In the Shadow of War, Armenia Tries to Make Its Economy Indispensable

With an “Armenia wassup!” and rakish shimmy, Floridian pop sensation Jason Derulo opened the 2024 World Congress on Innovation & Technology (WCIT) in Yerevan on Oct. 4. “The biggest party in the world is right here in Armenia tonight!” Derulo told revelers in the capital’s Republic Square, before launching into his global hit “Dirty Talk” flanked by leather-clad, twerking dancers.

It was perhaps a curious way to welcome some 3,000 delegates from 80 countries to bat around technology topics under the banner, “The Power of Mind: AI Beyond Limits, Within Ethics.” Panels included discussions on aerospace design, social media optimization, and cybersecurity. A diverse roster of speakers featured former MGM CEO Alex Yemenidjian and Rodrigo Messi, brother and business manager of soccer superstar and TIME’s 2023 Athlete of the Year, Lionel. Elon Musk sent a congratulatory message. (Telegram CEO Pavel Durov was due to attend before the French Police intervened.)

Yet if Derulo’s grandstanding was somewhat incongruous with the thorny tech debates that followed, few could begrudge Armenia for relishing its moment in the spotlight. It was, in fact, the second time Armenia has hosted WCIT in the past five years, underscoring how this landlocked democracy of 3 million is recasting itself as a global technology hub. Perched at the crossroads of Europe and Asia, Armenia has revamped its education curriculum to provide a steady stream of STEM talent and offered tax breaks to multinationals setting up local operations. An illustrious roster has taken the bait, including Amazon, Google, Cisco, IBM, Microsoft, Broadcom, and Nvidia.

“Back in the Soviet Union era, Armenia was really very famous as a hi-tech country,” Armenian President Vahagn Khachaturyan tells TIME in his neo-Palladian official residence. “We were considered a Silicon Valley. Now we want to get that reputation back.”

Of course, Armenia isn’t alone in trying to ride the AI wave to prosperity—but the drivers here are far from purely economic. Russian President Vladimir Putin’s war of choice in Ukraine has wrought an immeasurable human toll, while roiling markets, disrupting supply chains, and sending iNFLation soaring across the globe. Thousands of Russian professionals have since decamped in Armenia to both avoid the Military draft as well as onerous Western sanctions, boosting a local economy that grew 8.7% last year. But an underappreciated corollary has been the evaporation of Moscow’s stabilizing security presence in its own backyard.

In 2020, war broke out between Armenia and eastern neighbor Azerbaijan, leading to a peace agreement that saw almost 2,000 Russian peacekeepers installed in the disputed region of Nagorno-Karabakh, a rolling highland famed for dragon-adorned carpets and piquant orange wine. But then Nagorno-Karabakh was seized by Baku in December 2022 and following a nine-month blockade over 100,000 Armenians were forcibly expelled, during which those Russian peacekeepers stood idly by. “We feel betrayed,” says Diana Gharibyan, 42, a mother-of-seven who fled from the regional capital, Stepanakert. “We were given just a few minutes to leave.”

Asked whether the Ukraine coNFLict lay behind Russia’s wavering, Khachaturyan can only shrug. “The fact is that we needed the help of our partners when Azerbaijan attacked but didn’t get it,” he says. “So we need to make some conclusions.”

Most of which are grim. Last October, U.S. Secretary of State Antony Blinken told U.S. lawmakers that Azerbaijan may be plotting to invade Armenia. In March, Armenian Prime Minister Nikol Pashinyan warned that Azerbaijan was looking to start “a new, large-scale war.”

In Yerevan, anxiety is palpable. Other than Azerbaijan to the east, Armenia has no diplomatic relations with western neighbor, Turkey, while to the north sits Georgia and to the south the Islamic Republic of Iran. Shifting geopolitical realities has spurred a wholesale recalibration of Armenia’s foreign policy combined with a zealous effort to internationalize the economy to render the price of any future coNFLict intolerably high.

“Armenia is in a tough neighborhood,” says Rev Lebaredian, a vice president at NVIDIA who opened its Yerevan office in 2022. “In my own little way, I’m hoping to bring some capabilities and resources so we can build the Armenian economy. If Armenia can be economically viable, that will help with solving many of the other problems.”

It’s only natural that a state penned in from all sides would seek to look outward. And Armenia isn’t the first besieged enclave to pursue security by tying itself to the wider world. Tiny states from Singapore to Qatar and the United Arab Emirates have sought to avoid being gobbled up by larger neighbors by transforming into banking and investment hubs, seeding award-winning airlines, and hosting international conferences and pop concerts.

