Iran’s Foreign Policy Beyond the Headlines – Is it Losing the South Caucasus?
Iran’s Foreign Policy Beyond the Headlines – Is it Losing the South Caucasus?
Over the past few years, discussions of Iranian foreign policy have focused overwhelmingly on Tehran’s regional proxies, recurring escalation with Israel and the United States, the eventual outbreak of open conflict, and, to a lesser extent, Iran’s deepening relationship with Russia. Far less attention has been paid to another region of considerable strategic importance to Tehran: the South Caucasus. At the same time, debates over Iran’s foreign policy have often revolved around a familiar set of broader questions: how much military capacity does Tehran retain, how resilient is its economy, what remains of its regional network, and how much leverage can it still exercise through the Strait of Hormuz? Yet some of the most consequential changes to Iran’s strategic environment are not primarily security related, and are taking place not in the Persian Gulf or the Levant, but along its northern frontier.
The neighbouring South Caucasus matters to Iran for at least two reasons. First, developments in the region have a direct domestic dimension as Iran is home to millions of ethnic Azeris, as well as a historically significant Armenian community, creating deep social, cultural and historical ties across its northern borders. (I previously wrote about Iran’s largest non-Persian ethnic community, the Azeri on LCTS.) Second, the South Caucasus is being reorganised, with shifting alliances, new transport corridors and the growing involvement of external powers gradually reshaping the geopolitical balance along Iran’s frontier. Armenia and Azerbaijan are moving towards a new political relationship after decades of conflict, in which the United States acquired an unprecedented role. Türkiye is consolidating its regional position. At the same time, the Gulf countries are expanding their economic footprint in the region, while the European Union is investing more heavily in east-west connectivity, in which these countries have a crucial role. In July, Brussels announced up to €200 million in grants designed to mobilise as much as €2 billion in connectivity investment across the region. It is therefore no exaggeration to say that transport routes linking Central Asia, the Caspian and Europe are becoming increasingly important instruments of geopolitical competition. Iran remains an important regional actor. It borders both Armenia and Azerbaijan, retains important energy and trade ties, and sits at the intersection of major north-south and east-west routes. Its relationship with Armenia remains close, while Tehran has also sought to stabilise its historically more difficult relationship with Baku.
The real question therefore is whether Iran can still have a meaningful role in shaping the South Caucasus. For Tehran, this region is part of its immediate security and economic periphery. Despite the region’s ethnic and religious complexities, Iranian policy there has historically been driven less by ideology than by stability, border security and economic interests. This explains what might otherwise appear to be a paradox. Shia-majority Iran has maintained a particularly stable relationship with Christian Armenia while repeatedly experiencing tensions with Shia-majority Azerbaijan. Tehran’s calculations towards the South Caucasus have long been pragmatic: preserve internationally recognised borders, limit hostile external presence near Iranian territory and maintain access to trade and transit routes connecting Iran with the broader region and Europe. Iran’s regional influence has traditionally rested less on political dominance than on geography. For landlocked Armenia, Iran provided a crucial southern outlet, particularly after the closure of its borders with Türkiye and Azerbaijan in the 1990s. For Azerbaijan, Iranian territory offered an important connection to the Nakhchivan exclave. More broadly, Iran occupied a potentially valuable position between the Persian Gulf, the Caucasus, Russia and European markets. This geographical position also explains Tehran’s persistent hostility toward earlier proposals for the so-called Zangezur Corridor through Armenia’s southern Syunik province. From Iran’s perspective, the problem was never simply the construction of a road or railway. An extraterritorial corridor under Azerbaijani control could have altered the political geography of Iran’s northern border, created a more direct Türkiye-Azerbaijan connection and weakened Tehran’s independent access through Armenia. Iranian officials therefore treated changes to internationally recognised borders and any weakening of Armenian sovereignty over Syunik as red lines. But the emerging solution presents Tehran with a more complicated problem. Washington’s involvement in the peace process also comes with clear strategic and economic interests. In January 2026, the United States and Armenia published an implementation framework for the Trump Route for International Peace and Prosperity, or TRIPP, followed by a formal framework agreement in May. If implemented, the Trump Route for International Peace and Prosperity, or TRIPP, would preserve Armenian sovereignty over Syunik while creating a new link between Azerbaijan and Nakhchivan and strengthening wider east-west connectivity between Central Asia, the Caspian and Europe. The planned development company would also give the United States a substantial long-term role in the project.
