Escalating Iran-Azerbaijan tension: Impact South Caucasus, beyond

Gulf International Forum has published an article arguing that the deterioration of Iran-Azerbaijan relations—and the possible eruption of armed conflict—could challenge existing economic ties and reshape military alliances in the South Caucasus. Caliber.Az reprints the article.

The deteriorating relations between Iran and Azerbaijan garner significant attention, raising concerns about the potential impact on the South Caucasus region. The possible consequences of escalating tensions include economic disruptions, military alliances, external players, such as the Gulf Cooperation Council (GCC) states, Georgia, and Russia, and their potential involvement in finding diplomatic solutions. As the dynamics shift in the region, opportunities arise for new actors to shape the geopolitical landscape, presenting challenges and opportunities for regional stability.

The recent deterioration of relations between Azerbaijan and Iran has attracted much attention. On April 6, 2023, Azerbaijani foreign ministry expelled four Iranian diplomats over “provocative actions.”

Earlier in the day, Azerbaijan's İnterior Ministry, state security service and prosecutor general’s office announced the arrest of six nationals “recruited by Iranian secret services to destabilise the situation in the country.” Azerbaijan also blamed Tehran after a man stormed the Azerbaijani embassy in Tehran in January, killing the head of security at the embassy and wounding others. Among other long-run reasons for the deterioration of relations are Tehran’s support of Armenia in the Nagorno-Karabakh conflict and accusing Baku of supporting separatist sentiments among Turkic-speaking ethnic Azerbaijanis in northwestern Iran.

Among the recent contributors to further elevated tension is the relations between Azerbaijan and Israel. These relations have already been coined “trusted friends and reliable partners” following the opening of an Azerbaijani embassy in Tel Aviv in late March. The two countries engage in defence cooperation and arms sales, and Israel’s oil imports from Azerbaijan, which increased to 70 per cent in 2022.

The common logic of “my enemy’s enemy is my friend” applies to this partnership. Even though Azerbaijan openly declared in early March that it would not allow Israel to use its military facilities as a base for a possible attack against Iran, at the end of March, Israel stated that it would form a “united front” with Baku against Iran.

The partnership between Azerbaijan and Israel can lead to either non-military or military-related outcomes. In constructing the first scenario, experts rely on the dependency of relations, including economy and trade, transit and transportation, and the dependence of Azerbaijan’s Nakhchivan exclave on Iran, with an emphasis in particular on energy and transit.

Deterioration of relations between Iran and Azerbaijan, and possible confrontation, could carry significant implications on the region, and further complications over the Nagorno-Karabakh status where tensions have recently risen despite the 2020 ceasefire, mainly because recent Russian and European efforts have failed to defuse tension. However, in the case of war between Iran and Azerbaijan, great powers’ level of involvement remains unclear, especially given that the strong Iran-Russia relations have become even more interdependent due to the Ukraine war.

The GCC and South Caucasus

Historically, the military conflict over Nagorno-Karabakh shaped relations between Azerbaijan and the GCC member states. Saudi Arabia and Azerbaijan have over 30 years of diplomatic relations. The first milestone was signing an agreement in 1994 that covered trade, investment, culture, technology, youth programs, and sports. However, even before full diplomatic relations, Saudi Arabia was the first state to recognize the independence of Azerbaijan and only built ties with Armenia once disputed territories were returned to Azerbaijan. The kingdom also supported the territorial integrity of Azerbaijan during the 2020 Nagorno-Karabakh War.

Furthermore, other Gulf monarchies, like the UAE, Kuwait, and Qatar banned their citizens from visiting disputed territories in Karabakh in 2018. Recent relations are primarily built on economic opportunities: collaborations in the financial sector and through international organizations, such as the Organisation of Islamic Cooperation and OPEC+. In 2022, Saudi Arabia and Azerbaijan established a joint business council.

The leading Saudi developer, investor, and operator of power generation, ACWA Power, also recently announced four agreements on renewable energy in Azerbaijan. Saudi Arabia and the UAE are Azerbaijan’s key trade partners in the region, but security concerns about Iran’s regional activities also emerged as one of the drivers for developing strong relations in 2022. On 27 January 2023, Saudi Arabia “strongly condemned” the attack on Azerbaijan’s embassy in Tehran. Azerbaijan also shared many security interests with Saudi Arabia and the UAE, in addition to developing an aggressive agenda against religious radicalism, especially the activities of Muslim-Brotherhood-linked groups.

Nonetheless, with a China-mediated deal on normalization between Saudi Arabia and Iran, this factor may play a less important role in developing relations between Saudi Arabia and Azerbaijan. A military escalation of the conflict between Azerbaijan and Iran would arguably primarily affect economic ties, and GCC stance could shift from siding with Baku into attempting to mediate between Iran and Azerbaijan.

