Shifting Power Dynamics in the South Caucasus: Iran’s Uncertain Future in the Region

The recent peace deal between Armenia and Azerbaijan, announced at the White House on August 8, drew a strong reaction from Iran, which condemned the deal as a dangerous step toward an American foothold in the South Caucasus. Though Armenian Prime Minister Nikol Pashinyan and Azerbaijan President Ilham Aliyev assured their southern neighbor that the declaration would enhance regional connectivity, Tehran remains concerned about Washington’s newfound influence in its backyard.

Complicating Iran’s Commercial Ambitions

Still reeling from the 12-day war in June, Tehran fears the United States’ involvement in the South Caucasus will block its access to the Zangezur corridor—a roughly 30km-long trade route running through Southern Armenia. By utilizing Zangezur to connect mainland Azerbaijan to its enclave, the Autonomous Republic of Nakhchivan, the region will have greater access to East-West trade flows, strengthening Azerbaijan’s links with Turkey and simultaneously opening the door for more efficient trade with Europe.

For Iran, however, the August 8 accord contains provisions that would directly undercut the country’s access to the critical area. Labeled the Trump Route for International Peace and Prosperity (TRIPP) and developed by an American consortium through a 99-year development lease, the new route would compete with Iran’s South-North corridor extending from the Indian Ocean to Europe and Central Asia. By providing Azerbaijan a more direct route to Turkey, the deal effectively sidelines Tehran and eliminates its role as a logistics hub—intensifying Iran’s rivalry with the United States in this energy-rich region.

In recent years, Iran has significantly strengthened its trade relations with Armenia. In 2024, its trade volume with Armenia reached $737.4 million, with primary exports being natural gas, petrochemicals, steel, iron and construction material. Rising economic profits strengthened trade ties with Baku, paving the way for projects like the Aghband-Kalaleh Border Bridge and the Aras corridor, which aim to connect Azerbaijan to Nakhchivan by land and rail through Iran. If TRIPP materializes, Tehran could lose an average of $2.6 billion annually.

Although Iran does not oppose lowering barriers to international trade, it has firmly rejected the creation of corridors that exclude it or its partners. Indeed, Tehran views Azerbaijan’s attempts to rapidly open the Zangezur corridor as a violation of Armenia’s sovereignty, especially considering that Yerevan is delaying a constitutional amendment that grants full territorial concession to Azerbaijan over the other highly disputed area of Nagorno-Karabakh.

Corridors and Confrontation

The contested territories between Armenia and Azerbaijan, which the August 8 declaration aims to resolve, once belonged to Iran before they were relinquished to the Russian Empire in 1813. Yet Iranian leaders claim even deeper historic ties to the area. Former foreign minister Ali Akbar Velayati, also a senior foreign policy adviser to Supreme Leader Ayatollah Ali Khamenei, asserted that Iran’s security interests in the Caucasus date back to the 6^th century BCE, when Cyrus the Great first conquered the region.

Indeed, top Iranian officials have consistently defended their country’s interests on its northern border. Iran’s Supreme Leader expressed his opposition to the Zangezur corridor on several occasions in meetings with the leaders of Armenia and Turkey. Former defense minister Mohsen Rezaee threatened that blocking Iran’s trade to Europe would only exacerbate logistical bottlenecks in the region. At the same time, Velayati has dismissed the need for new corridors, urging Iran to continue opposing them now rather than deal with the potential  consequences later.

Tehran is also concerned that TRIPP might weaken Armenia’s strategic position permanently and provoke future conflict. Yerevan and Tehran recently cooperated to deter Azeri ambitions over the Zangezur route through a reported 2024 arms deal. Iran materially supported Armenia during the Second Nagorno-Karabakh war as well, but Tehran ultimately decided to back United Nations resolutions recognizing Azerbaijani sovereignty over the territory.

While Nagorno-Karabakh is no longer the flashpoint it was in 2020 and 2023, the territory remains contested. More than 100,000 Armenians were displaced, and the territory’s Yerevan-aligned government dissolved in early 2024, yet border disputes continue and negotiations remain stalled. In this regard, TRIPP acts as a potential solution for resolving—or at least working past—longstanding grievances, encouraging Armenia and Azerbaijan to relinquish territorial claims and end hostilities without third party intervention.

Iran’s Ideal Peace

While several proposals for peace and cooperation in the South Caucasus are circulating around the region’s capitals, Tehran is particularly supportive of a “3+3 format,” wherein negotiations are largely limited to the three South Caucasus countries—Armenia, Azerbaijan, and Georgia—and the region’s major powers: Iran, Russia, and Turkey. In response to the United States’ ambitions in the South Caucasus, Tehran has made clear that any initiatives that deviate from this framework cross a red line, warning that Western adversaries will not be permitted to breach its strategic boundaries.

Tehran has also demanded that its neighbors consider its sensitivities to the United States gaining a foothold in the region, particularly as it is still recovering from U.S. strikes against its nuclear facilities. Iran’s former ambassador to Azerbaijan, Abbas Mousavi, has said that economic corridors are non-essential for linking Armenia to Azerbaijan. He further expressed concern that the U.S. military might utilize the new consortium as a pretext to place troops on Iran’s borders—a move that poses a grave threat to Iranian security.

Unsurprisingly, more than 150 members of Iran’s parliament echoed these concerns in a recent statement, reiterating the strategic importance of Zangezur and warning that American control there would undermine Iran’s strategic depth and infringe on its national interest. All this despite the fact that President Masoud Pezeshkian, who traveled to Yerevan ten days after TRIPP was declared, says Iran’s interests are being taken into account. He noted that Armenia has offered assurances that private American security forces will not be stationed along the corridor and added that he continues to consult with Russia to protect those borders from U.S. encroachment.

Despite these assurances, the South Caucasus is entering a new post-conflict era marked by hopes for sustainable peace—yet Iran finds itself increasingly sidelined by U.S.-led initiatives. Seeking to safeguard its economic and national security interests in the region, Tehran now faces a critical challenge: maintaining its influence in a rapidly evolving regional order. Whether through diplomatic channels or regional alliances, Iran’s ability—or inability—to recalibrate its geopolitical approach will determine if it remains a central actor in the South Caucasus.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.