The Dynamics of Bilateral Relations in the South Caucasus : Iran and its North Neighbors

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The Dynamics of Bilateral Relations in the South Caucasus : Iran and its North Neighbors
    China and Eurasia Forum Quarterly, Volume 7, No. 3 (2009) pp. 115-128 © Central Asia-Caucasus Institute & Silk Road Studies Program ISSN: 1653-4212 The Dynamics of Bilateral Relations in the South Caucasus: Iran and its North Neighbors Farhad Atai *   ABSTRACT The Islamic Republic of Iran enjoys close and friendly relations with the small Christian Republic of Armenia, rather than with the larger and seemingly more important Shi’ite Republic of Azerbaijan. While Iran’s close relations with Yerevan have a great deal to do with Armenia’s geographic and economic isolation, the Islamic Republic’s distant relations with Azerbaijan are a result of mutual suspicion and mistrust. Historically, Russia’s special relationship with Iran has been a product of Russia’s rivalry with Western powers rather than genuine mutual interests between the two neighbors. In the South Caucasus, where Russia still wields considerable influence, it blocks Iran’s economic influence in Armenia and Georgia. As Yerevan expands its foreign dealings with the West as well as with Russia, Iran should no longer take its close relations with Armenia for granted. Keywords  • South Caucasus • Iran, Armenia • Azerbaijan • Georgia • Russia • Caspian Sea Introduction Until Iranian territories in the Caucasus were ceded to Tsarist Russia in the early 19 th  century, Armenia, Georgia, and what is today called the Republic of Azerbaijan were part of the Persian Empire. The Armenian and Azeri communities within Iran lived safely and prospered. But history alone cannot account for Tehran’s relationships with those countries today. There are other explanations that have to do with the economic, geographic, and political situations of those countries. *  Farhad Atai, PhD, is Associate Professor of Regional Studies at the School of Law and Political Science, University of Tehran. He is a member of the editorial board of the Central Asia and the Caucasus Review and Central Eurasia Studies Journal in Tehran. Professor Atai was Yarshater fellow at Harvard University in 2000-2001. He can be contacted at  Farhad Atai THE CHINA AND EURASIA FORUM QUARTERLY • Volume 7, No. 3  116 The Islamic Republic of Iran was one of the first countries that recognized the newly independent states of the Caucasus and Central Asia after the collapse of the Soviet Union. In some of these countries, like Azerbaijan and Uzbekistan, the Islamic Republic has been viewed with suspicion. Even though the initial suspicions have largely been replaced with a more realistic understanding of Iran’s interests and policies in the region, Iran’s relations with most of these countries is far from close. In spite of a shared history and religion, Iran and Azerbaijan remain distant neighbors. With Armenia, however, Iran has enjoyed a close and friendly relationship. Only three months after its independence, Iran officially recognized Armenia on December 21, 1991, and established diplomatic relations with Yerevan in 1992. In fact, Armenia is the only country among Iran’s neighbors with which Iran has close ties and a relationship free of tensions. Armenia, in spite of its close relations with the United States and the European countries, has refrained from voting against the Islamic Republic in international organizations and did not endorse sanctions against Tehran over the nuclear issue. The close relationship between the two countries may look odd. Iran is a vast country of 1,648,000 square kilometers with a predominantly Shi’ite population of more than 70.5 million people (2006 census) 1  and a GDP of US$270 billion. 2  It is a multi-ethnic, multi-cultural country. It bridges the two energy regions of the Persian Gulf and the Caspian, and is the shortest route connecting the land-locked Central Asian states to the outside world and the open seas. It has the longest shore with the Persian Gulf, where 70 per cent of the world’s energy reserves lie. It presents itself as a religious state, with a declared policy of cooperation with Muslim countries as a priority. Emphasis on Islam, particularly Shi’ite Islam, has been a constant in Iran’s foreign policy ever since the establishment of the Islamic Republic of Iran in 1979. Iran is an energy rich country, 3  whose economy is heavily dependent upon Western countries for revenue, technology, and goods. Armenia, by contrast, is a tiny country of 298,000 square kilometers and a population of 3 million. 