Challenges for the Caucasus

Moving focus to Georgia, Azerbaijan’s neighbours: Iran and Georgia collaborate economically to diversify energy transfer routes and transportation corridor projects. Both stress the importance of peace and stability in the region, so the recent de-escalation has not directly affected Georgia. Still, it might be in the case of a military scenario. Azerbaijan, Georgia, and Turkey are connected in collaborative projects, such as the Baku-Tbilisi-Kars railway, and energy projects. The Baku-Tbilisi-Erzurum pipeline, known as the South Caucasus pipeline, carries 6.6 billion cubic meters of gas annually to Turkey, where it is exported from the region.

The neighbouring Baku-Tbilisi-Ceyhan pipeline carries oil from the Azeri-Chirag-Deepwater Gunashli (ACG) field and condensates from Shah Deniz via Azerbaijan, Georgia, and Turkey to the Mediterranean. During the Nagorno-Karabakh War in 2020, the pipeline’s security organization raised concerns about attacks on the pipeline, which Azerbaijan called a “terrorist act.” The possibility of being targeted during any Iran-Azerbaijan confrontation might also concern Georgia and Turkey’s interests.

At the same time, further escalation between Azerbaijan and Iran strengthened ties between Iran and Armenia. Iran and Armenia share energy and infrastructural projects, and Armenians are the biggest Christian community in Iran. In 2022, Iran opened a consulate-general in Kapan, concurrent with Tehran’s proclamation that any alterations in its borders and transit relations with Armenia would be a “red line” that it would not tolerate being crossed. Lilia Arakelyan argues that “Iran views Armenia as a key country that will help Tehran to reinforce its political stance in the South Caucasus.” Reportedly, the tension between Iran and Azerbaijan has already contributed to security collaborations, with meetings between national security chief Ali Shamkhani and his Armenian counterpart, Armen Grigoryan, in April.

Armenia held a first trilateral meeting with Iranian and Indian officials last month, aiming to find new sources of security as Yerevan feels that they have been let down by Russia, a traditional security guarantor for Armenia. Reportedly, “Iran is filling Armenia’s power vacuum.” In a military scenario, Armenia might also be an important security partner for Iran, resolving critical security issues as well as direct or indirect involvement in the war.

Despite Russia’s traditionally strong position in the South Caucasus, the possible military confrontation between Iran and Azerbaijan might put Russia in a delicate situation. In 2018, Arakelyan argued, “the recent escalation of the conflict between Yerevan and Baku is beneficial for Moscow since it will impede the current cooperation between the West and Azerbaijan in the energy sector and will highlight Russia’s role as a peacemaker and a guarantor of the stability in the South Caucasus.” Indeed, Russia helped broker a 2020 ceasefire in the Nagorno-Karabakh war between Azerbaijan and Armenia, but with “a new crisis in the Caucasus heating up, Moscow, distracted and weakened by Ukraine, has not intervened.”

Currently, Iran and Russia are closer than ever, and the war in Ukraine made Moscow highly reliant on Tehran. While Russia would likely take an active stance in negotiating a ceasefire in a military confrontation, it would find it challenging to balance relations between Iran and Azerbaijan. Another negative factor shaped by the Ukraine war is that Russia desperately needs the Dagestan-Baku-Astana route for transit and trade with Iran, India, and the GCC states.

The possible confrontation would also negatively affect building the 164-km Rasht-Astara railway and challenge further collaborations between “comrades-in-sanctions.” Russia’s influence in the South Caucasus in this scenario can be overtaken either by regional players, such as Türkiye, which is the key backer of Azerbaijan and also “[…] a strategically important partner for the United States and the EU since it acts as a natural bridge to markets in the Caucasus, Central Asia, the Balkans and Gulf region as well as gateway to energy resources such as natural gas and oil pipelines in the region”.

Another possible scenario is Russia might lose its influence in the South Caucasus to Western opponents. The U.S. position has been engagement with Armenia. As Bidzina Ivanishvilli, the Georgian Dream’s first prime minister, stated, “Armenia is on excellent terms with Russia and has friendly relations with [Russia] while also being on excellent terms with the United States and with other NATO-member states.” Furthermore, the EU has also found its mediating role in Armenia and Azerbaijan by sending civilian observers to Armenia in February 2023. At the same time, the Europeans are still unable to find a solution for the renewal of the JCPOA.

The deterioration of Iran-Azerbaijan relations has rightly attracted attention, as it might impact the crucial region of the South Caucasus. An eruption of armed conflict scenario could challenge existing economic ties and shape military alliances. At the same time, a military confrontation offers regional players, such as the GCC states and Georgia further opportunities for involvement in diplomatic solutions through soft power paths. Reducing Russia’s role in the South Caucasus might also offer opportunities to gain influence and fill a regional vacuum, not for Turkey, but for pro-active policies from the GCC member states.