its economy.

• Make it clear to Moscow that continued support for ethnic separatism in the South Caucasus will ensure an end to U.S. assistance. Preservation of the independence and territorial integrity of the New Independent States is a proclaimed principle of the Clinton Administration, but more must be done to reconcile words with deeds. Moscow has supported the Abkhaz separatists and is encouraging the pro-Russian forces in Ajara against the central government in Georgia as well as the Karabakh Armenians against Azerbaijan.

The Kremlin is trying to undermine two statesmen it perceives as pro-Western and pro-American: Eduard Shevardnadze of Georgia and Heydar Aliev of Azerbaijan. Washington's leverage with Moscow is the Kremlin's need for a broad range of business and financial assistance from the United States and international financial organizations. Washington should make it clear to Moscow that both Western economic assistance and Russia's membership in the G-8 organization of industrialized nations are incompatible with Russian policies of destabilization in the Caucasus.

• Begin a dialogue with ethnic leaders of the Northern Caucasus. The political situation in the North Caucasus remains tenuous. Russian control is waning; separatism and radical Islam are on the rise. A war in the North Caucasus could destabilize Russia as well as the countries of the Southern Caucasus. Massive conflict would create a wide-ranging refugee problem and increase ethnic strife and terrorist activity.

A new Caucasus war with religious overtones could also strengthen the influence of transnational radical Islamic organizations and master terrorists, such as Usama bin Ladin, a Saudi Arabian living in Afghanistan who is a fiercely anti-American sponsor of international terrorism and is accused of masterminding the terrorist bombings of the U.S. embassies in Kenya and Tanzania. 22 There are numerous reports that a new spiral of low-intensity conflict in the Caucasus is imminent.

The United States needs to get a clearer picture of the developments in the region and become better acquainted with the players. Without violating the sovereignty of the Russian Federation or in any way fostering separatism, secession, or rebellion, the United States must increase its information gathering and initiate a dialogue with the leaders of ethnic regions in the Northern Caucasus.

This can be effected through the U.S. Embassy and USIS (U.S. Information Service) in Moscow. For example, seminars and conferences can be conducted both in Moscow and in Washington, D.C., with participation of the North Caucasian and Russian leaders involved in ethnic politics and policy. Such activities are necessary to communicate the U.S. call for stability, ethnic and religious tolerance, and peace in the region, and to help Washington develop a better understanding of the situation, which is often filtered through the biased Moscow media.