The UK’s ‘European Reset’ Must Include The South Caucasus

As the Prime Minister looks to inaugurate a “new era” in his country’s relationship with Europe, his task is not only to repair pre-existing bonds, but also to open new avenues that support his ambitions for greater British influence abroad and economic growth at home. In this context, the South Caucasus – comprising Armenia, Azerbaijan and Georgia – deserves far more attention than it has traditionally received in Westminster.

While famously chequered, the UK’s relationship with the EU is well-established and deep. The South Caucasus offers a wholly different prospect: an emerging region on Europe’s south-eastern fringe at a pivotal moment in its history, where early engagement could deliver huge economic and strategic returns.

The opportunity was laid out last month in the South Caucasus Banking & Investment Review – a comprehensive, comparative economic assessment of the region conducted by GlobalSource Partners, with which I assisted. The report finds that the South Caucasian countries are outperforming expectations with strong growth (numbers western Europe would envy), improving financial systems and rising investment appeal based on their role as a critical bridge between East and West.

Armenia is the standout performer. After the pandemic-induced slump of 2020, its economy surged by an extraordinary 12.6% in 2022 – one of the fastest growth rates globally. This momentum was sustained with growth of 7-8% in 2024 before dipping slightly to 6% in 2024. According to the Report, this expansion has been driven by robust domestic consumption, a rapidly expanding tech and services sector and an influx of skilled labour and capital.

Georgia, long seen as the region’s most dynamic economy, has matched Armenia’s pace. The economy expanded by 10.1% in 2022 and a further 7% in 2023, with strong growth continuing into 2024 and early 2025. Tourism, construction, IT services and transport have powered the post-pandemic recovery, while improved tax collection and capital inflows have narrowed the country’s current account deficit.

Azerbaijan presents a different but equally impressive picture. As a major producer, it benefited from high global oil prices in 2022, recording solid growth of around 4–5%. Growth slowed in 2023 as production caps took effect, but inflation has fallen dramatically and macroeconomic stability has been maintained. The report highlights Azerbaijan’s diversification away from oil and gas with strong investment in transport and logistics sectors that will be critical as regional connectivity improves.

Buttressed by strong growth, capital inflows and political realignments which have seen the end of the region’s longest-running conflict, the South Caucasus is set to benefit from its strategic location at the crossroads of Europe, Central Asia and the Middle East. However, this unique geographic position has not always worked in its favour.

Historically, the South Caucasus has been treated as a political football by a succession of expansionist empires. For much of the 20th century, the region sat firmly within Russia’s orbit; first as part of the Soviet Union and later as a collection of newly independent republics at the mercy of Moscow’s whims. That regional dominance is now beginning to loosen, albeit in different ways and to different degrees.

Again, Armenia is the stand-out. Its traditional reliance on Russia as its chief security and trade partner has frayed following Moscow’s failure to live up to its role as ‘peacekeeper’ in 2003. It has moved in a decisively pro-European direction as a result. Azerbaijan too has had to recalibrate its relations with Russia in the wake of the latter’s invasion of Ukraine. Unlike Armenia, however, it has maintained a non-aligned approach of balancing relations between Russia and the West.

Georgia is the more complicated case. Long regarded as the most openly pro-Europe country in the South Caucasus, reports of Tbilisi’s pivot back towards Russia have raised concerns in European capitals. Near daily reports of government crackdowns on opposition protests have caused EU accession talks to stall. If Georgia slips further from its reform path it could suffer domestically: Georgian society remains heavily pro-EU; a sense of lost opportunity could prove very destabilising.

Policymakers and investors should of course remain vigilant of these political risks, but they will also know that disengagement is not a risk-free option either. In transitional regions like the South Caucasus, absence does not equal protection; it simply cedes influence to other, often less benign powers. If the UK and Europe want to capitalise on Russia’s loosening grip in the region and encourage further openness, they cannot stand on the sidelines.

Pivotal moments in the trajectories of nations and regions do not come along very often. A region strategically located at the bridge between East and West is opening up to the world just as long-running inter-regional conflicts are being put to rest. If the UK engages early, it could help to shape the course of a strategically significant region; and in return benefit economically as the pent up dynamism of an emerging market is unleashed. The South Caucasus is not a region that the UK – or Europe – can afford to ignore.

Sam Chandler is a Senior Consultant in the PR/public affairs industry and freelance commentator on politics, culture, and global affairs. He is part of the media team which helped launch The South Caucasus Banking and Investment Review 2025.

Image: Wikimedia Commons/NASA

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