4  That is less than a third of the population 1  Statistical Center of Iran, < Glance/sci_en.generalinf> (June 2 2009). 2  World Development Indicators Database, < ddpreports> (September 1 2008). 3  Iran’s proven crude oil reserves are 137.62 billion barrels and its proven natural gas reserves are 29.61 billion cubic meters. OPEC, Iran Facts and Figures (ASB 2008), <> (February 2 2009). 4  World Development Indicators Database, < ddpreports> (September 1 2008).  The Dynamics of Bilateral Relations in the South Caucasus: Iran and its Northern Neighbors THE CHINA AND EURASIA FORUM QUARTERLY •  October 2009  117 of the Iranian capital, Tehran. 5  Armenia, a secular state, is Christian. The poorest country in the Caucasus upon independence from the Soviet Union, it went through a bloody war with neighboring Azerbaijan over the Karabakh region. Even though Armenia has close ties with the West, the Soviet legacy is very much present in that country; Russia still maintains a large military presence in Armenia, owns the entire thermal energy industry, provides 40 per cent of Armenia’s gas, and runs its telecommunications network. After the war over Karabakh ended, Armenia embarked on an economic development project with the help of the World Bank. Over 15 years, the Armenian economy grew by double-digit rates annually. Its GDP rose to US$9.18 billion in 2007 with an annual growth rate of 13.9 per cent. 6  Yet, Armenia’s per capita income is still one quarter of that of the former Soviet Baltic states. 7  This article looks at Iran’s relations with its neighbors in the Caucasus. In particular, it examines the factors contributing to the rather unique relationship that has developed between Tehran and Yerevan, relations between Iran and Azerbaijan, and Russia’s policy vis-à-vis Iran in the South Caucasus. Finally, it examines the American factor affecting Iran’s bilateral relations with its neighbors in that region. Geography Energy and Transit Iran borders three major regions: the Middle East, Central Asia and the Caucasus, and South Asia. Yet, it is not part of any of them. It is not a member of any strategic or political alliance in these regions. It is a Middle Eastern country, yet, it does not share the same history, language, or aspiration of its Arab neighbors. Along with Turkey and Israel, it is one of the three non-Arab states in the Middle East. It borders Central Asia and the Caucasus and shares a long history with that region. Yet, it is not in the same predicament as the newly independent states that share the seventy-year experience of Soviet rule. It borders the Indian subcontinent. However, it is not involved in the conflicts and crises that have afflicted that region. While not isolated, Iran is, nevertheless, a lonely state. Ever since the Islamic Revolution of 1979, there have been varying degrees of misunderstanding and mistrust between the revolutionary regime in Tehran and its neighbors. Under such 5  A former senior Iranian diplomat in Yerevan observed: “Iranian investors are more interested in buying eggs in Tehran than investing in Armenia,” conversation with M.R. Tabatabai, Tehran, December 13, 2006. 6  World Development Indicators Database, <  /ddpreports> (September 1 2008). 7  Saumya Mitra, The Caucasian Tiger: Policies to Sustain Growth in Armenia , World Bank Report, June 1, 2006.  Farhad Atai THE CHINA AND EURASIA FORUM QUARTERLY • Volume 7, No. 3  118 circumstances, relations free of tension with even a small neighbor like Armenia are welcomed by Tehran. Armenia is a land-locked country that has a 566 km border with Azerbaijan-proper, 221 km with the Azerbaijan-Nakhichevan exclave, 268 km with Turkey, 164 km with Georgia, and 35 km 8  with Iran. 9  The war with Azerbaijan over Karabakh shortly after independence caused the closure of Armenia’s long borders with both Azerbaijan and Turkey. Armenia is thus mostly surrounded by hostile or unfriendly neighbors and is connected to the outside world only through Georgia and Iran. The political instability in Georgia because of Abkhazia and Ossetia and the recent war with Russia has meant that Georgia cannot be a reliable transit route for Armenia. The effects of this on Armenia’s potential external economic relations cannot be underestimated.   Economic Relations with Armenia The volume of trade between the two neighbors rose from US$62.2 million in 1999 to US$162.75 million in 2009, most of it in the field of energy. In 1999, Iran’s value of exports to Armenia stood at US$37 million, which increased to US$141.18 million in the Iranian calendar year ending in March 2009. 