Russian Influence Drains Away in the South Caucasus

For decades, Moscow’s power in the South Caucasus rested on military presence, conflict-management formats, energy leverage, and economic influence.

This is now under visible strain. Armenia is actively engaging the European Union (EU), Azerbaijan has grown significantly more assertive in its foreign policy, while Georgia is deepening selective economic links with China and the Middle East, while abstaining from restoring diplomatic ties with Russia.

Yet of the three countries, this trend is most visible in Armenia. It is Armenia that was closest to the Kremlin right up to the point when its supposed friend stood idly by during the 2020 Nagorno-Karabakh war and the eventual fall of the entity in September 2023. The logic had been that Armenia needed Russian aid should something happen to Karabakh, a logic that evaporated after defeat.

Extensive engagement with the EU should be seen from this perspective, with the events of early May in Yerevan only underlining the trend. Armenia hosted the European Political Community summit on May 4, followed by the first-ever EU-Armenia summit on May 5. The sides launched a €200m ($232m) partnership, while EU investments in Armenia under the Global Gateway strategy are expected to reach €2.5bn.

This matters because Moscow’s traditional leverage over Armenia has depended on the absence of viable alternatives. The EU’s engagement changes this equation. Brussels cannot replace Russia as a hard-security guarantor, yet it can provide greater access to its market, investments, and transport and infrastructure cooperation — areas where Moscow is less competitive given its forever war against Ukraine. The Kremlin’s reaction was swift. It accused Armenia of entering the EU’s “anti-Russian orbit” and warned of political and economic consequences.

But it is not only about the EU. China is likewise expanding its reach into the South Caucasus, albeit in a much subtler way. For instance, Georgian commercial banks are preparing to join China’s Cross-Border Interbank Payment System, known as CIPS. The latter is a wholesale payment system authorized by the People’s Bank of China. This is not replacing SWIFT, nor abandoning the dollar or euro. Rather, it is about diversification by giving Georgian banks a more direct channel for renminbi transactions and reducing the role of intermediaries.

The same broader pattern is visible in Azerbaijan. Beijing and Baku have explored deeper financial and investment cooperation, including discussion of a joint investment fund involving Azerbaijan Investment Holding and China’s Silk Road Fund to finance infrastructure, logistics, energy, and industrial projects. China was also reported as Azerbaijan’s third-largest trading partner, with bilateral trade reaching $4.87bn in 2025.

This matters for Russia. Although China is not challenging Moscow militarily in the South Caucasus, it is expanding its influence through other means where Russia cannot effectively compete. Beijing brings finance, infrastructure interest, greater commercial opportunities, and payment-system alternatives. It is also free of the historical baggage associated with Russian rule.

Armenia has lagged behind Georgia and Azerbaijan in its engagement with China and its financial institutions. That may be about to change. In early May, Armenia’s deputy economy minister, Anushik Avetyan, argued that China was an important partner for Yerevan and that the two sides wanted to expand trade and investment programs in Armenia. This comes on top of the strategic partnership agreement signed in 2025.

Armenia’s challenge remains its geography and underdeveloped regional transport and other links. Yet if Armenia’s “Crossroads of Peace” concept advances, and if transport links with Azerbaijan and Turkey are developed as is suggested, Yerevan could become more attractive to Chinese and other Asian investors. That would further weaken the old Russian assumption that Armenia’s economic geography must run primarily northward through Russia.

The EU and Chinese engagement with the South Caucasus, though different in scope and ambition, are part of the same trend, namely, the diminution of Russia’s primacy in the region.

Russia is no longer the only external state capable of providing economic access, infrastructure links, or diplomatic cover. Its key pillar of influence remains the military, the aspect that so far no other big powers or regional actors are able to contest.

Can Russia reconstitute its power in the South Caucasus? Much will depend on how the upcoming parliamentary elections in Armenia unfold. Should the ruling party, Civil Contract, win another term, Moscow might opt for a “civilized divorce”, the ambiguous and possibly ominous term suggested by the Russian leadership.

Emil Avdaliani is a research fellow at the Turan Research Center and a professor of international relations at the European University in Tbilisi, Georgia. His research focuses on the history of the Silk Roads and the interests of great powers in the Middle East and the Caucasus.

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.

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