Three years after the Russia-Georgia armed conflict, war clouds are again gathering in the Caucasus.

Already deadlocked for years, the peace negotiations between Armenia and Azerbaijan hit a brick wall on June 24 in Kazan, when a much-anticipated peace summit broke up without agreement. President Dmitry Medvedev had put his personal authority behind the talks, having personally convened nine previous meetings between the two leaders over the past two years.

Now, there is increasing talk of war — a war that would be presumably started by Azerbaijan in a bid to regain the province of Karabakh and the surrounding districts that were seized by Armenian forces during the war from 1992 to 1994. Armenia argues that the Armenian residents of Karabakh have a right to independence and that it is unrealistic to expect Armenians to live as a minority under Azerbaijan’s rule given the history of animosity between the two sides. Each side cites atrocities against civilians committed by their adversary during a conflict that erupted in 1988.

It has become common to describe the standoff as a clash between two competing principles — “self-determination” for Karabakh versus “territorial integrity” for Azerbaijan. This makes the dispute sound like a technical difference of opinion, one that a few good lawyers could easily resolve.

In reality, there is no difference over moral or legal principles between the two sides. Rather, as in the Palestinian-Israeli conflict, it is a question of “two peoples — one land.” The disagreement is over who owns a specific piece of real estate: Karabakh, a land-locked mountain region having no particular economic or strategic value and with a population of just over 100,000.  

Karabakh has come to have deep symbolic significance for both parties. For Azerbaijan, it is a question of erasing the humiliation of military defeat and seeking justice for the 600,000 refugees that fled into the remainder of Azerbaijan as a result of the war. The refugees are roughly equal to the number of Palestinians who fled Israel in 1948, yet they have been virtually ignored by the international community. For Armenia, it is about holding on to territory after a century during which Armenian residents have been progressively driven from their lands. That process culminated in the massacres — or genocide — that occurred during World War I, a tragedy that still overshadows and immeasurably complicates the conflict over Karabakh.

The Organization for Security and Cooperation in Europe proposed some basic principles for a peace settlement back in 2007. The core idea is temporary recognition of Karabakh’s self-rule in return for the withdrawal of Armenian forces from the other occupied districts. These Madrid Principles fudge the question of sovereignty by allowing for a referendum on self-determination in Karabakh at some point in the future. Armenia is being asked to give up something concrete —occupied territories — in return for something ephemeral — promises about a future referendum.

The main carrot being offered Armenia in return for leaving the occupied districts around Karabakh is the opening of the border with Turkey, which was closed by Ankara in solidarity with Azerbaijan in 1993. The 2008 Russia-Georgia war threatened Armenia’s land transit route through Georgia, leaving them dependent on access from Iran. A concerted international effort to persuade Turkey to open the border narrowly failed in October 2009, when domestic political opposition caused Turkey to retreat from an agreement to open the border that was signed with great fanfare in Zurich.

Azerbaijan’s president, Ilham Aliyev, has repeatedly stated that independence for Karabakh is non-negotiable, so Armenia’s reticence about moving ahead with the peace process is understandable. Why is Aliyev continuing to negotiate in the face of Armenian intransigence? If Aliyev can convince the international community that Armenia is blocking the Madrid Principles, that could give him some political cover for launching a war. Aliyev claims that time is on Baku’s side, since Armenia’s population is shrinking due to its stagnant economy, while Azerbaijan is booming thanks to its oil wealth. But Aliyev faces re-election in 2013, and keeping the lid on the opposition will be more difficult absent some progress on Karabakh. In addition, starting in 2014, Azerbaijan’s oil production will be past its peak, and revenues will start to fall.

Even some liberals are saying that a short war — a war in which neither side would probably achieve victory — could clear the way for real negotiations. The model is the 1973 Yom Kippur war, which Egyptian President Anwar Sadat claimed as a victory and which opened the door to the Camp David peace talks.

More important, an indecisive war would discredit the hawks on both sides, enabling peacemakers to strike a bargain without facing a coup when they returned home. Azerbaijan’s gross domestic product is five times that of Armenia, and Baku spent $3 billion in 2010 on its military, more than Armenia’s entire budget. But Armenia has taken delivery of sophisticated Russian hardware, including the S-300 air defense system and is home to a Russian military base housing 5,000 troops, whose tenure was extended last year through 2044.

Thus, an attack on Armenia by Azerbaijan could well trigger Russian intervention, just like Russia’s response to the Georgian attack on South Ossetia in 2008. Aliyev has been trying to maintain good relations with Russia in the hope that Moscow will press Armenia to agree to a settlement and will stay on the sidelines in a future conflict.

The main factor preventing a war is that none of the great powers want to see a resumption of hostilities. The West does not want to see a disruption of oil supplies, and for Russia a war would trigger a wave of refugees and possibly increased Western intervention in their Caucasus backyard. But the Russia-Georgia war of 2008 was a reminder that the major powers cannot always control their smaller allies and client states. If war were to break out, Russia would probably back Armenia because it must be seen as standing up for its main ally in the region. The mere threat of Russian intervention serves as a deterrent to Turkey entering the war in support of Azerbaijan. At the same time, however, Azerbaijan is arguably a more valuable ally for Russia than Armenia because of its important strategic location on the Caspian. Winning Azerbaijan away from the United States would be a substantial strategic gain for Moscow.

In any event, given the large and influential Armenian diaspora in the West, Armenia should not be placed indefinitely in the Russia camp. A few years down the road and a color revolution in Yerevan could see a pro-Western government there. Hopefully, cool heads will prevail, and the existing situation of neither war nor peace will stagger on through another hot summer.