The Islamic Republic
of Iran seldom has been lauded for its foreign policy in the
west. In contrast, Tehran is regularly accused of being a
supporter of terrorism and a source of regional instability. In
this regard the “mullah regime” is mostly blamed to pursue an
irresponsible foreign policy undermining not only regional but,
thanks to Iran’s nuclear programme, also international security.
Paradoxically, while constantly being criticized by western
governments, Iran’s immediate neighbours seem to take a complete
different view on Iran’s foreign policy. From Baghdad to Kabul,
neighbouring governments are quick to point out Iran’s
constructive role in regional politics. By concentrating on
Iran’s strategy towards the South Caucasus this paper wants to
present the reader with proof of Iran’s ability to pursue
pragmatic Realpolitik in spite of its religious nature. In the
current debate this element of Iran’s foreign policy is hardly
ever recognized. In order to shed light on this issue the author
outlines the driving forces behind Iran’s foreign policy whilst
concentrating the analysis on Tehran’s approach to its northern
Iran, Azerbaijan, Armenia, Georgia, Russia, Caspian Sea, South
Caucasus, foreign policy, energy
After the Cold War
the South Caucasus re-emerged as a critical area in the
geopolitical contest between major regional and global powers.
The Caspian Sea’s rich natural resources arouse visions of a
prospering region while the outbreak of conflicts demonstrated
how difficult this was to achieve. This essay will explain the
dynamics of Iran’s policies in the South Caucasus and evaluate
any risks of confrontation. The author tries to provide evidence
that Iran’s relations to all three South Caucasian states are
improving and that economic ties dominate mutual affairs.
Section II will give a quick overview of the dynamics behind
Iran’s turn towards the South Caucasus followed by three case
studies covering Iran’s relations to each one of the South
Caucasian countries in section III-V. Finally, section VI will
give an assessment on the prospective developments between
Tehran and the South Caucasian states in the near future.
The dynamics behind
Iran’s turn towards the South Caucasus
While Iran was
readjusting its policy towards the Arab countries after the
ceasefire with Iraq and Ayatollah Khomeini’s death at the end of
the 1980’s, a dramatic change occurred along its northern
border. The Soviet Union (SU) collapsed, the bipolar
confrontation which had dominated world politics for 45 years
ended and Iran’s main rival, the USA, remained as the sole
In essence three
broad developments at the end of the 1980’s and early 90’s
directed Iran to develop relations with its South Caucasian
neighbours. First, was the new geopolitical reality. The
cease-fire agreement with Iraq and the US-led Desert Storm
campaign changed Iran’s political environment to the west. While
Saddam Hussein was weakened and ceased being an existential
threat, the US enlarged its presence in the Middle East and
became the guarantor of the status-quo while pursuing its
double-containment policy. Simultaneously, the collapse of the
Soviet Union and the rise of New Independent States (NIS)
changed Iran’s geopolitical situation to the north. New
immediate security threats arose, such as conflict between
Armenia and Azerbaijan, the escalation of inner conflicts in
Georgia, and civil wars in Tajikistan and Afghanistan that
destabilized Central Asia.
Second, was the changed
socio-economic reality. Iran’s economy was ruined after the war
with Iraq, which cost the country an estimated $ 160 billion.
Falling oil prices during the 1980’s as well as failed economic
policies curbed down earnings and economic performance.
Unexpectedly high birth rates hampered economic growth. A
massive brain drain of around 4 million Iranians deprived the
country of the human capital needed for economic recovery.
Furthermore an ‘economic and demographic shift from southern to
caused by the severe war damages in southern Iran, modified the
economic equilibrium and made an expansion of increased economic
relations with its northern neighbours inevitable.
Third, were the ethnic realities
of the Islamic Republic. Iran consists of different ethnic
groups of which the Persians are only a 51 % majority. The rest
of the population is made up of Azerbaijanis (24%), Gilakis and
Mazandaranis (8%), Kurds (7%), Arabs (3%), Lars (2%), Balujis
(2%) and finally Turkmens (2%).
These large minority groups are situated mainly on border areas.
Thus, regional instability, such as the Armenian-Azerbaijani
conflict, has the potential to spill over into Iran.
