Progress Made Over Karabakh Conflict-U.S. Mediator

The ex-Soviet neighbours fought a war in the early 1990s over the mountainous territory of Nagorno-Karabakh.

Azerbaijan and Armenia are showing a new resolve to settle a conflict that could threaten oil exports to the West if it flares again into fighting, an international mediator said on Thursday.

The ex-Soviet neighbours fought a war in the early 1990s over the mountainous territory of Nagorno-Karabakh. Their troops still fight skirmishes there despite a ceasefire, and attempts to broker a peace deal have repeatedly foundered.

But the outlook for an agreement is now looking more positive because of a new rapport between the two countries' presidents, said Matthew Bryza, U.S. Deputy Assistant Secretary State and one of three international mediators in the conflict.

"We can say there is progress," Bryza told Reuters on Thursday on the sidelines of the annual meeting of the Organisation for Security and Cooperation in Europe (OSCE) in the Finnish capital.

Armenian President Serzh Sarksyan and his Azeri counterpart Ilham Aliyev have held two rounds of talks in the last six months and their foreign ministers met on Thursday in Helsinki.

"The mood between presidents Aliyev and Sarskyan has improved, significantly," said Bryza.

"They both respect each other, number one, and are beginning to trust each other, number two. And, number three, they have definitely expressed a willingness to be constructive, meaning take into account what the other side needs to reach an agreement," he said.

"Both presidents said 'OK, I think I'm ready to move ahead. Let's try to finalise these basic principles (for a peace deal). I'm ready to work with my counterpart'."

He said there was still a lot of work to be done before fundamental differences between the two sides on the future of Nagorno-Karabakh could be bridged.

DISPLACED PEOPLE

Nagorno-Karabakh is internationally recognised as part of Azerbaijan. Since the fighting it -- along with surrounding Azeri districts -- have been under the de facto control of ethnic Armenian separatists, with support from Armenia.

The fighting killed about 35,000 people and displaced around one million civilians, with most of them still unable to return to their homes nearly two decades later.

Azerbaijan has said it is committed to talks but has not ruled out using force to restore its control. Renewed fighting could affect pipelines which pump oil and gas from the Caspian Sea to world markets, and run close to the conflict zone.

Western governments say Russia's war with Georgia in August, which focussed around the separatist South Ossetia region, has demonstrated the danger of letting "frozen conflicts" like Nagorno-Karabakh drag on without a solution.

A diplomat with knowledge of the talks between Azerbaijan and Armenia said on Thursday the two sides were close to agreeing a confidence-building measure under which they will move their troops along the ceasefire line further apart.

He said that would help avoid sporadic outbreaks of shooting which have claimed several dozen lives over the past few years and complicated the search for a peace deal.

Bryza is part of the "Minsk Group", a team of three senior diplomats from France, Russia and the United States which has a mandate from the OSCE to help broker a peace agreement.