On September 2, 1991, the Karabakh Soviet proclaimed the independence of so-called Nagorno-Karabakh Republic over the territories of the NKAO and the Shaumian district of Azerbaijan. On December 10, 1991, a referendum was held to determine the status of the region, but only in the territories inhabited by the Armenian majority in Nagorno-Karabakh. As expected, Armenians voted for the independence of so-called Nagorno-Karabakh Republic. The Azerbaijan parliament, in turn, annulled the autonomous status of Nagorno-Karabakh and reduced it to the same level as other regions of Azerbaijan. After this, war broke out between Azerbaijan, Armenia and the Armenians of Nagorno-Karabakh. Since the ceasefire, by controlling the occupied territories of Azerbaijan, the so-called Nagorno-Karabakh Republic has been trying to gain recognition as an independent state. However, no state or international organization has yet recognized its independence. The so-called Nagorno-Karabakh Republic established its governmental structure and state institutions, and is still in existence as a de facto state.
In academic literature, unrecognized states such as the so-called Nagorno-Karabakh Republic are defined as “de facto states”, “unrecognized states”, “quasi-states”, and “pseudo-states”. Generally, these so-called states control the territories that they claim and establish acting state and governmental institutions, but are not recognized by the international community as sovereign states. In fact, most of these unrecognized states never gain recognition. Moreover, according to Osterud, the unwritten rules of international relations drawn up in the post-World War II period strictly restrict the establishment of new states.
The so-called Nagorno-Karabakh Republic authorities claim that the state’s independence was declared within the framework of internal and international legal norms. During the last two decades, it has acquired the required attributes and structure for forming an independent state. In international law, the sovereign state is conceptualized in the Montevideo Convention on the Right and Duties of the State. According to this Convention, an entity may be considered a sovereign state if it meets the following criteria: a permanent population, a defined territory, a government, and a capacity to enter into relations with other states. In fact, the so-called Nagorno-Karabakh Republic meets the first three criteria but is not capable of entering into relations with other states due to its lack of proper recognition. Scott Pegg argued that regardless of the effectiveness of unrecognized quasi-states, they should be accepted as illegitimate.
Since unrecognized quasi-states have no international status, they have no right to be a member of any international organizations and cannot carry out diplomatic missions. In this vein, Scott Pegg stated the following: “The de facto state views itself as capable of entering into relations with other states and it seeks full constitutional independence and widespread international recognition as a sovereign state. It is, however, unable to achieve any degree of substantive recognition and therefore remains illegitimate in the eyes of international society”.
Moreover, when classifying the response of the international community to unrecognized states, Scott Pegg identified three primary attitudes: international community opposes through using sanctions and embargos; ignores and doesn’t deal with them; and provides very limited acknowledgment of their presence .
Although, to date, no international organization has recognized the so-called Nagorno-Karabakh Republic, it has permanent representative offices in seven states, which offer a very limited acknowledgment of its presence. In fact, no independent state has established diplomatic relations with the unrecognized state, not even Armenia. The so-called Nagorno-Karabakh Republic’s diplomatic relations is limited to cooperation with other unrecognized quasi-states such as Abkhazia, South Ossetia and Transnistra. These so-called states founded the Community for Democracy and Rights of Nations, which is also known as the Commonwealth of Unrecognized States.
Ignorance and the embargo placed on the so-called Nagorno-Karabakh Republic have badly affected its economic development. The Republic of Armenia and the Armenian Diaspora abroad provide primary financial support. In fact, its diplomatic isolation prevents it from receiving external development assistance. As a result of the war, the region’s pre-war industrial infrastructure and agriculture system collapsed and have not yet been fully reconstructed. Due to its landlocked position and lack of legal status, significant direct foreign investment in the region is unlikely. Any investment contracts that might signed with the so-called Nagorno-Karabakh Republic would not be internationally binding, and foreign companies would therefore not be eager to invest in its territory.
In practice, unrecognized quasi-states reduce the effects of an embargo and isolation through assistance they receive from external entities that have a direct and indirect interest in their existence. Armenia sponsors the so-called Nagorno-Karabakh Republic and provides substantial opportunities. It is fact that most inhabitants of the so-called Nagorno-Karabakh Republic are citizens of Armenia and travel abroad on an Armenian passport. Another important factor for the so-called Nagorno-Karabakh Republic is the Armenian Diaspora. There can be no doubt that without the direct support of Armenia and the Diaspora, it would be impossible for the so-called Nagorno-Karabakh Republic to exist.
The de facto status of the so-called Nagorno-Karabakh Republic can be defined as that of an unrecognized quasi-state, since it does not meet the required criteria for sovereign states, according to the accepted norms of international law. Additionally, this quasi-state is not capable of making a decision on its future without considering external factors. Viewed from this perspective, the so-called Nagorno-Karabakh Republic is an illegal entity.
 Pegg, Scott, International Society and the De Facto State (Ashgate, 1998). See also: King, Charles, “The Benefits of Ethnic War: Understanding Eurasia’s Unrecognized States”, World Politics, Vol. 53, No. 4, 2001. See also: Lynch, Dov, “Separatist States and Post Soviet Conflicts”, International Affairs, Vol. 78, No. 4, 2002.
 Kolsto, Pal, “The Sustainability and Future of Unrecognized Quasi-States”, Journal of Peace Research, Vol. 43, No. 6, 2006, p. 726.
 Pegg, Scott, “De Facto States in the International System”, Institute of International Relations of the University of British Columbia, Working Paper No. 21, February 1998, p. 2.
 Österud, Öyvind, “The Narrow Gate: Entry to the Club of Sovereign States”, Review of International Studies, Vol. 23, No. 2, 1997.
 Avakian, Shahen, Nagorno-Karabakh: Legal Aspect (TIGRAN METS Publishing House, 2010), p. 17.
 “Article 2”, Montevideo Convention on the Right and Duties of the State.
 Pegg, International Society and the De Facto State, p. 5.
 Pegg, “De Facto States in the International System, p. 1.
 Pegg, “De Facto States in the International System, p. 4.
 King, “The Benefits of Ethnic War”, p. 543.
 King, “The Benefits of Ethnic War”, p. 536.
 Kolsto, “The Sustainability and Future of Unrecognized Quasi-States”, p. 729.