Azerbaijan and Iran Seek Common Ground Amid Regional Tensions

Executive Summary:

• New developments in the South Caucasus have opened a window for possible long-term rapprochement between Iran and Azerbaijan, especially on trade and transit matters.
• Baku seeks increased regional stability amid tense peace negotiations with Armenia and a falling out with some Western countries over Karabakh.
• Tehran is interested in improving ties with Azerbaijan to maintain its role in regional transit and as part of a wider effort to normalize troubled relations with its neighbors.

In early March, the foreign ministers of Azerbaijan and Iran met to discuss restoring operations of the Azerbaijani embassy in Tehran (Anadolu, March 5). Following an assault on the embassy by a lone attacker in January 2023, Baku temporarily halted its diplomatic mission in Tehran, stoking fears of a wholesale breakdown in bilateral ties (see EDM, January 31, 2023). At the time, tensions between the two countries were running high. Iran was becoming increasingly sensitive to the shifting power balance in the South Caucasus, with Azerbaijan seeking to gain the upper hand over Armenia. Baku’s adamance that the Zangezur Corridor be opened in accordance with the tripartite statement (Armenia, Azerbaijan, and Russia) ending the Second Karabakh War has haunted Iranian policymakers, as such a development would effectively cut Tehran out of regional transit (see EDM, September 23, 2022, October 11, 2023). Iran has also been worried about Türkiye’s growing role in the South Caucasus, fearing the potential creation of a Turkic corridor along its northern border (see EDM, July 6, October 2, 2023). In more recent months, Baku and Tehran have managed to find some common ground, especially regarding regional transit goals. This does not mean, however, that the two sides will cease competing for influence.  

The meeting between the Iranian and Azerbaijani foreign ministers laid the groundwork for several new bilateral initiatives. On March 15, Iranian Energy Minister Ali-Akbar Mehrabian announced that the two sides will soon unveil a joint storage dam on the Aras River, which serves as a natural border between the two countries. Moreover, on March 17, Seyed Abbas Mousavi, Iran’s ambassador to Azerbaijan, declared that both governments are intent on opening a “new chapter” in bilateral relations that builds on a shared “historical background” (Nournews, March 17). Political statements from both sides likewise indicate a commitment to a renewal of bilateral cooperation. At the end of last year, Baku and Ankara signaled their openness to developing the Aras Corridor as an alternative route to the Zangezur Corridor. Opening an alternative passage would give Tehran a more central role in regional transit and trade (see EDM, November 3, 2023; January 10).

Iran and Azerbaijan are interested in rapprochement due to new opportunities emanating from the geopolitical upheavals brought on by Baku’s reclaiming of Karabakh and Russia’s war against Ukraine. As a result, the regional environment is ripe for sustaining steady growth in Iranian-Azerbaijani trade, as the development and use of the International North-South Transport Corridor is expanding and Baku tones down its ambitions with the Zangezur Corridor. In July 2023, Azerbaijani Deputy Prime Minister Shahin Mustafayev emphasized Baku’s intentions to “boost trade and economic ties with Iran.” He highlighted that 2,452 Iranian businesses were already operating in Azerbaijan, with the prospect for more in the future (Tasnim News Agency, July 17, 2023). Moreover, in October 2023, Azerbaijan and Iran signed a transit and railway development agreement that calls for the establishment of a link between Azerbaijan proper and its Nakhchivan exclave via Iranian territory, circumventing Armenian soil (Anadolu, October 10, 2023).

The normalization of ties between Baku and Tehran fits into Iran’s wider strategy to normalize traditionally complicated relations with its neighbors (see EDM, November 1, 2022). From its side, Azerbaijan cannot afford a troubled state of affairs with Iran amid ongoing peace negotiations with Armenia and a difficult period in relations with some Western countries due to the fallout from Baku’s military operation in Karabakh in September 2023 (Al Jazeera, September 19, 2023; see EDM, September 20, 2023, January 24). Furthermore, Baku has supported the possible reactivation of the “3+3” (Armenia, Azerbaijan, and Georgia + Iran, Russia, and Türkiye) negotiating format in the South Caucasus, in which Tehran plays a central role (see EDM, June 16, 2021, April 13, October 25, 2023).

The push for normalization, however, does not mean that Iran is satisfied with the shifting power balance in the South Caucasus. Baku is seen as much stronger today than Armenia, and Iranian political elites agree that supporting Yerevan is essential for maintaining general regional stability and balancing regional power dynamics (The Armenian Weekly, March 13). In parallel with building bilateral cooperation with Azerbaijan, Iran will likely expand its relations with Armenia in trade, infrastructure, as well as defense and security.

Iranian-Armenian ties largely depend on Tehran’s reaction to Yerevan’s reorientation of its foreign policy (Azatutyun, February 19). Amid Armenia’s tensions with Russia, Iran has grown increasingly wary that the Armenian government’s efforts to expand ties with the European Union could harm the Islamic Republic’s position in the South Caucasus (The Armenian Weekly, March 13). Moreover, Armenia is intent on reinvigorating its security ties with the United States, and the possibility of joint US-Armenian military exercises in the region alarms Tehran.

Over the long term, competition is likely to remain the hallmark of Iranian-Azerbaijani relations. While tensions surrounding the Zangezur Corridor have somewhat subsided, there is a chance that they could reemerge as Tehran’s attention is drawn elsewhere. In addition, against the backdrop of Iran’s worries about growing Turkish power in the South Caucasus, the Islamic Republic has been quite sensitive to the potential creation of a Turkic corridor along its northern border that would run from Azerbaijan and Türkiye to Turkmenistan (Aze.media, Apil 22, 2023; Globalaffairs.ru, January 1). Instability remains characteristic of geopolitics in the South Caucasus, and former competitors or outright rivals will struggle to patch up relations for immediate benefits. Although Tehran and Baku are working to normalize ties, wariness and distrust will likely persist between the two sides for the foreseeable future.