The complex web of interdependence and threat balancing that prevents war between Iran and Azerbaijan

Relations between Tehran and Baku have long had their ups and downs, but a recent series of events in late March, including the opening of the Republic of Azerbaijan’s embassy in Tel Aviv, an assassination attempt against an Azerbaijani MP in Baku, and the Azerbaijani government’s harsh denunciation of comments made by a senior Iranian military commander, coming in the aftermath of an armed attack on the Republic of Azerbaijan’s embassy in Iran in late January, have once again brought tensions to a boil.  

These recent episodes add to a lengthy list of existing disputes between the two countries, ranging from concerns over military maneuvers along the border and Azerbaijan’s military and intelligence cooperation with Israel to worries about the Zangezur Corridor and the possible blockage of the Iran-Armenia border.

However, despite the mutual threat perceptions, the recurring tensions between the two countries have not gotten out of control and led to military conflict. In fact, over the past three decades, relations between Tehran and Baku have consistently followed a cycle of escalating and de-escalating tensions. The recurrence of this cycle raises an important question: What's kept the Republic of Azerbaijan and Iran from going to war despite all of their serious problems? What cards and levers of pressure do the two countries have against each other that prevent tensions from boiling over or escalating into military conflict? Seven different factors contribute to a complex web of interdependence and threat balancing between the two countries that prevents the long-term continuation of tensions and the outbreak of war.

The first factor is economy and trade. More than 50% of Iran’s volume of trade with the South Caucasus is with the Republic of Azerbaijan, roughly equivalent to that with Armenia and Georgia combined, making it Tehran’s leading economic and trade partner in the region. Iran is the eighth-largest exporter to the Republic of Azerbaijan, and Azerbaijan accounted for 19% of Iran’s total trade with Caspian littoral states in the first nine months of 2022 (March-December). The volume of trade is rising as well. According to Alireza Peyman-Pak, the head of Iran’s Trade Promotion Organization, "The bilateral trade turnover between Iran and Azerbaijan increased by 100 per cent in July 2022 compared to July 2021." Maintaining bilateral trade relations is very important for Iran given the impact of U.S. sanctions. Tehran simply cannot afford to lose its leading trade partner in the Caucasus by continuing or intensifying tensions with the Republic of Azerbaijan.

The second factor that plays a key role in de-escalating tensions is transit and transportation. Iran is the only direct and low-cost transit route for the Republic of Azerbaijan to reach the Persian Gulf, the Oman Sea, the countries of the Arab world, and especially Pakistan, which has a close and strategic partnership with Baku. At the same time, the Republic of Azerbaijan is also a key part of the International North-South Transport Corridor (INSTC), Iran’s main route for transit and trade with the densely populated western regions of Russia, Georgia, and Belarus. The Astara border crossing is the main transit route between Iran and the Republic of Azerbaijan and Russia; on average, a truck crosses the border at Astara every seven minutes. The Azerbaijan-Iran transit route has become even more important recently as a result of the Ukraine war, the extensive Western sanctions against Russia, and the preferential trade agreement between Iran and the Eurasian Economic Union that is being upgraded to a free trade agreement. INSTC’s total capacity could reach up to 15.4 million tons per year, according to official estimates, meaning there is plenty of room to expand trade volumes. Moreover, during the first trilateral meeting on INSTC between Iran, Russia, and the Republic of Azerbaijan in September 2022 in Baku, the three parties signed a statement pledging to increase freight transit even further, with a target of reaching 30 million tons per year by 2030.

The third factor is the strong dependence of the Republic of Azerbaijan’s Nakhchivan exclave on Iran when it comes to transit and energy. This plays an important role in the calculations of the leadership in Baku and is a strong motivator to prevent a continuation or worsening of tensions with Tehran. This may eventually change if connectivity between Azerbaijan and Nakhchivan is enhanced through the establishment of the Zangezur Corridor across southern Armenia and the exclave is linked up to an alternative source of gas through a new pipeline running from Iğdır, Turkey, the construction of which is expected to begin in the near future, according to Azerbaijani officials. In the meantime, however, the Republic of Azerbaijan’s reliance on Iran in these two vital areas will continue to act as a brake on escalating tensions.

The fourth factor is Tehran and Baku's ties with Armenia and Israel. Both the Republic of Azerbaijan and Iran worry that a worsening of relations could prompt the other to pursue a closer partnership with their respective rivals in Yerevan and Tel Aviv. Examples of this include the visit by Armenian Foreign Minister Ararat Mirzoyan to Tehran in October 2021, during a period of heightened Iranian-Azerbaijani tensions, and, more recently, Baku’s decision to approve the establishment of an embassy in Tel Aviv in November 2022 and its subsequent opening in March 2023. Increasing tensions seem to have acted as a catalyst for these decisions, clearly illustrating how both Tehran and Baku use the Armenia and Israel cards to balance threats and deterrence.

The fifth factor is Turkey, especially since the Baku-Ankara axis has been greatly strengthened following the Second Nagorno-Karabakh War in late 2020. Iran knows very well that if it applies excessive pressure on the Republic of Azerbaijan, this will present Baku with a security and strategic dilemma and the result will likely be the further strengthening of military and security relations with its partners Turkey and Israel. In addition, the intensification of Iran's confrontation with the Republic of Azerbaijan and Turkey could also increase the activity of Pan-Turkic and Pan-Azeri groups in the Azeri areas of northwestern Iran.

The sixth factor is Russia, which tries to play the role of a balancer in relations between Tehran and Baku. In essence, Moscow sees the tension between the two countries as the opening of a new conflict front in the Caucasus, one that, coming at the same time as the Ukraine war, will only put further pressure on Russia’s “near abroad.” Moreover, since the onset of the Ukraine war, Russia also desperately needs the Dagestan-Baku-Astara route for transit and trade with Iran, India, and the Arab countries of the Persian Gulf. Indeed, according to the recent agreement between Tehran and Moscow, with Russian investment, the 164-km Rasht-Astara railway is supposed to be completed within three years. Thus, the continuation and escalation of tensions between Tehran and Baku is not in Moscow’s interest in the current situation.

The seventh factor is Europe's transit and energy dependence on the Republic of Azerbaijan as a result of the Ukraine war, given both its role in the Middle Corridor as well as its status as a major supplier of gas for Europe as it seeks to diversify away from Russia. The rising level of tension between Tehran and Baku could seriously threaten one of the most important transit and energy transfer routes to Europe, which could have a significant negative impact on the continent.

Of all the factors mentioned above, the weight of the Russian factor seems to be greater than the others. If Russia's war against Ukraine continues, leading to the further weakening of its economy and its position in the U.N. Security Council, Moscow’s role as a regional balancer may be affected. The result will likely be more geopolitical instability in the South Caucasus and the strengthening of the Baku-Ankara axis. Such a situation could open the door for the Republic of Azerbaijan to attempt to establish the Zangezur Corridor by force, which could prompt a military response by Iran to maintain the security of the Iranian-Armenian border. In such a situation, the tensions between Tehran and Baku could quickly escalate out of control.

Dr. Vali Kaleji is an expert in regional studies, Central Asia, and the Caucasus based in Tehran, Iran. He has published numerous articles on Eurasian issues with the Jamestown Foundation’s Eurasia Daily Monitor, the American Foreign Policy Council’s Central Asia-Caucasus Institute, and the Valdai Club.

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