The European Union has unveiled a new package of trade and financial support for Armenia while deepening infrastructure and energy cooperation with Azerbaijan this week, part of the shift in Brussels’ South Caucasus policy as it seeks to secure regional stability, expand transport corridors and reduce Russian influence.

The twin announcements, made during European Commission President Ursula von der Leyen’s visits to Baku and Yerevan this week, continue the broader recalibration of EU strategy in a region undergoing rapid geopolitical change following Russia’s invasion of Ukraine and the gradual normalisation of relations between Armenia and Azerbaijan.

In Azerbaijan, von der Leyen pledged up to €200mn in grants under the EU’s Global Gateway initiative to support transport, energy and digital connectivity projects across the South Caucasus, funding Brussels says could unlock as much as €2bn in wider public and private investment. A separate €20mn programme aims to deliver what the EU calls “peace dividends” to communities near the Armenian-Azerbaijani border through healthcare, demining and rural development.

In Armenia, Brussels announced an additional €52mn in support and proposed tariff-free access for roughly 80% of Armenian exports entering the EU, a move designed to help Yerevan offset economic pressure from Russia as it accelerates its pivot westward. Moscow introduced a raft of restrictions on Armenian exports in the run-up to the June general election, and has insisted Yerevan’s long-range ambitions to join the EU are incompatible with its membership of the Eurasian Economic Union. Despite this pressure, Pashinyan’s Civil Contract won a convincing election victory.

“The recent elections have shown the strength of Armenia’s democracy. The Armenian people have chosen reform and a closer partnership with our Union. No country should be pressured for a sovereign choice,” von der Leyen said in Yerevan.

“This is why the EU is stepping up, with €52mn and proposed tariff-free access for 80% of Armenia’s exports to the EU. Armenia can count on us.”

The package reflects the EU’s growing willingness to deploy economic tools to shape political outcomes in a region long dominated by Russian security influence. For much of the past two decades, Brussels approached the South Caucasus cautiously, prioritising regulatory cooperation and reform assistance while avoiding direct geopolitical confrontation with Moscow.

However, Russia’s full-scale invasion of Ukraine in 2022 accelerated EU efforts to build alternative energy routes, diversify supply chains and expand influence along the corridor connecting Europe with the Caspian and Central Asia. The South Caucasus now sits at the intersection of several strategic priorities: energy security, trade connectivity and regional conflict management.

But the bloc’s strategy also reveals growing tensions between normative commitments and geopolitical pragmatism. Brussels has embraced Azerbaijan as an increasingly important energy partner despite persistent criticism from human rights groups over democratic backsliding and political repression. During her visit to Baku, von der Leyen praised Azerbaijan’s role in European energy security.

“Azerbaijan has proved a reliable energy partner,” she said, adding that the Southern Gas Corridor was “an incredible success story”.

President Ilham Aliyev used the visit to reinforce Azerbaijan’s centrality to regional logistics and European energy diversification. He said gas exports to the EU had risen by around 65% since the signing of a strategic energy memorandum four years ago and noted that half of Azerbaijan’s gas exports now go to Europe.

The EU’s expanding cooperation with Baku has attracted criticism from rights organisations and jailed Azerbaijani activists, many of whom urged von der Leyen to publicly address political imprisonment during the visit. Advocacy groups estimate that more than 300 political prisoners remain in Azerbaijani detention, though Baku rejects that characterisation and says those jailed were convicted of ordinary criminal offences.

The criticism highlights a recurring challenge for Brussels: reconciling values-based diplomacy with hard strategic interests.

The same contradiction is increasingly visible in Armenia, where Brussels has cast Prime Minister Nikol Pashinyan as a reformist partner while downplaying concerns over domestic political centralisation.

Pashinyan welcomed the EU package as a sign of deepening alignment. “Our meeting today reaffirmed that the EU is one of Armenia's most reliable partners,” he said on July 2. “The phrase ‘the Republic of Armenia and the EU are closer than ever’ is becoming more tangible day by day, gaining not only political but also practical economic application.”

Yet the EU’s effort to anchor Armenia more firmly within a Western orbit faces structural limits. Despite worsening political relations with Moscow, Armenia remains heavily dependent on Russia economically and strategically. Roughly 90% of Armenia’s natural gas comes from Russia, and Moscow retains substantial influence over critical infrastructure and energy assets. Armenia’s trade also remains deeply tied to the Eurasian Economic Union, limiting how quickly EU support can replace Russian leverage.

Von der Leyen described Russian pressure on Armenia as “nothing short of economic coercion”, referencing recent restrictions affecting Armenian exports.

Still, analysts caution that EU financial assistance, while significant politically, may only provide short-term relief rather than a durable strategic alternative. Brussels’ broader wager is that connectivity and economic integration can lock in peace between Armenia and Azerbaijan after decades of conflict over Nagorno Karabakh.

Last year’s Washington-mediated peace framework significantly altered regional dynamics and reduced the EU’s direct diplomatic role. While Brussels previously hosted high-profile mediation efforts, the United States increasingly took the lead in shepherding the peace process, leaving the EU more focused on economic follow-through.

Von der Leyen framed connectivity as a peace mechanism rather than merely an infrastructure agenda. Proposed projects include rail links through Nakhchivan, upgrades to the Port of Baku and cross-border energy interconnection.

“The EU firmly supports the process and stands ready to help turn peace on paper into a reality on the ground,” she said.

Another striking feature of the EU’s new South Caucasus strategy is not who is included, but who is missing. Georgia — once widely regarded as Brussels’ most promising partner in the region and long presented as the EU’s democratic frontrunner in the South Caucasus — was conspicuously absent from this week’s diplomatic tour and from the major announcements accompanying it.

The omission reflects a profound deterioration in relations between Brussels and Georgia. Although the EU granted Georgia a formal European perspective after 2022, relations have cooled sharply amid concerns over democratic backsliding, contested legislation and accusations that Tbilisi’s leadership is drifting away from Euro-Atlantic integration.

Georgia’s exclusion is especially notable because earlier EU regional strategy frequently treated Tbilisi as the bloc’s primary gateway into the South Caucasus. The country’s Black Sea access, transit potential and previous reform trajectory made it central to connectivity initiatives such as the Black Sea submarine cable and the Middle Corridor.

The South Caucasus is becoming increasingly multipolar, with Turkey, China, Gulf states and the US all expanding their influence. Regional governments are pursuing multi-vector foreign policies designed to maximise leverage between competing external powers.

Against that backdrop, the EU’s longstanding weaknesses remain unresolved: internal divisions among member states, consensus-based decision-making and limited willingness to commit hard security resources. These constraints have repeatedly left Brussels reactive rather than strategic. For now, the EU is attempting to compensate through money, trade and connectivity, instruments that fit its institutional strengths but may not fully match the scale of regional competition.