The scenery is breathtaking. Sandwiched between two seas and home to Europe's highest mountains, the Caucasus has always been an alluring and darkly mysterious region. Its reputation rose during its long, slow conquest by imperial Russia in the 19th century. The Caucasus features prominently in the poetry of Pushkin and the fiction of Tolstoy. A classic Russian figure, the “superfluous man” who is powerless and doesn't fit in, first appeared in the character of Pechorin in Lermontov's novel, “A Hero of Our Time”, set in the Caucasus. Russian readers were also enthralled by the exploits of the Caucasian resistance hero, Imam Shamil.

Now the Caucasus is at centre-stage again. The restive north Caucasus republics in the Russian federation are always in the news. After two bloody wars with the Russians, Chechnya is more or less at peace under the thumb of its strongman president, Ramzan Kadyrov, but could easily flare up again. Dagestan has become an increasingly lawless place. Worse, Ingushetia is in a state of near-anarchy, with Russian security services using the same brutal methods as armed Ingush rebels.

But it is the three countries of the south Caucasus--Georgia, Azerbaijan and Armenia--that are the bigger story now, for they are the cockpit in a new clash between Russia and the West. The main reason these tiny countries matter, despite a combined population of only 16m or so, is geographical. Perched next to Turkey, north of Iran and south of Russia, this is a place where empires have long met--and clashed. Russia never reconciled itself to losing control of the Caucasus when the Soviet Union broke up in 1990-91. Moscow has been visibly fretful about rising Western influence.

The Russians have been especially hostile to Georgia's president, Mikheil Saakashvili, who swept to power after ousting Eduard Shevardnadze in the “rose revolution” of 2003. Indeed, the icy personal relations between Mr Saakashvili and Russia's Vladimir Putin have clouded the whole region. The Russians have kept up a trade and travel embargo on Georgia. They were incensed by NATO's decision in April that Georgia should one day be a member, even if the country was not offered an immediate “membership action plan”.

Russia is less neuralgic about the other two Caucasus countries, where its influence is stronger. Yet in many ways Azerbaijan matters more than Georgia, as it has lots of oil and gas (Georgia and Armenia have plenty of minerals, but little energy). The whole area is crucial for existing and planned pipelines, especially for gas, that can supply Europe while bypassing Russia (see map). Pipelines go a long way towards explaining why the Caucasus is now such a critical theatre in Russia's face-off with the West.

The third reason why the Caucasus matters is that it harbours several simmering conflicts left after the collapse of the Soviet Union in 1991. Indeed, most of the fighting then took place in the Caucasus. Georgia was left with two regions, Abkhazia and South Ossetia, that broke free of Tbilisi's control in two wars in the early 1990s. As became clear in August, Russia sustains their independence from the irritating Mr Saakashvili. Azerbaijan has the autonomous region of Nagorno-Karabakh, over which it fought and lost an even bloodier war with Armenia in 1991-94. Today Armenia controls not only Nagorno-Karabakh but also seven villages in Azerbaijan proper, and soldiers are frequently killed along the ceasefire line.

Marching through Georgia

It was on August 7th that the world woke up to the dangers of the Caucasus's territorial conflicts. For months the Russians had done their utmost to provoke the Georgian president, who has a reputation as a hothead. Bombs were dropped, drones sent over Georgian territory, invasion exercises staged. The Americans insist they were urging restraint on Mr Saakashvili, but some observers claim the signals were mixed. After all, Mr Saakashvili had promised to restore Georgia's territorial integrity; and he also seized a smaller rebellious enclave, Ajaria, in 2004. He may have banked on doing the same in South Ossetia without either American objections or a determined Russian response.

Tension rose steadily during the week leading up to August 7th. Indeed, Paata Zakareishvili, a close observer of the enclaves, believes that war could have broken out on any day that week. Yet what actually happened on August 7th remains a matter of fierce dispute--and may be the subject of an international inquiry that Mr Saakashvili says he would welcome, and claims he was the first to call for.

The Georgian version of events goes like this. After several days of skirmishes with South Ossetian forces, Mr Saakashvili announced a ceasefire, which he says was violated by the Ossetians. But he decided to shell and then invade Tskhinvali, the South Ossetian capital, only once Russian troops and tanks started pouring in from North Ossetia through the Roki tunnel on the evening of August 7th. The Russians insist that no troops entered the tunnel and that the attack on Tskhinvali was unprovoked (monitors from the Organisation for Security and Co-operation in Europe, trapped in Tskhinvali, say that they heard no Ossetian shelling before the Georgians opened up). At the time the Russians also asserted that 2,000 people had been killed in the city and talked wildly of genocide (the true number seems to be little more than 100).

The Russians responded with massive force. Although they took heavy casualties from the Georgians as their columns drove south, sheer numbers eventually told and the Georgians were pushed back before abandoning the fight. The Russians then occupied swathes of territory around the enclaves and briefly threatened Tbilisi before declaring a ceasefire. Yet for weeks after they first promised the European Union that they would withdraw from Georgia proper, the Russians kept their troops and checkpoints on the thin excuse of taking “security measures”. These forces smashed up Georgian bases, ports, railways and roads.

