Iran in the Caucasus: Keeping balance in volatility

When Iran embarked on its bid to build bridges in the south Caucasus, the regional states worried given the Islamic Republic’s reputation of propagating radical Islam, attempting to export revolution, and supporting radical political groups. In retrospect, Iran has acted as a moderate and balanced player in the region by placing the geopolitical, economic, and security aspects of its national interests over ideological or religious motives. In an environment where the degree of volatility had dramatically increased due to the emergence of three post-Soviet states, Iran has become preoccupied with securing stability along its borders through pursuing a complex set of economic, national security, and foreign policy interests.

What are the interests that formulate Iran’s largely cautious and pragmatic policy in the south Caucasus?

First, advancement of economic interests and regional cooperation. Iran’s economic problems and its desire to promote non-hydrocarbon exports have driven it to search for new markets. Newly independent neighbors in the south Caucasus, detached from the world trade and economy, offered new opportunities for Iranian exports. For them, Iran is a feasible transit route that offers access to the Persian Gulf and hence to world markets. In addition, access to Iran’s pipeline and transportation network offers oil-rich Caspian states an opportunity to reap profits from transporting energy resources. In an attempt to gain new markets, Iran began to expand its influence in the region by providing technical assistance, promoting economic projects, especially in oil and gas exploration, and by supporting regional economic integration. Iran’s incentives for regional cooperation involve not only improving overall economic performance but, perhaps to a greater degree, safeguarding common security interests, preventing unilateral external domination in the region, and preserving regional stability to minimize the risk of ethnic separatism at home.

Second, preservation of domestic stability. Separatist tendencies of Iran’s ethnic Azeris heavily affect its behavior towards the region. The Azeris in Iran are generally considered a well-integrated component of Iran’s multiethnic society, have a comparatively weak Azeri identity, and consider themselves at least as much Iranians as Azeris. However, the oppression of their nationalist claims by the authorities in Tehran suggests that they constitute a far more pressing problem for Iran than is observed from the outside. In this context, the emergence of an independent Azerbaijani republic adjoining the Azeri-populated regions of Iran has considerably increased the threat to Iran’s security and internal stability. The fact that the Azeri unification movements exist -- albeit behind closed doors -- in both the Azerbaijani republic and the Iranian Azerbaijan, has been an annoying thorn in Iranian-Azerbaijani relations. Iran has thus exerted great effort to force the Azerbaijani government to affirm its neutrality toward the movement.

Third, conflict resolution and enhancement of regional stability. Guided by peaceful resolution of conflicts as a priority in its regional policy, Iran has played a responsible role in trying to mediate the Nagorno-Karabakh conflict. When the conflict erupted into a large-scale war, Iran’s fear of an ethnic Azeri uprising at home in solidarity with Azerbaijan prompted it to contain Azerbaijan in support of the Armenians. However, when Armenian military advances threatened to spill the fighting over into Iranian territory, Tehran voiced its criticism of the Armenians. This duality suggests that Iran is in favor of neither a strong Azerbaijan, nor a strong Armenia. Rather, Iran is interested in keeping both nations in equilibrium by means of occasional pressure on the stronger side. Although Iran’s mediation efforts did not bring a settlement, they did lead to brief cease-fires and contributed to international efforts to stabilize the region, a fact that was recognized even by the U.S. From Tehran’s perspective, involvement in the conflict has given Iran leverage to curtail Turkey’s and subsequently, NATO influence in the region. In taking advantage of its ability to maintain steady relations with both Armenia and Azerbaijan, as well as of Armenia’s mistrust towards Turkey’s mediation, Iran has become the only regional actor that had both motivation and opportunity to play a reasonably impartial mediating role in the conflict.

Fourth, avoidance of overall geopolitical isolation. International isolation has prompted Iran to search for regional partners, which it has found mainly in Russia and Armenia. The major incentive for Iran’s cooperation with these two countries was a strategic response to Washington’s emphasis on expanding influence in the region through its partnership with Turkey and Azerbaijan. This “alignment of powers” has created a polarization primarily in pipeline politics and in division of the Caspian Sea, thus placing the north-south axis vis-�-vis the east-west corridor. Both Iran and Russia would be devoid of energy resources if the Caspian were delimited, because they would almost entirely remain within the territorial waters of Azerbaijan, Turkmenistan, and Kazakhstan. Hence, Iran and Russia supported the formation of an international regime, based on which Caspian states would jointly exploit all energy resources. In recent years, Iran has expanded trade relations, military contacts, and technical cooperation with Russia in nuclear field. Tehran also sees a strong role for Russia as the guarantor of stability in the region. For Armenia, Iran provides a way out of the Azerbaijani and Turkish blockades. Fifth, exploration and transportation of Caspian energy resources. Iran’s discontent over the division of ownership of the Caspian Sea and its southern territorial waters affects its regional policy, especially as more pro-Western forces seem to have an effect on the policies of Caspian states regarding exploration of the Sea. After Azerbaijan concluded an agreement on exploration and transportation of its oil and gas -- the so-called “deal of the century” – with a consortium led by Western oil companies, Iran acquired a 10% share of the deal and is now a partner in one of the offshore consortia. However, Iran’s principal interest is an oil pipeline that passes through Iran to the Persian Gulf, not Turkey, a prospect that would give Iran more control over the outlet of Azerbaijan’s oil. Iran is also interested in oil swapping deals with the Caspian states that would enable shipping crude oil from the region to the refineries in northern Iran in exchange for proceeds from delivery of equal amounts of Iranian oil for export from Persian Gulf ports.

Finally, containment of heavy Western domination. Iran’s policy is affected by a fear that the U.S. may take a powerful stand in the south Caucasus either directly or through its major regional ally, Turkey. Because of this fear, Iran made every attempt to dissuade regional states from establishing close ties with the U.S. However, in the past few years Iran has displayed a desire for improved relations with the West, and the U.S. seems to be reciprocating. Apart from its central objective, Washington’s reciprocity may seek to counteract the weakening of Turkey, contain the Iranian-Russian rapprochement induced by U.S.’ long-standing policy of isolating Iran as a rogue state, take preemptive steps against the risk of arms proliferation, and explore the Iranian option of exporting Caspian oil. If Khatami’s government stays on the course of reform despite the sporadic crackdowns by conservative forces, the U.S. may eventually recognize Iran as a stabilizing factor in the region.

In sum, the pace and scope of domestic reforms and the movement toward accommodation with the West will eventually determine the nature of Iran’s short- and long-term policy in the south Caucasus. Iran currently lacks the resources to become a major regional actor. The country is not in the position to make massive investments into the Caucasus economies and is unlikely to emerge as an attractive market for regional products. The poor performance of the Iranian economy can hardly be a pattern that the regional states would wish to follow. As long as Iran remains politically isolated, it will be severely constrained of the difficulties it faces in raising foreign direct investment and in gaining a bid for itself as a major pipeline route. Because Iran’s relations with the regional states can offer a way out of international isolation, develop alternative trade and economic opportunities, contain conflicts that potentially threaten Iran’s security, and enhance its overall political prominence in the world, Iran will continue to behave as a balanced player in the south Caucasus.

Mr Tigran Martirosyan is director of programs at Central Asia-Caucasus Institute, a Washington DC-based policy research center affiliated with the Johns Hopkins University-SAIS. Prior to this, Mr Martirosyan held a senior position at the foreign ministry of Armenia, specializing in the assessment of U.S. foreign and national security policies toward the south Caucasus.