So while the
political developments of Iran’s western border limited its
ability to conduct active policies, developments on its northern
border opened up opportunities as well as serious threats. Under
enormous pressure from its young population to achieve economic
progress, and as a result of the increasing instability in the
region, Iran turned its attention towards its northern
To have a better
understanding of Iran’s foreign policy approach towards the
South Caucasus, the following three chapters will analyze
Tehran’s relations with Armenia, Azerbaijan and Georgia.
Relations between Armenia and Iran
are based on a common history and common geopolitical
objectives. After the fall of the SU, Christian Armenia and
Islamic Iran were not divided by religion but united by common
enemies. Iran’s trouble with Azerbaijan’s nationalistic
government under President Elchibey (1992-93), and the menace of
increased US-Israeli-Turkish influence in the South Caucasus
guided Tehran to support Armenia at the beginning of the
In addition, the assistance to Armenia advanced Iran’s
cooperation with Russia, with which Iran shared common interests
in the Caucasus by establishing what was later labelled as the
Russia-Armenia-Iran axis. Armenia on the other hand, landlocked
between Turkey, Azerbaijan and an unstable Georgia, needed Iran
in order to disenclave itself, circumvent sanctions imposed by
Turkey and win the war with Azerbaijan.
providing support to Armenia, Iran shifted its stance towards
one of neutrality and tried in vain to mediate between the two
adversaries. Tehran was worried about the instability along its
northern borders and tried to achieve a diplomatic resolution of
the conflict. The unresolved Nagorno-Karabakh conflict and the
possibility of renewed hostilities still represent a major
source of concern for Iran.
Over the years Yerevan and Tehran
have built up very strong relations. Energy cooperation plays
the biggest part in their mutual relations and the construction
of a gas pipeline from Iran to Armenia has been completed.
Although the pipeline was supposed to end Yerevan’s dependence
on Russian gas, it will most probably be taken over by Gazprom. Russia has become Iran’s
main competitor in Armenia’s energy market and has successfully
pressured Yerevan to reduce the pipeline’s diameter, so as to
prevent Iran from exporting its gas to Georgia and other
But there are rumours that Iran and Armenia are planning to
build a second pipeline with the capacity to deliver Iranian gas
to third-party countries.
Furthermore, Armenia and Iran have agreed upon the construction
of a third power transmission line connecting Armenian and
Iranian power grids.
There are also plans to build a large hydroelectric plant on the
Arax River flowing along the Armenian-Iranian border.
Infrastructural projects like the current construction of a
highway from Armenia to the Iranian border are underway in order
to increase the modest current trade volume of $ 105 million
between the two countries.
between Iran and Azerbaijan has exhibited massive turbulence
over the past years. Three connected sets of factors steer their
relations: ideology, geopolitics and economics.
After the collapse of the SU,
Azerbaijan went through an identity crisis. The country’s
‘complex interweaving of historical and religious bonds to Iran;
ethnic, ethno-linguistic and traditional intellectual links to
Turkey; and political, intellectual and linguistic ties to
Russia’ made the creation of a coherent national identity
But despite Azerbaijan’s cultural and historic legacy, the
nationalistic Popular Front of Azerbaijan (PFA) decided to take
an overly pro-Turkish stance. Taking power in June 1992, PFA’s
leader and elected president, Abulfaz Elchibey, overemphasized
Azerbaijan’s Turkish cultural heritage to the extent that not
only Russia and Iran but also the country’s own ethnic
minorities (14% of the population in the early 90’s)
Azerbaijan’s early orientation
towards Turkey and the West, as well as its disregard for Russia
and Iran was a matter of concern to both regional powers. Both
were alarmed by the prospect of rising US–Israeli-Turkish
influence in the Caucasus. More worrisome for Iran was the fact
that the ‘Greater Azerbaijan’ idea gained widespread support in
Azerbaijan. According to the ‘Greater Azerbaijan’ idea,
Azerbaijani national unity was split into northern and southern
halves by imperial Russia and Iran and should therefore reunite.
Conversely, many Persians are convinced that ‘Northern
Azerbaijan’ was originally part of Iran lost to Russia in 1828.
