Under Iranian Eyes: The Challenge of the Caucasus

Hooman Peimani is a senior research fellow at the Centre for International Co-operation and Security in the Department of Peace Studies of the University of Bradford, UK.

The fall of the Soviet Union and the emergence of the three independent Caucasian states of Armenia, Azerbaijan and Georgia were a blessing and a curse for Iran, creating both opportunities and problems for the Islamic Republic. Iranian–Caucasian relations since 1991 have reflected this dual characteristic in one form or another, a result of various internal and external factors, particularly the growing political, economic and—since 2001—military presence of the United States in the Caucasus, a region that neighbours Iran and is of strategic importance to it.

The Caucasus was intermittently part of Iran for about three millennia prior to its loss to the Russian empire in the nineteenth century following two series of long and costly wars. The Turkmanchai Treaty of 1828 heralded the end of Iran’s rule in the region, formalising its annexation by Russia. Despite a short period of independence after the 1917 Bolshevik revolution, the Caucasus remained part of the Soviet Union until 1991.

The disintegration of the Soviet Union opened a new horizon for Iran. Going through a process of reconstruction after a devastating eight-year war with Iraq (1980–8), Iran needed a long period of peace both at home and abroad in order to rebuild itself and to implement many overdue development projects. Iran was also determined to revitalise its economy, heavily damaged by the war and the economic mismanagement that followed the 1979 revolution. All these objectives required the breaking of Tehran’s regional and international isolation. This isolation was especially evident during the war with Iraq, when most countries in the Middle East and externally sided with Baghdad and satisfied its military and non-military needs. Iran found itself without any powerful ally at a time when it was surrounded by many active and potential enemies. This situation forced it to rely on its own resources, while seeking an end to its isolation with all its negative political, economic and security implications.

In the 1980s, Iran’s radical foreign policy, especially during the early years of the Islamic Republic, and the hostility of some Western countries, closed the doors of the West to Iran. Iran also failed to expand its influence in the mainly Muslim Middle East, despite its efforts to capitalise on its credentials as a regional Islamic state. Apart from limited success in developing ties with Lebanon and Syria, non-Arab Iran found that the region’s largely Arab nature created a “natural” barrier to the establishment of political alliances. Historical enmity between the Arabs and the Persians and their subscription to two different branches of Islam, Sunnism and Shi’ism, created additional hurdles in the way of Iran. To this gloomy picture, one should add that Iran could not even count on the Soviet bloc for support, most of whose members favoured Iraq during the 1980–8 war.

Against this background, the post-Soviet independence of the Central Asian and Caucasian states offered Iran an opportunity to break its isolation. The two newly independent regions became a major arena for Iranian political and economic expansion, helping Iran relieve its heavy reliance on the Middle East. Unlike the Arab Middle East, the Caucasus and Central Asia had various natural links with Iran—ethnic, linguistic, cultural, historical and religious ties forged over thousands of years—that made them more receptive to the expansion of relations with Tehran. Such expansion was natural and beneficial for both sides. Iran’s need to widen its circle of friends coincided with that of the Caucasian and Central Asian states. These were in search of allies outside the ex-Soviet republics, not least in order to decrease their reliance on Russia and so to secure their real, and not just nominal, independence from Moscow following the Soviet Union’s collapse.

Why the Caucasus Matters to Iran

The foregoing provides a historical context for the analysis of Iran’s policy towards and interests in the Caucasus. The region is important to Iran both for what it can offer the Islamic Republic and for its potential impact on Iran’s security.

Politically, the Caucasus offers Iran an arena in which it can expand its diplomatic ties and increase its political influence, helping it ease its international isolation. The post-Soviet independence of Armenia, Azerbaijan and Georgia, and of the five Central Asian countries (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan), enabled Iran to increase the number of its regional friends. Besides gaining political influence, Tehran wants to ensure that no hostile or unreliable power dominates the region and makes it a threat to Iran’s national security. For this reason, Iran has a stake in supporting the independence of the Caucasian countries and hence rejects their reintegration into Russia, officially or unofficially, while also opposing their domination by the United States or Turkey.

