Having pursued coercive diplomacy to contain the rising influence of Israel and Turkey in Azerbaijan since 2020, Tehran has opted for reversive diplomacy towards Baku to de-escalate tensions. The shift is part of a broader Iranian strategy of seeking rapprochement with neighboring states, including Saudi Arabia.
Transit in focus
Regional infrastructure projects lie at the heart of the current pragmatism in the Azerbaijan-Iran relationship, putting political disputes on the back burner.
In Oct. 2023, Baku and Tehran laid the foundation for a new route connecting Azerbaijan to its Nakhchivan exclave through Iranian territory. The ceremony gathered Azerbaijani Deputy Prime Minister Shahin Mustafayev and Iran’s Minister of Roads and Urban Development Mehrdad Bazrpash.
Per the initial agreement, a road bridge will be constructed between the two countries, followed by new motorway and railway connections. Although there is currently a functioning road connection between Azerbaijan and Nakhchivan via Iran, the new highway will significantly reduce travel time.
The endeavor, known as the Aras Corridor, is a pivotal development in the geopolitical landscape of the South Caucasus. The project is aligned with Iranian economic interests, and offers Azerbaijan financial dividends by boosting bilateral trade.
From a political perspective, the route avoids Iranian isolation in the region. By being part of the ground connection between Azerbaijan and Turkey, the Islamic Republic’s political leverage will be strengthened.
Welcomed alternative
The idea of a transit route via Iranian territory became a viable option shortly after Azerbaijan dropped the contentious Zangazur Corridor. At the same time, Baku has not ruled out future pursuit of Zangazur if a final peace agreement with Armenia is signed.
After regaining full control over the Nagorno-Karabakh region in Sept. 2023, Azerbaijani state media and officials underscored the importance of establishing a land corridor via Armenia’s southern Syunik Province, referring to the Russia-brokered trilateral statement of Nov. 2020.
Zangazur Corridor
Azerbaijan’s plan to develop a direct route to Turkey has stirred tensions with Armenia and Iran, who say it will cut their land border. The route has also pitted Ankara against Tehran.
However, Azerbaijan’s demand that a land route to Nakhchivan and Turkey run via Armenia sparked two sets of concerns. On the one hand, Yerevan was pushed to seek new security partners and pivot toward the west. In this context, Armenia warned western states that Azerbaijan was preparing for an invasion—despite Baku’s denials. As for Iran, it stridently opposed the Zangazur Corridor as it would cut direct access to Armenia. Thus, Iran views the Aras Corridor as a welcome alternative.
The move to establish a new transit route via Iranian territory appears rational. Last year, Baku and Tehran saw a notable 44% increase in the exchange of goods through their joint railway at the Astara border crossing. The proposed route linking the East Zangazur economic area and Nakhchivan signifies both countries’ commitment to deepening economic integration and regional cooperation. Undoubtedly, it will further enhance Iran’s connectivity in the South Caucasus while bringing additional financial dividends and newly built infrastructure.
The Islamic Republic also frames the Aras Corridor as a critical element of the International North-South Transport Corridor (INSTC), which links Russia and India via Iran. This is while Azerbaijan is keen to link the new motorway and railway link to the Trans-Caspian International Transport Route, known as the Middle Corridor.
International North-South Transport Corridor
The INSTC connects India to Europe via Iran and Russia, bypassing the Suez Canal. In a potential shift, overland routes may also go through Azerbaijan.
Since 2021, Azerbaijan and Turkey have put enormous effort into promoting the Middle Corridor as the shortest alternative to the existing route running through Russian territory. The initiative was revisited in 2022, when the Russian invasion of Ukraine unfolded. With the introduction of additional economic sanctions on Russia, the European Union acknowledged the importance of the Middle Corridor as an alternative route connecting Europe with the Caucasus and Central Asian region. For example, in Feb. 2024, the European Bank for Reconstruction and Development (EBRD) announced an additional 42M USD in investment in Azerbaijan to support the development of the infrastructure project.
Considering the diverse interests of Azerbaijan and Iran in boosting these two major transit projects, there may be engagement on whether to incorporate the Aras Corridor into the INSTC or the Middle Corridor. It is also likely that Tehran plans to incorporate an Armenian leg of the INSTC into the Aras Corridor, which might renew diplomatic tensions with Baku amid the stalled Azerbaijani-Armenian peace negotiations.
Challenges ahead
Azerbaijan prioritizes the development of the Middle Corridor over the INSTC as it enables Baku to forge a stronger alliance with Turkey. In this context, the Aras Corridor will likely to be a temporary option for Azerbaijan and Turkey to achieve a land connection. In other words, Azerbaijan may gradually end or downgrade trade via the Aras Corridor once the dispute with Armenia over the Zangazur Corridor settles down.
The rail segment of the Aras Corridor might also prove to be a problem. While Azerbaijan will finance the new road bridge, it has not expressed a willingness to fund any railway construction. Discussions on the rail route are ongoing, but clarity on the funding aspect remains elusive. Facing tough western sanctions, Iran faces restrictions that may torpedo efforts to pay for the project.
Considering mounting international pressure and criticism, the new transit route via Iranian territory enables Azerbaijan to address concerns about alleged plans to invade southern Armenia. It also allows Baku to demonstrate that it has alternative land routes to Nakhchivan and Turkey. The Aras Corridor additionally has the potential to offer a real solution to the lack of a land connection between mainland Azerbaijan and Nakhchivan in the medium term, thus solving one of the major connectivity problems in the South Caucasus.
Fuad Shahbazov is a policy analyst covering regional security issues in the South Caucasus.