10  Armenia is heavily dependent on foreign gas and oil, but has surplus electric energy from its hydroelectric plants. Iran provides Armenia with natural gas through a pipeline that was completed in March 2009 11  and receives Armenian electricity in return. Iran spent US$100 million to build the Khodafarid dam on the Arax River bordering the two countries. The dam was inaugurated in 2008. The related hydroelectric power plant is near completion. 12  In a trilateral cooperation 8  “Armenia Country Brief 2009” April 1 2009, <,,contentMDK:20628754~menuPK:301586~pagePK:141137~piPK:141127~theSitePK:301579,00.html> (October 2 2009). 9  Since the takeover of Karabakh by the Armenians, the actual border between Iran and Armenia is 120 km. 10  “Iran Sees 10-Fold Rise in Trade Balance with Armenia,” Tehran Times , May 24, 2009, <> (September 3 2009). 11  The spokesman for the Ministry of Energy and Natural Resources of Armenia announced the completion of the project on March 16, 2009, in Yerevan. The pipeline is 140 kilometers long, 40 kilometers of which lie in Armenia and the rest in Iran. It is to carry 10 million cubic meters of natural gas per day to Armenia (1.1 billion cubic meters per year). Interestingly, the Russian Gazprom, not an Iranian company, is the contractor for the project. “Maqam-e Armani: Khat-e Loula-ye Iran-Armanistan Amadeh-ye Bahrebardari Ast (Armenian Official: Iran-Armenia Gas Pipeline is Ready for Operation),” Iran News Agency (IRNA) , July 23, 2009, <> (March 26 2009). 12  The dam is built on the territory occupied by Armenia since the beginning of the Karabakh conflict. The Arax Dam and its hydroelectric plant were already in operation within the Armenian-Iranian territory.  The Dynamics of Bilateral Relations in the South Caucasus: Iran and its Northern Neighbors THE CHINA AND EURASIA FORUM QUARTERLY •  October 2009  119 agreement, Iran also receives electricity from Turkmenistan’s thermal power plants in winter and transfers energy to Armenia. Transit is another area of cooperation between Tehran and Yerevan. Armenia’s railway network is presently connected to the outside world only through Georgia. Iran acts as a transit route for Armenia’s needed goods. Iran exports a limited number of automobiles as well as food products to Armenia. There are infrastructural projects underway that would further expand the transit of goods between the two countries. This is also in line with the creation and expansion of the “North-South Corridor” favored by Moscow. The corridor is to facilitate the transit of goods from Russia via the South Caucasus and Iran to the Persian Gulf, Pakistan, and India. In November 2008, the construction with Russian cooperation of an 80-kilometer railway route connecting the Arax River to Marand in north-west Iran was announced. 13  This is a part of a 470-kilometer project, most of which lies in Armenia. 14  The project is estimated to cost US$2 billion. The World Bank, Asia Development Bank, Russia, and Iran have expressed interest in the project. 15  The North-South Corridor has been suggested as an alternative to the east-west TRASICA route supported by the United States and its European allies that would connect the Western countries via the South Caucasus to Central Asia. It is seen as a modern Silk Route that excludes both Russia and Iran. Azerbaijan Armenia’s war with Azerbaijan and the mutual distrust between Tehran and Baku have affected the relations between Iran and Armenia. Ever since the emergence of the Republic of Azerbaijan as an independent nation-state, there has been a great deal of suspicion and accusation between Iran and Azerbaijan. Most of this arose from religious and political considerations. Immediately after the Islamic Revolution, expression of the desire to export the Revolution and its ideals to the neighboring states became a source of concern for countries of the region. This was especially true in the countries where there was a sizable Shi’ite community. Azerbaijan, after the Soviet breakup, as a predominantly 13  Nina Mamedova, “Monusebat-e Iran va Rusiyeh dar Sal-e 2008 Miladi [Iran-Russian Relations in the Year 2008],” IRAS 5,  23 (2009): 6. 14  “Ehdath-e Rah-Ahan-e Iran-Armanistan Ejra’ee Mishavad [Iran-Armenia Railway Gets Underway],” ECO News , April 25, 2009, <> (April 25 2009). 15  “Russia Backing Iran-Armenia Rail Link,” Zawya , November 10, 2008, <> (October 8 2009).
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