The Russians have just declared that they have fulfilled their most recent promise to the EU to pull out of Georgia proper by October 10th. Yet their troops are in places where they were not before August 7th, and there are far more of them. Georgian villages in and near South Ossetia have been subjected to brutal ethnic cleansing. And the Abkhaz have taken back the Kodori gorge from Georgian forces. This is a long way from restoring the status quo before August 7th. The short August war has also left Georgia with the burden of as many as 60,000 refugees.

The EU has now deployed some 200 ceasefire monitors, but the Russians will not let them into the two enclaves, which they have unilaterally recognised as independent states. Talks over the enclaves' status began in Geneva this week but broke up almost immediately, when the Russians walked out. Agreement was clearly impossible. The Russians think they won the war and should reap the rewards. The Georgians cannot let go of the enclaves. Even Nino Burjanadze, a former speaker of the Georgian parliament who is now an opponent of Mr Saakashvili's, says this would be like cutting off one's arms and legs.

One effect of the war was to dampen Georgia's soaring economy. Real GDP rose by over 12% in 2007, thanks to a surge in foreign investment, a liberalisation programme and a curbing of once-endemic corruption. Mr Saakashvili says that, if the war had happened just two years ago, the economy would have collapsed. Now, he notes with satisfaction, Russian financial markets have suffered the bigger falls. Admittedly, growth looks like lapsing to 5% or less this year, not least because of a bleaker world economic outlook; but reconstruction work and a promised inflow of foreign aid should push it up next year.

The political prospects in Georgia are murkier. Although Mr Saakashvili likes to say that the best response to Russia's aggression is more democracy, he has yet to translate his words into action. He did himself no favours by crushing opposition protests in Tbilisi last November. He was re-elected president in January, and his party won the parliamentary election in May. But the opposition is regrouping. Ms Burjanadze plans to form a new party. More critics of Mr Saakashvili's warmongering venture into South Ossetia and his autocratic instincts are emerging: Georgia's ombudsman recently called for “real democracy” to replace authoritarianism. Ironically it is the Russians, who most want to get rid of Mr Saakashvili, who are now his biggest prop: since the war, his popularity rating has risen to over 75%.

Even today, Mr Saakashvili claims to regret nothing; he maintains that he had no alternative and that the war was not really about South Ossetia and Abkhazia at all. Indeed, he barely accepts that Georgia lost. As he sees it, the Russians already controlled both enclaves; his government has not fallen; vital pipelines across Georgia were undamaged despite Russian bombing; and the economy is holding up. And he revels in the world's attention. When Georgia was overrun by bigger neighbours in the past, he says, nobody paid any heed; this time, leaders from all over Europe flocked to Tbilisi to show their support.

The oil-and-gas game

The August war has profoundly affected Azerbaijan and Armenia too. Neither is anywhere near as democratic as Georgia, both are friendlier to Russia (Armenia, in particular, is a close ally) and neither aspires yet to join Western clubs like NATO or the EU. Yet, in the war's aftermath, both are looking to the West more than before.

Azerbaijan's president, Ilham Aliev, predictably won re-election on October 15th, in part because most opposition candidates boycotted the poll on the ground that it was neither free nor fair. An autocratic government can appear to create stability. Yet the younger Mr Aliev is widely seen as a weaker leader than his father Heidar, who bequeathed him the presidency in 2003, and some think he is in hock to the country's most powerful business oligarchs. Opposition leaders like Eldar Namazov claim that there is even less freedom now than before.

What is certain is that Azerbaijan's oil-fired economy has been booming. As one diplomat says, it feels and looks a bit like a slightly seedy Gulf emirate. The Baku-Tbilisi-Ceyhan pipeline is now shipping 1m barrels of oil a day; gas is flowing to Georgia, Turkey and Russia. Baku is smothered in petrodollars, with glitzy new buildings and horrendous traffic jams. It is less clear that ordinary citizens are benefiting. Many complain about inflation, which is running anywhere between 16% (officially) and 30% (say some economists). The government talks up its programme of economic liberalisation, which has been praised by the World Bank. Yet Azerbaijan also has a reputation for corruption.

There is a big downside to the oil boom: it crushes the non-oil economy. One economist says that oil and gas now account for half of GDP and over 90% of exports. The real exchange rate has appreciated sharply, one reason why Baku is so expensive. Worse, oil and gas reserves in Azerbaijani territory are finite. Bill Schrader, head of BP Azerbaijan, notes that the real game for the future will be to try to tap into the Turkmenistan side of the Caspian, which has huge reserves of gas.

