Strategic Realignment for the South Caucasus?

The Iran conflict is the latest in a series of successive crises reshaping the geopolitical and economic landscape of Armenia, Azerbaijan, and Georgia, long viewed as a periphery and buffer zone between larger powers.

The corridor linking Europe, Central Asia and the Middle East is now at the centre of competing transit routes, energy supply and security interests. Such strategic realignment is offsetting the dominant influence of Russia and its proxies, and the rising presence of China. Meanwhile, all three countries have historical ties and sizable diasporas in Iran. Their geographic and cultural proximity requires active engagement with both present‑day and future Iran.

While some contours of the emerging regional order are visible, its final shape remains highly uncertain. This threatens a period of protracted instability that could at any time seep through the structural vulnerabilities of the South Caucasus countries, which so far have successfully absorbed the initial rounds of kinetic and diplomatic shock.

At the moment, the sectors most impacted are energy infrastructure, tourism, oil, trade and cross-border transport linking ports between the Persian Gulf, Armenia and the Black Sea. Security has also been affected.

The Trump Route for International Peace and Prosperity (TRIPP), a flagship project underpinning the 2025 Armenia-Azerbaijan peace deal, is the most significant initiative at risk.

Welcomed and long anticipated by both sides, TRIPP has faced resistance from Iranian officials as it reduces Tehran’s access to Armenia and onward to Georgia’s Black Sea ports. For years, Iran had promoted the North-South Transport Corridor, which it viewed as the backbone of regional trade linking Russia, the Caucasus and the Persian Gulf with India.

By effectively internationalising one of the most sensitive territories in the South Caucasus, TRIPP provides security guarantees and economic incentives for Armenia, secures Azerbaijan a long-sought shortest land connection to its autonomous exclave of Nakhchivan - rather than the route it currently uses via Iran - and offers the US strategic leverage over regional connectivity, limiting Iranian influence.

The ongoing war in Iran may pose risks to TRIPP, potentially deterring investors and delaying its implementation.

Strategic Importance

Azerbaijan’s defence cooperation with Turkey and Israel in intelligence and military technology also heightens tensions with Iran.

On March 5, drones hit the terminal building of the airport in Nakhchivan, although Iranian officials declined to take responsibility.

The Baku-Tbilisi-Ceyhan (BTC) pipeline, which transports Caspian oil to Mediterranean markets, remains one of the most critical energy arteries linking Eurasia to Europe. The pipeline runs through Georgia, reaching Turkey’s Mediterranean coast.

This is one of the few non-Russian oil supply routes to Europe amid ongoing sanctions on Russia, and any threat to this infrastructure is immediately reflected by the market.

EU policymakers increasingly view the stability of Azerbaijan as integral to broader energy security.

"With the war in Iran shaking global energy markets, our energy partnership is more important than ever,” António Costa, President of the European Council, said following a March 11 meeting with Azerbaijan’s President Ilham Aliyev.

Armenia has historically been the most connected to Iran for economic access and energy supplies due to its closed borders with Turkey and Azerbaijan. The Agarak-Norduz checkpoint remains operational, although some cargo from Iran’s Bandar Abbas port, mainly commodities from China and India, has been delayed.

While Armenia maintains the largest regional trade turnover with Iran, this represents a small share of its total foreign trade. The country can offset disrupted routes through Georgia and now Azerbaijan for oil imports. Natural gas prices have remained stable, as Armenia continues to receive gas from Russia at fixed rates.

However as Armenia prepares for June 7parliamentary elections, the Iran conflict has brought issues of security and foreign policy to the forefront.

Debates over Armenia’s geopolitical orientation - whether to deepen ties with the West, maintain pragmatic relations with Iran and Russia or balance multiple influences - are becoming central topics in campaign messaging.

A potential larger influx of refugees from Iran may also become a focus of political discourse during the pre-election period. This could influence voter preferences in provinces near the Iranian border, particularly Syunik, a strategically sensitive region where the TRIPP corridor would connect Azerbaijan with Nakhchivan.

Additionally, the TRIPP project and the possibility of delays amid protracted conflict could become key talking points during the election. Armenia is also expecting active, hybrid interference from Moscow, with rhetoric against the current government intensifying in Russian-language media. Yerevan has already issued a warning statement that vulnerable diaspora communities may be targeted by these efforts.

Diplomatic Flexibility

Georgia has long maintained restrained relations with Tehran, largely limited to trade, tourism and basic diplomacy. Such approach was determined by Georgia’s foreign policy priorities, its pursuit of EU and NATO integration on the one hand, and concerns over Iran’s close ties with Russia on the other.

Georgia and Iran began exercising greater diplomatic flexibility in response to growing regional instability. Recent reports most notably by the Washington-based Hudson Institute think tank and Civic Idea research, say that Iranian firms may be using Georgia as a transit point to bypass international restrictions, with certain companies reportedly linked to Iran’s armed forces. They also highlighted concerns that Iranian clerical networks use Shia mosques in primarily Azerbaijani minority regions as platforms for anti-American and anti-Western rhetoric.

The Georgian government denies these allegations, and the State Security Service has launched an investigation into the authors of these reports.

These factors will certainly influence the trade, real estate and tourism sectors. The latter two were steadily growing as Iranians invested in real estate in Tbilisi and the Black Sea resort of Batumi, with the number of tourists also increasing.

Tourism, a vital component of Georgia’s economy accounting for roughly seven to eight per cent of GDP, has already been disrupted by no-fly zones over Israel, the Gulf states and Iran.

Israel is one of the four main countries whose citizens visit Georgia. While Iran and the Gulf states do not rank among the top in visitor numbers, combined they represent a substantial market for Georgia.

If protracted, the war in Iran and the strikes in and around the Gulf countries may also delay the implementation of what the government of Georgia claims is the largest real estate development project by the UAE-based Eagle Hills Group, with a pledged investment of 6.5 billion US dollars.

Georgia, which faced Russian military aggression in 2008 and has closely observed the war in Ukraine, has become more cautious and critical regarding Western engagement. Hedging its bets, it currently keeps diplomatic ties with all neighbours.

However, this strategy risks association with Russian-Iranian supply chains, which could further strain relations with Western partners who view the South Caucasus as critical for energy diversification and sanctions enforcement.

What is clear is that the South Caucasus is gaining a new level of significance as a energy, transport and digital connectivity hub.

The outcome of the Iran crisis, the implementation of the TRIPP corridor and the Armenia–Azerbaijan peace deal, the trajectory of the Ukraine war and Georgia’s domestic stability and stance vis-a-vis Russia will shape the strategic landscape of the South Caucasus for years to come.

How the leaders of Armenia, Azerbaijan and Georgia navigate this evolving context is a matter of coordination and personal talent, but none of these states can afford failure.

Locations Caucasus

Topics Conflict, Oil, Diplomacy