At first blush, landlocked Armenia is an unlikely entrepot, though it does have a secret weapon, of which Lebaredian is a prime example: a vibrant diaspora in virtually every corner of the globe, with some one million ethnic Armenians in California alone. Though it’s a boon borne from calamity.

While the fall of the Soviet Union was a seminal moment in Armenia’s history, it pales in comparison to the genocide of 1915, when the Ottoman Empire systematically murdered some 600,000 to 1.5 million Armenians. Not only did that atrocity scatter Armenians across the globe but it continues to define regional dynamics. Turkish denials have effectively blocked Yerevan’s efforts to normalize relations with Ankara, which has backed Baku in its recent offensives, even holding joint military drills last October in Nagorno-Karabakh and Nakhichevan, another Azerbaijan-controlled region to Armenia’s west.

Indeed, in 2021 autocratic Azerbaijani President Ilham Aliyev revealed his intent to establish a land corridor to Turkey via Nakhichevan by taking control of the southern Armenian region of Zangezur, “whether Armenia wants it or not,” adding “if it does not, we will solve it by force.”

The establishment of the Zangezur Corridor would effectively seal off Armenia’s southern frontier with Iran and mean its only open border would be with Georgia. Other than Nagorno-Karabakh, Azerbaijan troops already control some 200 sq km of Armenia proper, which Aliyev tellingly refers to as “Western Azerbaijan.”

Those who experienced the Nagorno-Karabakh exodus are under no illusions. On Sept. 24–30 last year, some 99% of the territory’s population fled under an Azerbaijan artillery barrage. Some 218 people perished when a besieged fuel distribution center exploded, while some 70 others died during the fraught journey to Armenia. “Some children had to be in the same vehicle with their deceased parent for more than 40 hours during the journey,” says Alla Harutyunya, vice president of the Mission Armenia NGO. On her last visit to Nagorno-Karabakh in late 2022, Harutyunya noticed the atmosphere had changed. “I stopped driving for a rest, but Russian soldiers told me to keep going as they wouldn’t be able to protect me if Azerbaijani troops attacked,” she recalls.

Many refugees don’t feel safe even amongst the tree-lined boulevards of Yerevan. “During the displacement, the Azerbaijan soldiers told me, ‘Where are you going? We are going to attack Armenia soon. Do you think you’re escaping?’” says Gayane Movsisyan, a 55-year-old former army worker from Steparakert. “The Russian soldiers were just standing there with their eyes down.”

The lack of Russian support prompted Armenia in June to announce its withdrawal from the Moscow-led Collective Security Treaty Organization, which was established in 1992 and whose other members are Kazakhstan, Belarus, Kyrgyzstan, and Tajikistan. Before Putin’s invasion of Ukraine, at least 90% of arms purchased by Armenia came from Russia. Today, it’s less than 10%, and Armenia has been forced to fill that gap by forging new friendships. India has emerged as Armenia’s top weapons supplier followed by France, from whom Armenia recently purchased 36 Caesars self-propelled howitzers.

Armenia is also diversifying foreign policy beyond mere security. Yerevan signed a Comprehensive and Enhanced Partnership Agreement with the E.U. back in 2017 and in February agreed to deepen this cooperation via a new E.U.-Armenia Partnership Agenda, establishing more links for trade, investment, as well as potential visa liberalization. Armenia is also trying to deepen its cooperation with the U.S., with President Joe Biden last month announcing plans to upgrade the existing bilateral strategic dialogue into a strategic partnership.

“Much of the population [of Armenia] want to get further from Russia,” James O’Brien, the U.S. assistant secretary of state for Europe and Eurasia, told a congressional hearing in July. “So we’re creating the conditions for that to happen.”

Yet for a former Soviet satellite—Republic Square where Derulo strutted his stuff was named Lenin Square until 1990—things are never so simple. The Kremlin is clearly concerned by Armenia’s perceived Western tilt, prompting a Russian foreign ministry spokesperson to warn in March that Yerevan’s current course may “create serious risks for the sovereignty of the republic.”

Worryingly, in a meeting with Aliyev in Baku in August, Putin voiced support for the Zangezur Corridor, prompting a stern rebuke from Iranian Foreign Minister Abbas Araghchi, who posted on X that “any threat from North, South, East, or West to [the] territorial integrity of our neighbors or redrawing of boundaries is totally unacceptable and a red line for Iran.”

Khachaturyan insists breaking with Russia is not part of the plan. “The improvement of our relations with the E.U. is not against anybody,” the Armenian President says. “We don’t take any steps against any organization or structure. It’s really very important that is understood.”

