Shockwaves from Tehran: Quantifying the Economic Impact on the South Caucasus

CAUCASUS / CENTRAL ASIA - In Brief 05 Mar 2026 by Ivan Tchakarov

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In my Mon note I expressed bewilderment at the lack of proper reaction of Armenian authorities to the fiery situation unfolding at their southern border. In a video gone viral in the country, the PM Pashinyan was caught on camera munching on corn in a bus that was a on campaign tour in the country when Iran was attacked. In the event, and with a considerable delay, Armenia did offer its condolences (after neighbouring Azerbaijan and Georgia had already done so) to its only strategic ally in the region, Iran, for the death of its leader. But today's write-up is not about the regional geopolitical alliances that I have addressed on previous occasions. I have been prompted by clients to provide an easy-to-follow assessment of the economic linkages between Iran (and the Persian Gulf countries and Israel) and the three South Caucasian economies of Armenia, Azerbaijan and Georgia. In this I build on an earlier narrative that I proposed last June during the previous flare-up in Iran. Of course, I must add that the Jun'25 episode was short-lived, so there was virtually zero adverse effect on Armenia, Georgia and Azerbaijan in terms of their growth performance last year. The current rendition is provided in a comparison format that makes it straightforward to gauge the key channels of economic interaction in the region (trade, FDI, tourism, remittances). The data is annual for 2025 with the exception of FDI where I use 2024 being the last available full-year data point. The key conclusion is that the trade channel dominates for Armenia in a significant way. Armenia is not the most dependent on Iran/Persian Gulf/Israel in terms of FDI (Azerbaijan claims the first spot here), tou...