OSCE Minsk Group's Proposals
The Most Recent Existing Proposal, The Madrid Principles, 2011
Having failed to present a document that was acceptable to all parties, the Minsk Group continued to work to find a new compromise. The latest proposal (revised July 10, 2009 at the meeting in L'Aquila, published in the press release June 26, 2010) is based on the so-called Madrid Principles which proposes the following compromise:
- The return of the occupied territories around Nagorno-Karabakh;
- An interim status for Nagorno-Karabakh that will guarantee its security and autonomy [but within Azerbaijan's territory];
- A corridor connecting Karabakh with Armenia (Kelbadjar and Latchin);
- The final status of Nagorno-Karabakh will be determined in future by a legally binding expression of will [i.e. the local people's empowerment in a referendum];
- The internal refugees and displaced persons' right to return;
- International security guarantees, including a peacekeeping force.
However, neither Armenia nor Azerbaijan has quite accepted these proposals as satisfactory. Azerbaijanis fear that the future promised referendum will most likely result in Karabakh's separation from Azerbaijan, while Armenians are concerned about the fact that no specific date is given for this referendum. This, according to the Armenian side, can result in "Cypernification" of the conflict when such a referendum can be delayed indefinitely by the Azerbaijanis, e.g. in anticipation of the return of exactly every single refugee to the region. The government in Baku has also recently made it clear that the basic problem of this paper is precisely the point of Karabakh's right to referendum in regard to its status. Instead, Baku is pushing for this paragraph to explicitly mention that the envisioned referendum will determine Karabakh's future status within Azerbaijan's territory, which of course contradicts the very essence of letting Karabakh Armenians to express their will.
The lack of concrete progress on the diplomatic arena has also resulted in an ever increasing tension in the region, mainly in the form of Azeri frustration. It has been noticed clearly in the Azerbaijan's multiplied military budget, which President Aliyev, thanks to their increased oil revenues, has promised to exceed Armenia's total annual budget. The increased frustration is visible also in the rhetoric of the Azerbaijani leadership, who is tired of the current situation and has begun to threaten to renew the armed conflict to regain Karabakh with necessary force in accordance to "Azerbaijan's fundamental right."  The threat has also manifested itself in increasing violations of the ceasefire agreement in which both sides have accused each other of having caused the breach.  The Azeri side has also repeatedly refused the OSCE monitors access to the front line to perform both routine inspections, but also in cases of mortal shootings. 
In the spring of 2011, the Minsk Group stepped up its mediation efforts and during the G8 summit in May, the Presidents of the United States, France and Russia, announced their continuous support for a peaceful solution to the conflict and called on Armenia and Azerbaijan to try to find common ground during the meeting in Kazan (Russia) that had been planned on the Russian President Medvedev's initiative. The surrounding world was cautiously optimistic about the meeting between Armenia's Serzh Sargsyan and Azerbaijan's Ilham Aliyev. It was hoped that the presidents could sign a framework agreement containing the basic principles in accordance with the Madrid Principles for further negotiations. On June 24, Sargsyan and Aliyev met in a meeting chaired by Russian President Medvedev. After three hours of negotiations they announced a joint statement, in which Sargsyan and Aliyev stated that they had reached agreements on certain issues and expressed their determination to continue to meet for further discussions. However, there was no signing of any document. Both countries blamed each other and said that the failure of Kazan was due to the counterparty. Armenian Foreign Minister Edward Nalbandian told a news conference that "the Azerbaijani side presented about a dozen changes" to the Madrid Principles. His Azerbaijani colleague, Elmar Mammadyarov never denied Nalbandian's allegations of new Azeri conditions, but blamed the failure on "Armenian side requires maximum concessions from Azerbaijan.". Nevertheless, both foreign ministers expressed some hope and stated that their presidents planed to continue negotiations in the same format.