President Elchibey led the “Greater Azerbaijan” campaign and
accused Iran of mistreating its Azerbaijani population living in
northern Iran close to Azerbaijan’s border. Tehran, fearing the
spread of separatist sentiments among Iranian Azerbaijanis, who
account for 24% of its population, went on the offensive. In
addition to financing Islamic parties in Azerbaijan and
launching a public relations campaign, Tehran started to
destabilize Azerbaijan by supporting the Talysh separatist
movement, an ethnic minority in Azerbaijan with a strong Persian
identity. Together with Russia, Iran managed to undermine
President Elchibey’s policies and destabilize Azerbaijan.
Foreign and domestic policy failures led eventually to
Elchibey’s loss of power in June 1993. He was succeeded by more
moderate ex-communist Heydar Aliyev.
Heydar Aliyev avoided the extreme
nationalistic position of his predecessor and pursued a more
balanced policy towards his neighbours. But relations between
Iran and Azerbaijan remained strained. Differing positions on
the issue of the division of the Caspian Sea, the construction
of the Baku-Tbilisi-Ceyhan (BTC) pipeline, as well as Iran’s
exclusion from the ‘Contract of the Century’ petroleum
exploration agreement in 1995 angered Tehran.
The bilateral relations deteriorated on July 2001 as a British
Petroleum boat, which was conducting prospecting operations on
disputed offshore oilfields under Azerbaijani authorization, was
forced to return to port by an Iranian warship. Sable rattling between the
two countries followed but eventually gave way to a more
The relationship has changed since
then and is progressing towards closer cooperation in political,
economic as well as cultural domains. In the political field
Azerbaijan supports Iran’s right for peaceful use of nuclear
technology and has repeatedly expressed its refusal to join any
anti-Iran coalition, stressing the need to settle the issue by
Both sides have signed an agreement banning their respective
territories from launching an attack on the other. Moreover,
bilateral cooperation against drug trafficking has been
In the economic field, energy and gas swap agreements have been
signed and Baku has voiced its interest in transferring oil to
the Persian Gulf.
With the completion of power lines and ongoing projects, the
transfer capacity of electricity between Iran and Azerbaijan,
which currently stands at 200 megawatts, will increase to 600
In Addition, Azerbaijan’s First Deputy Premier suggested that if
Russia’s gas price becomes too expensive Azerbaijan will start
to negotiate with Iran. Both countries also cooperate on
infrastructure projects within the framework of the North-South
Corridor and TRASECA. Even the negotiations about the division
of the Caspian Sea have recently been described as fruitful by
the Iranian Ambassador to Baku.
Cultural ties could be fostered by the establishment of the
Iran-Azerbaijan Friendship Association.
Georgia shares no common border
with Iran and has the least developed relations with Iran among
the South Caucasian states. Diplomatic relations were not very
strong in the past and Iran kept out of Georgia’s internal
However, the conflict between
Georgia and Russia has opened a new chapter of bilateral
cooperation. Georgia is desperately seeking a way out of its
energy and economic dependence on Russia. Tbilisi’s relationship
with Russia has suffered severely since the ‘Rose Revolution’ in
2003 and Mikhail Saakshvili’s rise to power. President
Saakshvili’s westward orientation, his government’s hard stance
towards the breakaway republics of Abkhazia and South Ossetia as
well as his provocative policies directed against Russia’s tacit
support for the separatist movements damaged bilateral
relations. The most recent incident took place in October 2006
as Georgia arrested four Russian army officers and 11 Georgians,
accusing them of spying for Russia's GRU military intelligence. Moscow, in response,
imposed heavy economic sanctions, cut transport links and
announced that it would more than double the current gas price
for Georgia from $110 to $230 per 1,000 cubic meters.
Thus, it becomes clear why a closer relationship with Iran is so
important to Georgia. As one of the regional powers in the South
Caucasus, Iran has the potential to supply Georgia with gas and
consequently break Georgia’s dependence on Russia. Stronger
economic ties with the Islamic Republic could help Tbilisi to
diversify its trade, which is again strongly dependent on Russia
(ranking first as export and import partner).