The Caucasus is also important to Iran in functioning as a buffer against Russia. The two countries have been on friendly terms since 1987, when Mikhail Gorbachev ended the Soviet Union’s one-sided policy of backing Iraq during the latter’s war with Iran. He also expanded relations with Tehran, especially in the economic and military spheres. However, the current friendly ties between Iran and Russia—including co-operation in Central Asia, the Caucasus and Afghanistan to keep them stable and prevent their domination by the United States, their growing economic links, and their common interest in a multipolar international system—are atypical of their relations. Prior to 1987, apart from roughly the ten years before the shah’s overthrow, Iran and Russia experienced more than two centuries of fraught relations, during which they fought major wars. For this reason, Iran welcomes the independent Central Asian and Caucasian states as a buffer between it and Russia.

From an economic point of view, the importance of the Caucasus for Iran is multidimensional. Being a land link between Asia and Europe, it offers Iran an alternative to Turkey as a land route to Europe. Although Iranian–Turkish relations have improved, especially in the economic field, since the mid-1990s, Turkey does not make an easy neighbour for Iran. It has different, even conflicting interests to Iran’s in the Middle East, the Caucasus and Central Asia, and is a pro-American NATO member that hosts US and Israeli forces on its soil. Hence, the Caucasus is important to Iran for the conduct of trade with Europe. It is especially important in offering an additional route to that of Turkey for the export of Iranian oil and gas, in particular to eastern and central Europe.

The Caucasus’s agricultural and industrial shortcomings, including its lack of a healthy consumer industry, make the region a potential market for Iranian products. It is also a market for Iranian engineering services in areas such as construction and power generation. Its substantial oil reserves, located mainly in Azerbaijan, provide further significant opportunities for Iran. Being a major oil producer itself, with an extensive oil and gas industry and about a century of experience in the field, Iran can offer the Caucasian countries technical assistance (e.g., prospecting, drilling and transportation) and become involved in oil‑development projects. In addition, Iran could serve as the shortest, cheapest and safest transit route for Azerbaijan’s oil exports, a role it has sought since the mid-1990s, hitherto without success.

When it comes to security, the Caucasus is of especial importance to Iran. The region’s unresolved ethnic and territorial conflicts have the potential to escalate and drag Iran, Turkey, Russia and the United States into a regional war. Consequently, Iran has a major stake in peace and stability in the Caucasus.

Pipeline Politics

Iran has experienced two different types of relations with the Caucasian states since they gained their independence. Its ties with Armenia and Georgia have been mainly friendly and stable, even though these two countries are on good terms with the United States. Parallel to good political relations, their bilateral trade with Iran has expanded steadily. In particular, Armenia has been the most reliable friend and trading partner of Iran in the region. A major indication of the health of the relationship is that Iran and Armenia have embarked on a significant gas pipeline project that could potentially be extended to supply Iranian gas not only to Armenia, but also to Georgia and quite possibly Ukraine as well.

Exporting Iranian natural gas via a pipeline to Armenia and through it to Georgia and Ukraine emerged as an idea shortly after the collapse of the Soviet Union. The three Caucasian states¹ and Ukraine saw importing oil and natural gas from Iran as a feasible and inexpensive alternative to importing Russian fossil fuels. This alternative also harmonised with their long-term objectives of consolidating their newly achieved independence, reducing their heavy reliance on Russia, and thus decreasing Moscow’s political influence over them. In search of new markets, Tehran was eager to export oil and gas to and through the Caucasus via pipelines as this would increase its fuel revenues, particularly from natural gas, whose export at the time was next to nil despite Iran’s having the world’s second-largest gas reservoirs. The prospect of such exports became even more attractive to Iran given the possibility of extending them to the more affluent markets of central and western Europe through Ukraine. This would significantly increase Iran’s export revenues, while generating substantial transit fees for the other countries involved. The pipeline project could be extended even further thanks to the growing economic co-operation between Iran, Armenia and Turkmenistan, allowing the export of Turkmen gas to Armenia via Iran, and eventually to Europe via Georgia and Ukraine.

