Kamikaze Drones, Russian Missiles Jolt Oldest Ex-Soviet Feud

(Bloomberg) -- Old grievances are being aired with new force in the former Soviet Union’s longest-running conflict.

Armenia and Azerbaijan, technically at war over the Nagorno-Karabakh region despite a cease-fire brokered by Russia 22 years ago, are beefing up their arsenals just seven months after the worst fighting in two decades. Armenia has acquired Russian-made Iskander ballistic missiles, while Azerbaijan says it’s tested combat drones produced with Israel and is in talks with Pakistan to buy high-tech weapons.

“We have a much more serious arms race,” said Zaur Shiriyev, an academy associate at Chatham House in London. “It will significantly increase the chance of future outbreaks.”

The rearmament is raising the stakes should tensions flare again between Russian ally Armenia and Azerbaijan, close to NATO member Turkey, after the two neighbors spent almost $27 billion on defense in 2005-2015. The conflict, within striking distance of a BP Plc-led oil pipeline, is once more showing signs of boiling over as talks mediated by Russia and the U.S. run aground and uncertainty mounts after Donald Trump’s election as American president.

Armenians took over Nagorno-Karabakh and seven adjacent districts from Azerbaijan after the 1991 Soviet breakup. The conflict killed 30,000 people and displaced more than a million. No peace accord was signed despite talks involving Russia, the U.S. and France halting major hostilities in 1994.

The enclave’s mainly Armenian population declared independence in 1991, which hasn’t been recognized internationally, and insists on its right to self-determination. Azerbaijan says it’s ready to grant more autonomy than the region enjoyed during the Soviet period, but demands respect for its territorial integrity.

Military Might

Azerbaijan, the third-largest crude producer in the former Soviet Union, has converted its oil wealth into battlefield might, becoming Europe’s largest importer of major weapons in the decade through 2015 by spending $22.7 billion on the military in the period, according to the Stockholm International Peace Research Institute. Its annual defense spending eclipses Armenia’s entire state budget.

The largess has been a boon for companies like Uralvagonzavod, the state-run maker of battle tanks in central Russia since World War II, and Elbit Systems Ltd., Israel’s biggest publicly traded defense contractor.

Violence surged in April, when more than 200 troops were killed on both sides in four days of fighting that involved hundreds of tanks and aircraft. Azerbaijan regained control of several hills lost to Armenians 23 years ago, before another Russian-engineered truce.

New cease-fire violations were reported last week, which the belligerents blamed on each other, accusing the opposing side of using large-caliber mortars for the first time since April. At least three soldiers were confirmed killed in October.

‘Kamikaze Drones’

April’s clashes featured the first known use of “kamikaze drones” by Azerbaijan, with the explosive-tipped aircraft slamming into a bus carrying Armenian volunteers. Media including Radio Free Europe claimed to have identified the weapons as Israeli-made Harop drones. The Azeri and Israeli defense ministries both declined to confirm or deny that Harops were used.

Azerbaijan said in September that it would build “hundreds” of kamikaze and other combat drones using Israeli technology. Speaking on Saturday while visiting Azeri troops stationed southeast of Nagorno-Karabakh at one of the hills recaptured in April, President Ilham Aliyev said his country has already purchased modern weapons worth billions and intends to buy more. Aliyev called on Armenia to “draw lessons” from the last bout of fighting and vowed to recapture control of the breakaway region.

Armenia has also bolstered its capabilities, getting a $200 million loan from Russia to buy and modernize weapons and other military equipment. In a document dated Nov. 12, President Vladimir Putin approved an agreement on creating a joint military force with Armenia and instructed officials to complete the remaining negotiations. The group, which plans to operate in the Caucasus region, will be responsible for defending the borders of Russia and Armenia and rebuffing an attack on either party.

In Cross-Hairs

Armenia showcased its Iskander missiles at an Independence Day parade in September in Yerevan, the capital. Stationing the short-range rockets in Nagorno-Karabakh, Azerbaijan’s BP-operated Sangachal oil-and-gas-processing terminal south of Baku would fall within firing range. Azerbaijan has attracted more than $60 billion of investments in energy projects by BP and its partners in the past 20 years.

A spokesman for Russia’s state-run arms trader Rosoboronexport, Vyacheslav Davidenko, declined to comment on any weapons provided to Armenia.

Russia has stressed that is also sells military hardware to Azerbaijan. It supplied the missiles through the Collective Security Treaty Organization, a post-Soviet military alliance, according to the Vedomosti business newspaper.

Shifting Balance?

“Armenia sought to use this display to deter Azerbaijan from a further attack and to demonstrate a solid position in the recently shifting military balance of power,” said Richard Giragosian, director of the Regional Studies Center in Yerevan. “This missile system is capable of reaching significant infrastructure and vulnerable targets in around Baku and throughout Azerbaijan. This is why the balance of power is now more equal.”

Azerbaijan rejects any shift in the military balance, and Armenia’s missile display certainly hasn’t eased tensions. The Azeri Defense Ministry responded by holding drills involving Russian-made S-300 air-defense systems and threatened to retaliate with “thousands of rockets” should Armenia try to use “a few” of its missiles. Deadly clashes around the conflict zone resumed last month, while Azerbaijan began some of its biggest-ever military drills on Nov. 12.

The military one-upmanship has complicated mediation. Talks over a settlement in Nagorno-Karabakh are deadlocked, according to Russia, which helped arrange a June meeting between the Azeri and Armenian presidents. U.S., Russian and French diplomats failed to persuade them to meet again soon.

Meanwhile, the possible cost of any renewed violence is rising.

“Russia’s delivery of Iskander missiles and other heavy weapons systems to Armenia” has the potential to “raise the costs to both sides of a potential future armed conflict,” said Matthew Bryza, an ex-U.S. deputy assistant secretary of state who also served as an ambassador to Azerbaijan and brokered talks over Karabakh.

--With assistance from Sara Khojoyan David Wainer Ilya Arkhipov and Stepan Kravchenko To contact the reporter on this story: Zulfugar Agayev in Baku at zagayev@bloomberg.net. To contact the editors responsible for this story: Hellmuth Tromm at htromm@bloomberg.net, Paul Abelsky, Andrew Langley