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Nazrin Abdul

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As peace negotiations between Azerbaijan and Armenia show renewed momentum, analysts suggest the potential economic dividends for the South Caucasus could be transformative. The prospect of long-term peace is no longer just a diplomatic objective -- it is increasingly seen as a critical economic catalyst for both countries and the wider region.

The most recent high-level meetings between Azerbaijani and Armenian officials signal that the two countries may be inching closer to a comprehensive peace agreement. Analysts argue that the normalization of relations could mark the beginning of a new era, one characterized by economic integration, infrastructure development, and regional connectivity.

According to ING Bank, the potential peace agreement could significantly improve the investment climate in the region. “Further investor interest could be unlocked if the ongoing normalization of relations with Armenia continues,” ING noted in a recent article, emphasizing that peace could open new investment channels, particularly for Azerbaijan.

This view is echoed by Azerbaijani economist and Member of Parliament Vugar Bayramov, who sees the peace process as a key turning point for the South Caucasus economy.

“Normalization will make the region more attractive for foreign investors,” Bayramov said. “Restored communication lines and economic cooperation will bring additional capital into both Azerbaijan and Armenia.”

Bayramov emphasized that regional conflicts have long deterred foreign direct investment (FDI) in the South Caucasus. With hostilities now at an end and normalization gaining traction, highlighted by the constructive tone of recent talks in Abu Dhabi, the region is poised to move forward.

“The end of the conflict removes a major obstacle to economic cooperation,” Bayramov added. “This creates a path for rebuilding trade relations and launching new joint infrastructure projects.”

One of the most anticipated outcomes of the peace process is the possible activation of the Zangezur Corridor, a transit route connecting mainland Azerbaijan with its Nakhchivan exclave through southern Armenia. This corridor would not only enhance bilateral ties but also serve the broader strategy of transforming the South Caucasus into a key logistics hub on the Middle Corridor, which links Europe and Asia via the Caspian Sea and Central Asia.

“Peace will pave the way for the development of regional transport infrastructure, helping integrate the South Caucasus into global trade networks,” Bayramov explained. “It will support the expansion of transport hubs, raise state revenues, and create broader logistics opportunities.”

Bayramov also emphasized the importance of leveraging comparative economic advantages. Both Armenia and Azerbaijan have unique strengths in agriculture, light industry, and niche manufacturing sectors.

“Economic analysis shows that both countries have products with comparative advantages,” Bayramov noted.

“With peace, cross-border trade in these sectors can be restored, benefiting both sides.”

This view is supported by economic expert Khalid Karimli, who pointed out the foundational role of stability in creating a viable investment environment.

“No investor wants to enter an unstable market,” Karimli said. “Peace, stability, and predictability are the baseline requirements for attracting FDI. This process addresses all three.”

While Azerbaijan's total investment in fixed capital reached 8.07 billion manats in the first half of 2025, down slightly by 0.5% year-on-year, the underlying figures reveal a strategic shift. Investment in the non-oil and gas sector surged by 13.5%, even as investment in the oil and gas sector declined by 23.8%.

This aligns with the government’s broader economic diversification strategy, which aims to reduce dependence on hydrocarbons and promote sectors such as industry, agriculture, tourism, and logistics - all areas that would benefit from regional peace.

The peace process between Azerbaijan and Armenia is more than a geopolitical breakthrough - it is a potential economic game-changer for the entire region. By reducing risks, restoring trust, and unlocking new corridors of cooperation, normalization could finally turn the South Caucasus from a zone of tension into a hub of opportunity. If sustained, this peace process could herald a new chapter not only for bilateral relations but also for economic growth, trade integration, and foreign investment across the wider region.