Several analysts concluded that it was all about the final status of Karabakh which impeded a breakthrough. Apparently, the government in Yerevan pressed the mediators to set a date for the referendum on Karabakh's final status, while the government in Baku was totally opposed to determining a date for the referendum. In addition, Azerbaijan is considered to prefer the current status quo while it is building up its military power, while Armenia is more prone to have a permanent end to the conflict. It is assumed that the government in Baku has realized that Karabakh, under the prevailing circumstances and the existing documents, is probably lost forever and will not return under Azerbaijani rule. The question now is more about prestige and a solution that would mean that Azerbaijan can exit the conflict with its head high. A renewed and protracted war would definitely not be a preferable solution of yet another reason, namely that Azerbaijan's leaders, most of them in the oil business, would not risk a full-scale war that would damage the oil revenues. Experts add that these oil barons would still prefer a concentrated attack to retake a symbolic territory, however small it may be, just for the sake of its prestige. On the other hand, a potential loss for the Armenian side could lead to dire consequences such as undermining of the current political stability at home, whereby the retaliation may be a much more massive counter-attack, which in turn can escalate the war in an ascending spiral with devastating results.
An important factor that has been missing for all years of mediation efforts, however, remains Karabakh's absence in the direct negotiations. To date, Azerbaijan has refused to recognize Karabakh as a counterpart to the conflict and insisted on their exclusion from the negotiations and instead discussed the issue with Armenia. This has hampered the process, since it becomes pretty obvious that Azerbaijan is unwilling to recognize Nagorno-Karabakh's right to self-determination, especially if this principle should be one of the basic items in the framework agreement that will lead to a lasting peaceful solution. In fact, the conflict in its modern vintage (compared to the issue in the 1920s) did not start as Armenia's claim to Nagorno-Karabakh, but with a resolution of the latter's parliament that under the then applicable Soviet Union laws represented a legal counterparty in the dispute. A near future participation of Karabakh at the negotiation table should speed up a lasting solution acceptable to all parties.
109) OSCE, Statement by the OSCE Minsk Group Co-Chair countries, Muskoka, Canada, June 26, 2010; http://www.osce.org/mg/69515
110) The Azerbaijani parliament approved a military budget of 3.1 billion USD, while Armenia's total annual budget amounted to 2.8 billion USD. See Eurasianet.org , Azerbaijan: Baku Embarks on Military Spending Surge, Seeking Karabakh Peace, October 22, 2010; http://www.eurasianet.org/node/62223
111) Euronews President of Azerbaijan: "Our patience has also limits", 2 February 2010; http://www.euronews.net/2010/02/02/interview-with-ilham-aliyev president-of-azerbaijan
112) Asbarez, Co-Chairs Condemn Karabakh Cease-Fire Violations, 7 September 2010; http://asbarez.com/84956/co-chairs-condemn-karabakh-cease-fire-violations
113) On 18 March 2011, only days after the Armenian and Azerbaijani presidents met in Sochi, Russia, and declared mutual willingness to respect the ceasefire agreement and find a peaceful solution to the conflict, an Armenian soldier was killed by Azerbaijani snipers. When the OSCE initiated an investigation of the shooting the Azeri side refused OSCE observers access to the front line. See Asbarez, Azerbaijan Skips Out on Another OSCE Monitoring, 21 March 2011; http://asbarez.com/94310/azerbaijan-skips-out-on-anotherosce-monitoring
114) Joint Statement by Presidents Sarkozy, Obama and Medvedev on the Nagorno-Karabakh Conflict, G8 Summit of Deauville, 26 May 2011; http://www.g20-g8.com/g8-g20/g8/english/live/news/joint-statementby-presidents-sarkozy-obama-and.1295.html
115) Presidents adopt joint statement in Kazan, Tert.am, 24 June 2011; http://www.tert.am/en/news/2011/06/24/kazan-statement
116) Armenian, Azerbaijani Presidents' meeting in Kazan failed to Become turning point - Armenia's FM, News.am, 25 June 2011; http://news.am/eng/news/64567.html
117) Azeri FM: "Armenian side Requires maximum Concessions from Azerbaijan", News.az, 25th June 2011; http://www.news.az/articles/politics/39227
118) E.g. see Emil Danielle Lair, Armenia, Azerbaijan Again Fail to Agree On Karabakh Peace Framework, Eurasia Daily Monitor, Volume: 8, Issue 125, June 29, 2011