Indeed, Armenia’s economic relations with Russia are booming. Bilateral trade has soared from $2.5 billion in 2021 to $7.5 billion in 2023 and is on course to double again by the end of this year. Armenia’s second city of Gyumri still hosts a Russian Military base from where its troops patrol the border with Turkey. Most tellingly, Armenia also continues to enjoy access to hugely discounted Russian gas. The question is whether Yerevan can continue to nod in all directions.

“It’s a very delicate balance to develop relations with France, with the European Union, with the United States, and not to trigger a potential harsh response with Russia,” says Benyamin Poghosyan of APRI Armenia, a Yeveran-based think-tank. “It’s really a tightrope.”

And a precarious one since new friendships, including with the West, may not prove more secure than Russian ones. On Sept. 14 last year, Yuri Kim, acting U.S. Assistant Secretary of State for European Affairs, told the Senate Foreign Relations Committee that “the United States will not countenance any action or effort—short-term or long-term—to ethnically cleanse or commit other atrocities against the Armenian population of Nagorno-Karabakh.”

Yet one week later that same population was forcibly expelled in what human-rights groups have indeed termed “ethnic cleansing.” Varduhi Dadunts, country director for the Armenia office of Prague-headquartered NGO People in Need, says refugees “were not even able to take savings, passports, or belongings. We even saw children arriving without shoes.”

Although a bipartisan Azerbaijan Sanctions Review Act has been introduced to Congress, to date the U.S. government has not enacted any penalties against Azerbaijan or sanctioned a single official. In fact, the world will descend on Baku next month for the COP29 climate conference, the hosting of which Aliyev—a dictator who succeeded his father in 2003—has explicitly cited as “a sign of tremendous respect and reverence from the international community.”

The truth is much grubbier. Armenia also wanted to host COP29 but withdrew its rival bid in December and instead backed Azerbaijan in order to secure the release of 32 prisoners of war (at least 23 remain in squalid captivity). The fact that Hamas’ Oct. 7 attack on Israel occurred just two weeks after the Nagorno-Karabakh exodus certainly didn’t help garner international attention or sympathy. But history’s cruel lesson is that some democracies are valued more than others, which is why Armenia’s current mission is to dramatically boost its own worth.

“We need to find the branch of economy or the field which will be really very important for the world,” says President Khachaturyan.

Yervant Zorian, an Armenian American who serves as chief architect at $80 billion California-based semiconductor supply firm Synopsys, knows this only too well. He says that he is proud that clients in Japan and South Korea are now plugged into the Yerevan time zone owing to the 1,300 employees that Synopsys has stationed here. “The reason that Taiwan is secure is TSMC,” Zorian tells TIME, referencing the oft-touted “silicon shield” around the self-ruling island owing to its semiconductor colossus. “So having a strong economy, producing certain things that the world depends on, that’s part of security.”

On top of attracting foreign investment, Armenia also aims to leverage that influx of cash and talent to foster domestic champions. An extracurricular education program called Armath Engineering Labs has introduced 17,000 young Armenians aged 10 to 18 to practical STEM subjects through interactive after-school classes, camps, and competitions across 650 workspaces. On the sidelines of the WCIT, Yeveran hosted a DigiTec Expo of over 200 start-ups working on everything from AI-controlled hydroponic chambers for cultivating micro herbs, drone-powered crop dusting, and augmented reality development planning.

Still, an unmistakable aura of security hung over the event, with a civil defense NGO actively recruiting volunteers, a start-up dedicated to maintaining communications during times of conflict, and a shooting range to encourage attendees to get gun licenses. “All the founders are tech guys, founders of startups, who came together because there was no shooting range in Armenia,” says Sargis Karapetyan, CEO of the Union of Advanced Technology Enterprises, which organized DigiTec. “They got inspired after the war.”

But far from bolstering Armenia at the expense of its neighbors, Khachaturyan insists that sharing that budding affluence will further enhance security. His government has rolled out an ambitious The Crossroads of Peace proposal, which seeks to transform the Southern Caucuses into a trade hub with a restored network of road, railway, and pipelines linking Central Asia to the Mediterranean and Russia to India through Iran. “It can be real if we get a peace agreement with Azerbaijan,” Khachaturyan says. “Any conflict can be solved by negotiations. I’m sure that we will have success, because I don’t see any other alternative for peace.”

Whether Armenia’s neighbors are listening is a big question. Earlier this month, Aliyev turned down Armenia’s latest peace proposal, calling it “unrealistic.” The stakes couldn’t be higher and hinge on the deft balancing of realpolitik. “Armenia should not be pro-West, pro-Russia; Armenia should be pro-survival,” says Poghosyan of APRI Armenia. “Because mere Armenian statehood is in doubt. We are really on the brink.”