During the Soviet period, the Armenian SSR, which didn't share border with the RSFSR, communicated with the center mainly through the territory of the Azerbaijani SSR. However, due to the conflict over Nagorno-Karabakh, Armenia basically lived in an economic blockade. It's obvious that without this blockade, Armenia would be able to join large-scale economic projects, as a result of which the republic would embark on the path of prosperity. Such scenario would also bring a certain benefit to the largest country in the region - Russia.
Settlement of territorial conflicts will lead to development and implementation of mutually beneficial economic projects, which become particularly relevant in the face of increasing sanctions against the Russian Federation.
Difficult economic situation, consequences of which have a painful effect on the current situation in Armenia, are the obvious result of the Karabakh war. As a result of this conflict, Armenia is basically in a political isolation. The republic shares borders with four states, two of which have bad relations with it. Turkey is a strategic partner of Azerbaijan and still keeps its borders with Armenia closed. Although in the early 1990s, after the collapse of the USSR, Turkey was one of the first to recognize Armenia as a sovereign state, it's still impossible to establish diplomatic contacts and sign mutually beneficial trade agreements. Iran pursues friendly policy towards Armenia, but it has hostile relations with the West. The Abkhaz and Ossetian problems create certain restrictions in cooperation between Georgia and Armenia.
Transport isolation is also an important problem of modern Armenia. Closure of borders, as well as escalation of the Georgian-Abkhaz conflict, led to the fact that communication between Armenia and Russia is possible only through the Georgian Military Road that passes through the territory of Georgia, which severed diplomatic relations with the Russian Federation and withdrew from the CIS. Transport isolation manifested itself in restrictions on railway traffic. As a result of the Karabakh conflict, section of the railway that connected Meghri and Masis settlements was shut down.
In other words, south of Armenia is cut off from railway communication. Armenia hopes to restore its road infrastructure potential by building Armenia-Iran railway, but this project hasn't been implemented yet.
The second promising area associated with development of railway communication is restoration of a part of the Transcaucasian Railway, which passes through the territory of Abkhazia. Russia is also interested in this, but since 1991, due to the Georgian-Abkhaz conflict, Tbilisi blocked railway communication on the Sochi-Sukhumi-Tbilisi-Yerevan route. This railway has been in decline for over 24 years.
Economic blockade of Armenia predetermined its participation in integration processes in the post-Soviet space, since it will remain alone, it will be difficult for Armenia not to find itself on the list of countries whose foreign debt is many times higher compared to annual income. But despite Armenia's participation in the Collective Security Treaty Organization, militarization of the republic and, as a consequence, militarization of the unrecognized Nagorno-Karabakh Republic forces Yerevan to actively invest in the army. This leaves an imprint on people's lives and rhetoric of the political elites of Armenia. People live in constant fear, they fear that another escalation of the conflict will begin, which will also lead to migration.
Before the collapse of the Soviet Union, the Armenian economy satisfied its needs for resources through imports from the Soviet republics. Azerbaijan supplied Armenia with products of chemical and fuel industry, machine building, vegetables. Armenia mainly exproted finished products - machines, agricultural machines, cars, clothes, dishes. By the end of the 1980s 70% of Armenia's production volume was based on imported products. At the same time, 60% of the produced goods were exported. However, because of the war, Armenia was forced to urgently seek alternative sources of hydrocarbons. Since the mid-1990s, Iran has become the main gas importer and guarantor of Armenia's energy security. And today Armenia depends on Iranian gas supplied, which it gets at high prices.
Finally, economic isolation predetermined forced deindustrialization of the country, which failed to preserve many industrial productions. According to the Institute of Economics of the Russian Academy of Sciences, after the war, the number of people employed in production industry decreased from 458,000 to 180,000 (by 2.5 times), which in turn lead to reduction in production and consumption of electricity, as well as natural gas. At the same time, the number of people working in agriculture increased from 389,000 to 567,000 people (by 1.5 times).
Today Armenia relies on information technologies, since it was the center of IT innovations in the USSR. At the same time, just like any emerging industry, start-ups in Armenia face the need to respond to technological changes quickly. In order to produce competitive products, it's necessary to attract wider audience and global investments, which the unresolved Karabakh issue obviously doesn't allow.
