Four developments in the South Caucasus merit close attention:

• Increasing fighting between Armenia and Azerbaijan over the Armenian-occupied Azerbaijani territory of Nagorno–Karabakh;
• The upcoming referendum in and possible Russian annexation of the Georgian breakaway territory of South Ossetia;
• The rise of Iranian meddling in the region; and
• An increasing Russian military presence in Armenia.

It is therefore in America’s national interest to keep a close eye on developments in the region.

Recent Fighting in Nagorno–Karabakh

The outbreak of fighting between Azerbaijani forces and Armenian military and Armenian-backed militia forces in Azerbaijan’s Nagorno–Karabakh region last month threatens to destabilize an already fragile region even further. Dozens of soldiers from both sides have been killed, and Azerbaijani forces have recaptured some of the territory lost to Armenia in the early 1990s. A cease-fire is in place, but it remains fragile.

The conflict between Armenia and Azerbaijan started in 1988 when Armenia made territorial claims on Azerbaijan’s Karabakh Autonomous Oblast. This action resulted in a bloody war that left 30,000 people dead and hundreds of thousands internally displaced. Since 1992, Armenian forces and Armenian-backed militias have occupied almost 20 percent of the territory that the international community recognizes as part of Azerbaijan.

Today, Armenia’s occupation of parts of Azerbaijan is no different from Russia’s illegal occupation of Crimea in Ukraine or its occupation of South Ossetia and Abkhazia in Georgia.

Illegal Referendum in South Ossetia

In August 2008, Russia invaded Georgia, coming as close as 15 miles to the capital city of Tbilisi. Eight years later, several thousand Russian troops occupy the two Georgian regions of South Ossetia and Abkhazia.

Recently the so-called President of South Ossetia Leonid Tibilov—himself a close friend of Vladimir Putin and a former KGB agent—announced that a referendum will be held to change the constitution, allowing South Ossetia to become part of Russia. The timing of the referendum was left vague, but he said the vote would happen before August 2016.

Many of the original inhabitants of South Ossetia have been forcibly removed from their homeland or killed. During the 2008 Russian invasion, many ethnic Ossetians sought to cleanse the region once and for all of the ethnic Georgians living there—all under Russia’s watch. In 1989, South Ossetia had a population of almost 100,000 people. Today, the region has a population of only 30,000, mainly ethnic Russians and Ossetians.

The South Ossetia region is internationally recognized as part of Georgia and is occupied by Russia. Therefore, such a referendum has no basis in international law.

Russian Military Buildup in Armenia

In the same way that control of Crimea is important for Russia’s projection of maritime power into the Black Sea and Mediterranean Sea, Moscow’s military presence in Armenia is vital for Russia’s force projection in the South Caucasus.

Moscow effectively enjoys suzerainty over Yerevan. Armenia is a member of the Russian-led Collective Security Treaty Organization (CSTO). In September 2013, Armenia decided against signing the Association Agreement with the European Union (EU) and instead later joined the Russian-led Eurasian Economic Union (EEU). Armenia even voted with Russia in the U.N. General Assembly on Russia’s annexation of Crimea in 2014.

Russia maintains a sizable military presence in Armenia based on an agreement giving Moscow access to bases in that country until 2044. Late last year, Russia and Armenia signed a Combined Regional Air Defense System agreement that essentially allows Moscow to control the airspace in the whole of the South Caucasus. The bulk of the Russian force, consisting of approximately 5,000 soldiers and dozens of fighter planes and attack helicopters, is based around the 102nd Military Base just miles from the border with Turkey—a member of NATO.

Emboldening Iran

Iran is one of the established Eurasian powers and therefore, rightly or wrongly, sees itself as entitled to a special status in the South Caucasus. The deal that was agreed last summer by the international community on Iran’s nuclear weapons program will directly affect Tehran’s policy toward the region in four ways.

First, Iran will have more financial resources at its disposal. Thanks to the terms of the Iran deal, Tehran has regained access to $100 billion in unlocked assets.

Second, Iran will be less dependent on Russia for diplomatic top cover on the international stage. Now that Tehran is not completely beholden of Moscow for support as it was during the nuclear talks, Iran will have flexibility to compete more aggressively with Russia for influence in the region.

Third, Iran now has more confidence on the international stage. In the eyes of the Iranians, the Iran deal was a diplomatic triumph. There is a feeling among those in the government that the experience of the Iran deal can be replicated to advance Iran’s interests in other regions of the world in what Iranian President Hasan Rouhani describes as a “third way” for Iranian foreign policy. Of course, the South Caucasus is included.

Fourth, Iran will have more leverage to make economic and trade deals, especially with Armenia, and therefore exert more influence in the region. Before the ink dried on the deal, Iran was talking about massive investment projects in Armenia, especially in electricity and transportation.

Getting Engaged

Moscow continues to exploit ethnic divisions and tensions in the South Caucasus to advance pro-Russian policies that are often at odds with America’s or NATO’s goals in the region. Now that Iran is flush with cash and a new-found confidence, it will be more active in the region. In order to protect its interests, the U.S. therefore needs to:

• Continue to monitor the situation in Nagorno–Karabakh. Peace talks over Nagorno–Karabakh have been stalled for years, and the U.S. can do very little to bring the parties back to the negotiating table. However, remaining silent on the matter offers implicit approval of the status quo. The U.S. should continue to call for a peaceful solution to the conflict that includes the withdrawal of Armenian forces from all Azerbaijani territories.
• Increase targeted economic sanctions if South Ossetia or Abkhazia is annexed by Russia. The U.S. should make it very clear to Russia that annexation of either of the breakaway regions will trigger stronger economic sanctions that target key Russian officials. The U.S. should start now to develop a strategy with its European partners to prepare for this eventuality.
• Demonstrate a more visible presence in the region. The U.S. needs to be more engaged in the region. Otherwise, a vacuum will be created that is filled by unhealthy Russian and Iranian competition. Occasional Cabinet-level visits need to be followed by regular visits by senior officials from all areas of government, including the diplomatic, defense, economic, energy, and trade sectors.
• Recognize that Moscow’s support for Armenia is part of a larger Russian strategy. From maximizing diplomatic influence in the region to selling weapons, Moscow benefits in many ways from the “frozen conflicts” around its borders. In addition, Russia’s support for Armenia should be recognized as one part of a larger Russian strategy to undermine NATO member Turkey.

A Grand Strategy

Although the South Caucasus is geographically far away from the U.S., events there can have serious ramifications for the transatlantic community. If the U.S. is to have a grand strategy for dealing with a resurgent Russia and an emboldened Iran, policymakers in Washington cannot ignore the South Caucasus.

—Luke Coffey is Director of the Douglas and Sarah Allison Center for Foreign Policy, of the Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy, at The Heritage Foundation.