The 2020 Nagorno Karabakh war has significantly altered the power balance of the South Caucasus, effectively dismantling the 1994-2020 security architecture. Experts and academic circles still debate who won or lost due to the war. However, almost all agree that Iran is among the losers. The 2020 war increased Turkey’s influence in the region, apparently brought Azerbaijani armed forces under complete Turkish control and made Azerbaijan and Turkey much closer to the realization of a century–long dream of establishing a direct land corridor. Even more worrisome for Iran was the appearance of Israel in the newly-captured territories along the Azerbaijan–Iran border. Azerbaijan has cultivated strong defense and security cooperation with Israel since the early 2010s. However, the control by the self-proclaimed Nagorno Karabakh Republic of 135 kilometers of borders with Iran gave Tehran flexibility and confidence that those areas would not be used for anti-Iranian activities. The 2020 war changed that situation dramatically, as Azerbaijan allowed Israel to enter those territories under the pretext of reconstruction activities and the establishment of smart villages. 

Iran believes that by inviting Israel to exploit Azerbaijani territories, Baku has changed the balance of power in the region and assumed an overt anti-Iranian position. In the last two years, Iran has issued several warnings to Azerbaijan, primarily via organizing military drills along the Azerbaijan–Iran border. The beginning of 2023 saw relations hitting a new low, after the Azerbaijani embassy in Tehran was attacked, and Azerbaijani law enforcement bodies arrested “Iranian spies in Azerbaijan” almost on a daily basis.

The two countries share significant economic interests, including the launch of the North–South International Transport corridor, which connects India with Russia via Iran, and one of the routes passes via Azerbaijan. Iran and Azerbaijan are actively negotiating with Russia to launch an energy corridor, which will connect the electrical grids of three countries and allow them to export/import electricity. They recently signed a Memorandum of Understanding to connect Azerbaijan with Nakhichevan via Iran through the construction of a railroad and highway in Iran along the Araks river (so-called alternative Zangezur corridor) and bridges from Azerbaijan to Iran and from Iran to Nakhichevan. It is challenging to assess whether these economic projects prevent bilateral relations from further deterioration. However, recent developments, including an assassination attempt on an Azerbaijani MP in Baku and statements from Azerbaijan that Iranian special services were behind this attack, did not bode well for bilateral relations.

Meanwhile, Iran continues to voice its objections to the so-called Zangezur corridor to connect Azerbaijan with Nakhichevan via Armenia. Iranian authorities probably do not believe the Azerbaijani side’s explanations that the corridor will have no extraterritorial features and will serve only economic purposes. Tehran thinks that even if the corridor will be under de jure Armenian control, it will open the way for the gradual expansion of Azerbaijani and Turkish presence and later influence in Syunik, bringing Syunik under at least de facto Turkish/Azerbaijani control. Iran categorically rejects any changes to the border and the geopolitical situation in the South Caucasus (the possible further incursion of Azerbaijani troops into Armenia). The potential for geopolitical changes should be a message to Armenia that Yerevan should significantly revise its foreign policy, moving away from Russia toward closer cooperation with the US and the EU. Not surprisingly, Iran de facto criticizes the deployment of European observers in Armenia, emphasizing that regional powers should solve regional problems while external actors will only deteriorate the situation. In this context, Iran supports the 3+3 mechanism, which should include Armenia, Azerbaijan, Georgia, Iran, Turkey and Russia, as a tangible platform for bringing peace and stability to the South Caucasus. The first meeting of this format at the level of deputy foreign ministers took place in Moscow in December 2021, albeit without the participation of Georgia. Iran is working with Russia to convene the second meeting in Tehran by the end of 2023.

As Armenia–Azerbaijan peace negotiations reached an apparent deadlock due to the Azerbaijani position of taking everything, many seek to understand what may happen next. Some argue that Azerbaijan may launch a large-scale attack against Armenia similar to the aggression of September 2022 or undertake military action in Nagorno Karabakh. Others believe that Azerbaijan does not need any military escalation and will pursue “salami tactics,” taking favorable heights along the Armenia–Azerbaijan border and the line of contact between Azerbaijan and Nagorno Karabakh, while continuing to strangle the Armenian population of Nagorno Karabakh through the blockade and waiting until November 2025 to push out Russian peacekeepers. Currently, Azerbaijan has many options and may choose any of them or try to combine several methods. Any Azerbaijani move envisages military pressure on Armenia. Yerevan urgently needs to increase its armed forces’ capabilities if Armenia wants to prevent the complete loss of Nagorno Karabakh and counter Azerbaijani pressure inside Armenia. In this context, many wonder what Iran’s role will be in case of large-scale Azerbaijani attack against Armenia. It is very challenging to predict Iran’s exact actions, but Iran has other options short of direct military engagement. Iran may supply weapons to Armenia, offer joint military drills with Armenian armed forces and establish a small permanent military presence in the Syunik or Vayots Dzor regions of Armenia. These options will have a significant negative impact on Armenia’s relations with the US, the EU and NATO. However, before warning Armenia about the negative consequences of military cooperation with Iran, the collective West should offer alternatives. The deployment of 60 to 65 civilian observers along the 1,000 kilometer Armenia–Azerbaijan border and talks that arms supplies are not possible because Armenia is a member of CSTO and an ally of Russia are not helpful. Everyone clearly understands that Armenia cannot leave the CSTO and cancel its 1997 agreement with Russia without exposing itself to imminent threats, which the West cannot counter. Thus, the discussions that we will not supply you arms because you are a CSTO member state, while you should not have military cooperation with Iran, and in case of Azerbaijani aggression, no Western military intervention is possible, and even the EU/US sanctions against Azerbaijan are not guaranteed because of growing EU–Azerbaijan economic cooperation sound like bad advice. 

If the West is unable or disinterested in convincing Azerbaijan to accept the Western presence in Nagorno Karabakh to secure the fundamental rights of Armenians when or if Russian peacekeepers leave and is unable to push Azerbaijan to move its troops out of occupied Armenian territories, all calls to Armenia not to have even minimal military cooperation with Iran receive at least mixed perceptions in Armenia. With that being said, Armenia should deepen its cooperation with Tehran, as Iran continues to counter Azerbaijan.