These broader shifts are already visible in Iran’s bilateral relations with the two South Caucasus states, although in very different ways. Iran-Armenia relations remain remarkably stable. Energy cooperation, cross-border trade and infrastructure links continue, and both governments have repeatedly emphasised the strategic importance of their relationship. But Yerevan’s strategic options have expanded dramatically. Armenia is simultaneously deepening relations with Washington, the May agreement is a serious sign of this. The agreement extends cooperation across trade, energy, critical minerals, emerging technologies, defence and security, while explicitly supporting Armenia’s efforts to diversify its economic partnerships and energy supplies. This should not necessarily be interpreted as an anti-Iranian turn. Armenia continues to have strong incentives to maintain close relations with Tehran, particularly in energy, trade and north-south connectivity. Rather, Yerevan is broadening the range of partners and routes available to it. For years, part of Iran’s strategic value to Armenia stemmed precisely from the lack of such alternatives: with its borders with Türkiye and Azerbaijan closed, Iran provided one of Armenia’s few reliable connections to the outside world. As those alternatives gradually expand, however, Armenia’s dependence on Iran is likely to diminish.
Azerbaijan presents a different version of the same challenge. Relations between Tehran and Baku have long combined pragmatic cooperation with deep strategic distrust. Iran remains suspicious of Azerbaijan’s close partnership with Israel and its alliance with Türkiye, while Baku has repeatedly viewed Iranian regional behaviour with mistrust. President Masoud Pezeshkian’s April 2025 visit to Azerbaijan appeared to mark an attempt to stabilise this difficult relationship. The two governments signed a joint statement, established a programme of political consultations for 2025-2027 and agreed to expand cooperation in transport. Yet the rapprochement did not remove the underlying tensions. Iran’s conflict with Israel again brought Azerbaijan’s ties with Israel under scrutiny in Tehran, while relations deteriorated sharply in March 2026 after Baku accused Iran of drone attacks against Nakhchivan and of involvement in alleged sabotage plots against Azerbaijani and Israeli targets. Tehran denied responsibility for the drone attack. At the same time, practical cooperation has continued because geography still creates mutual interests. Azerbaijan and Iran are both involved in the western branch of the International North-South Transport Corridor, while the Araz Corridor provides Azerbaijan with an additional connection to Nakhchivan through Iranian territory. Azerbaijan has already begun implementing infrastructure for this route, meaning that Iran remains relevant even as new alternatives emerge. But here again, those alternatives are multiplying. The Iğdır-Nakhchivan gas pipeline, inaugurated in March 2025, offers a revealing example. The 80-kilometre pipeline connects Türkiye directly with the Azerbaijani exclave and has sufficient capacity to cover Nakhchivan’s entire natural-gas demand. Iran had previously played an important role in supplying Nakhchivan through gas swaps with Azerbaijan. The new pipeline does not end that cooperation, but it reduces the degree to which Baku depends on the Iranian route.
Connectivity is therefore central to Iran’s changing position in the South Caucasus. Tehran has long converted geography into leverage through north-south trade, energy links and limited regional alternatives. That advantage is now weakening as east-west routes expand and Armenia, Azerbaijan and Central Asian states gain more options. This does not mean Iran is losing the South Caucasus. Geography will continue to make it an important regional actor. But importance is not the same as influence.
Author: Blanka Benkő-Kovács, advisor - LCTS, LUPS
Image source: Wikimedia Commons