Azerbaijan's energy wealth is naturally of interest to the Russians, who want it to sell more oil and gas northwards. Russia's energy giant, Gazprom, is desperate for more gas. But the government is having none of it: it supplies Georgia with gas against Russia's wishes, for example, and it is enthusiastic about pipelines to the West (including the planned Nabucco pipeline). Officials see big advantages in not depending on a single buyer.
Looking for allies

Another big cloud on the horizon is Nagorno-Karabakh. Negotiations over the Armenian-controlled territory continue fitfully in the so-called Minsk group led by Russia, America and France. Until the war in Georgia, observers were worried that a newly rich Azerbaijan, which is spending heavily on defence, might again resort to force. Ordinary Azerbaijanis, angry that one-seventh of their country is occupied by Armenia, remain belligerent. But after Georgia a new war looks less, not more, likely, not least because the Russians would not allow Armenia, their ally and host to two big military bases, to be beaten.

Yet the Armenians are not complacent. Russia's war with Georgia made this tiny landlocked country feel highly vulnerable. Its eastern border with Azerbaijan has been blocked by the aftermath of the 1991-94 war, and the Turks sealed their western border in 1993 in sympathy with their Azeri cousins. Some 80% of Armenia's trade goes through ports in Georgia, many of which were damaged by the Russians. Not surprisingly, the Armenians are looking around for more friends in the neighbourhood besides Russia. A new gas pipeline from Iran is planned, for instance.

Armenia is hardly less autocratic than Azerbaijan. The election in February that brought Serzh Sargsyan into the presidency was criticised by most Western monitors. Worse, the opposition leader (and former president), Levon Ter-Petrossian, who says roundly that the election was stolen, took his followers on to the streets. The result was the most violent protests Yerevan has ever seen, put down by the government with the loss of eight lives. As many as 74 opposition demonstrators remain in jail, although Mr Sargsyan blandly assures interlocutors that there are no political prisoners in Armenia.

As in the rest of the Caucasus, the economy has done well in recent years, although it is over-dependent on raw materials, construction and diamond-trading, plus remittances from the large Armenian diaspora. It is also the diaspora that bangs the drum most loudly against a diplomatic settlement of Karabakh or any improvement of relations with Turkey. Yet Mr Sargsyan is being bolder than his predecessor-turned-critic, Robert Kocharian. Both men come from Nagorno-Karabakh, so they are hardly likely to let go of the Armenian-populated enclave. But Mr Sargsyan is readier to negotiate and to give back most Armenian-controlled territory in Azerbaijan outside Nagorno-Karabakh. Even that may not be enough to settle the dispute, for this would require Azerbaijan to accept the de facto independence of Karabakh.

The other two reasons for mild hope concern Turkey. Mr Sargsyan bravely invited the Turkish president, Abdullah Gul, to a football match in early September. Talks between the two foreign ministers took place in New York three weeks later. The aim, as Edward Nalbandian, the Armenian foreign minister, puts it, is to achieve “total normalisation” of relations with Turkey. On the Armenian side, that means dropping all preconditions, including demands that Turkey accept that there was an Armenian genocide in 1915. Mr Sargsyan has gingerly expressed support instead for a Turkish idea that the subject should be looked at by a joint historical commission.

The push to reopen the border with Turkey is clearly driven in part by Georgia's war with Russia. But there is a long way to go before inhabitants of Yerevan can cross the border to their sacred Mount Ararat. As always, some businessmen benefit from its closure. Moreover, Karabakh will be a continuing sore: on the Armenian side, some may prefer stasis on Karabakh to normal relations with Turkey, while the Azerbaijanis, who have great influence in Turkey, will do their utmost to upset friendlier links between Turkey and Armenia.

A Western opportunity

To outsiders, the Caucasus often seems a hotbed of devilish intrigue, power games and insoluble ethnic conflict. The war in Georgia confirmed the worst suspicions of many. Yet both in Georgia and in its two neighbours, it could also have created an opportunity for change.

For all his bravado, Mr Saakashvili was clearly shaken. He should now be more amenable to the line that the best way to promote Georgia's integrity is to foster a genuinely liberal democracy--so that, one day, the enclaves might choose to return. A similar argument could carry some force in Azerbaijan and Armenia as they look for friends beyond Russia. If the West is to be consistent, however, it should support these countries only in so far as they take steps, however slowly, in the same democratic direction as Georgia.

Two keys could help to unlock this process. The first is to dangle the prospect, however distant, that all three countries might one day qualify as members of the EU. As experience in eastern Europe has shown, this is the best way to lure countries towards reform. The EU may offer a better route than NATO membership, which is both more problematic and further off after Georgia's war.

The second key is to work with Turkey, which as the only NATO country in the region is well-placed to offset Russia's influence. Shortly after the war, Turkey launched a proposed “Caucasus Stability and Co-operation Platform”, which even the Russians applauded. Turkish companies are active in the region, conspicuously so in Georgia and Azerbaijan and (in disguise) even in Armenia. If the Turks can improve relations with Armenia, including opening the border, they could play a more constructive role in the Caucasus than the Russians have ever done.

But both Turkey and the three Caucasus countries will need encouragement. That could start with a firm EU decision to back the Nabucco gas pipeline. It would also help if the Caucasus countries were less nationalist and better at working together. Paradoxically, Georgia's war with Russia may enhance the chances of peaceful progress in the whole region.
