TOPIC OF THE WEEK: South Caucasus—Winners and losers from the Iran-Israel conflict

CAUCASUS / CENTRAL ASIA - Report 20 Jun 2025 by Ivan Tchakarov

Two of the three South Caucasian nations directly border Iran, and their initial reaction to the Israel-Iran conflict says a lot about their relative positions vis-a-vis the regional battle. While Armenia categorically condemned the "one-sided attack on Iran", Azerbaijan opted for a restrained rhetoric, focusing on the need for de-escalation and protection of civilians. This is not surprising. While Azerbaijan has a strategic relationship with Israel, Armenia enjoys one with Iran.

Hence, Armenia stands out as the key loser from the Iran-Israel conflict. Iran's economic importance to Armenia has risen in recent years, with a hefty 30% of all Armenian trade transiting via its southern neighbor. During the several days of standoff between Israel and Iran, Armenian economic entities have already started to face difficulties, and the government has started talking about scenarios with much lower 2025 GDP growth than originally anticipated. A serious Israeli or US military attack on Iran could also have far-reaching consequences for Armenia's own security and territorial integrity. Iran acts as a key deterrent against Azerbaijan's implicit threats to open a land corridor to its Nakhichevan exclave as well as Turkey, which would pass through Syunik, the only Armenian province bordering the Islamic Republic.

Azerbaijan, on the other hand, stands to derive benefits from a weakened Iran and Armenia as Baku has developed a strategic relationship with Tel Aviv that can be described as one of Israel's most important partnerships in the region. In contrast to Armenia and Azerbaijan, Georgia was much slower in reacting to the conflict, presumably reflecting an intention to project a more balanced view. It took several days for the Minister of Foreign Affairs of Georgia to express serious concern regarding the situation, which reflects its desire to reinforce its role as a mediating state in the South Caucasus. Tbilisi could also be economically damaged, however, especially in tourism and remittances, where both Israel and Iran have a non-trivial share of revenue.

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