Iran, which has the world's second
largest gas reserves after Russia, is profiting from the
conflict between Moscow and Tbilisi. Tehran is eager to find a
new customer for energy exports and to expand its economic ties.
Following the clash between Moscow and Tbilisi as well as
Russia’s plan to increase their gas price for Georgia, Tbilisi
announced that gas from Iran and Azerbaijan could fully replace
Russian gas. Moreover Iran and Georgia
agreed to swap electricity via Armenia.
analysis has made clear that the region is moving towards closer
cooperation with Iran. There are however several factors which
could potentially lead to confrontations or a slow down in
bilateral affairs and which need consideration. First, relations
with Azerbaijan could worsen very rapidly if there is any proof
of Azerbaijani involvement in supporting nationalist feelings
among ethnic Azerbaijanis in Iran. This issue is very sensitive,
as demonstrated by recent tumults among Iran’s Azerbaijani
population over perceived Persian chauvinism. Furthermore, the
unresolved question of the Caspian Sea’s division remains
problematic. Second, Iran will have to take into account Russian
interests in the South Caucasus. This is particularly important
in regards to Georgia where Iran has to be very cautious not to
anger Russia over its cooperation with Tbilisi. Thus, Iran might
give up stronger involvement in the region in order to preserve
the close political and military cooperation with Moscow. Third,
the American containment policy might hinder Tehran from
expanding its influence in the South Caucasus. As done in the
past, the US could put pressure on its regional allies to cut
down their ties with Iran. Furthermore, an US attack on Iran
could lead to extreme responses from Tehran aimed directly
against US interests in the South Caucasus. This could lead to
Iranian operations in the South Caucasus or even the bombardment
of the BTC-pipeline, which certainly would strain Tehran’s
relations with its South Caucasian neighbours.
Nevertheless, in the
short and midterm perspective relations between Iran and the
South Caucasian states can be expected to improve for several
reasons. First, Iran’s relations with Armenia will most likely
remain good. Armenia has frozen relations with Turkey and
Azerbaijan; additionally it has suffered great losses as a
result of Russia’s imposed sanctions on Georgia. In this
landlocked position, Armenia has no other option than to expand
its ties with Iran. Furthermore, Iran is the only country that
could help Armenia move its energy sector away from dependence
Second, a clash with Azerbaijan is
unlikely, because Azerbaijan has no interest in being dragged
into a second conflict, nor does Iran seem interested in
destabilizing Azerbaijan and risking domestic upheaval among its
own Azerbaijani population. Azerbaijani government’s policy
towards Iran is buttressed by polls showing widespread public
opposition among Azerbaijanis to US policy towards Iran.
Interestingly, Azerbaijan has even voted against a recent UN
General Assembly draft resolution on the violation of human and
minority rights in Iran.
Third, Georgia is
also trying to break its economic and energy dependence on
Russia. The imposed sanctions leave Tbilisi no other choice than
increasing its ties with its southern neighbours. Iran, with its
huge gas resources, stands out in this respect and both sides
are eager to expand bilateral relations.
What can be said without doubt is
that Iran is definitely profiting from the recent geopolitical
dynamics in the South Caucasus. Stronger cooperation in the
region has the positive side effect that it binds the South
Caucasus to Iran and gives it stronger leverage in its nuclear
standoff. All three Transcaucasian governments have already
voiced their concern over a possibility of US-military strike
and support a diplomatic solution. In the economic sphere it
must be noted that the small overall population of the South
Caucasus of around 16 million will certainly not saturate Iran’s
economic potentials. Iran, sitting on 18 % of the world’s gas
reserves, is very attracted to the idea of gaining access to
European energy markets by expanding electricity and pipeline
networks through the Caucasus to Europe.
Given Russia’s interests in maintaining its market positions in
Western Europe and Washington’s interest in containing Iran, it
remains to be seen how successful Iran can be in this respect.
Finally, Tehran is also extremely keen on becoming a transit
route for Caspian Sea oil resources to the Persian Gulf. Thus,
it can be concluded that Iran’s main strategy in the South
Caucasus is to advance relations with the respective governments
in order to improve its standing vis-ŗ-vis the US, to reach
European energy markets and finally to become the main export
route for Caspian Sea resources.