Such ideas went beyond mere expressions of interest. In the 1990s, Iran concluded agreements for gas exports to Armenia and negotiated such exports with Georgia and Ukraine. Agreement in principle was also reached on exporting Turkmen gas to Armenia via Iran. However, most of these projects failed to materialise, not least because of Washington’s opposition to any development that improved Iran’s economy and increased its political and economic influence in former Soviet countries. The threat of US economic sanctions against those participating in Iranian energy projects ruled out adequate financing for the aforementioned Caucasus-related plans.

It is no wonder, then, if even relatively small projects take a long time to come to fruition. Thus, after years of delay, Iran and Armenia began implementing their gas deal in September 2004. The ongoing project requires a 142-kilometre pipeline, of which 42 kilometres will be laid in Armenia. If everything goes to plan, the pipeline is scheduled to be fully operational at the end of 2006. Through the pipeline, Iran will export thirty-six billion cubic metres of gas to Armenia over a twenty-year period.

The beginning of construction work has created realistic grounds for Tbilisi’s hopes that the pipeline will eventually be extended to Georgia. Tbilisi’s interest is evident in Prime Minister Zurab Noghaideli’s reported discussion in March 2005 with his Armenian counterpart, Andranik Margarian, regarding such an extension. The growing tension in Georgian–Russian relations makes the pipeline project increasingly attractive to Tbilisi.

Georgian–Russian relations are likely to deteriorate for several reasons. These include Russia’s backing for Georgia’s breakaway regions of Abkhazia and South Ossetia, Tbilisi’s demand for the closure of the Russian military bases in Georgia, and Russia’s concern over the growing US military presence in Georgia. Given this likelihood, Georgia’s heavy energy dependency on Russia is imprudent. The Iranian–Armenian pipeline could be connected to Georgia relatively quickly and inexpensively and would address Tbilisi’s current vulnerability in its relations with Moscow. That possibility, with its potential to reduce Russia’s influence in Georgia, could also be used as leverage by Tbilisi in its dealings with Moscow. Such considerations perhaps explain why the Georgian government, which has a clear pro-American orientation, has reached out to Iran, even as the United States is seeking to deny Tehran economic gains and political influence, especially in the Caucasus.

As for Ukraine, its ties with Iran have been friendly since the former Soviet country gained independence in 1991. Building on these ties, the new Ukrainian government, led by Viktor Yushchenko, views Iran as a reliable energy supplier to reduce his country’s heavy fuel dependency on Russia. Thus, on 6 March 2005, Iranian and Ukrainian government representatives met in Kiev to discuss the implementation of a pipeline project to transport Iranian gas to Ukraine. Ukraine called for an annual purchase of fifteen billion cubic metres of gas from Iran. The envisaged gas pipeline will pass from Iran to Ukraine through either Russia or the Black Sea. Whichever option is chosen, it will transit Armenia and Georgia. On 23 July 2005, Ukraine and Iran signed a memorandum of mutual understanding regarding the pipeline. The two sides are scheduled to meet to discuss implementation of the project, including the construction and financing of the pipeline, and the amount of gas to be exported. Like Georgia, the new Ukrainian government has a clear pro-American tendency. Yet it, too, felt obliged to disregard US concerns about Iran, giving priority to its need to address its heavy fuel dependency on Russia, a potentially unreliable energy supplier.

Contrary to its ties with Armenia and Georgia, Iran’s relations with Azerbaijan have largely been problematic. This is notwithstanding that the Azeris, although a Turkic people, are predominately Shi’ite in religious affiliation, as of course are the Iranians, and that several million Azeris—as many as two-thirds of the total world population—are citizens of Iran, living in northern provinces bordering Azerbaijan. For these reasons, the Soviet Union’s collapse and the emergence of Azerbaijan as an independent state created high hopes both in Iran and Azerbaijan for close and cordial relations. However, these hopes have not been realised. Relations were especially tense during the 1992–3 presidency in Azerbaijan of Abulfaz Elchibey, a self-declared pan-Turkist who before his election had called Iran a “failed state” and mooted the idea of uniting Iran’s northern Azeri-inhabited provinces with Azerbaijan. However, the situation started to improve in 1993 when Heydar Aliev succeeded Elchibey as president. He pursued a more balanced foreign policy towards Iran and Russia than that of Elchibey.

Gradually, in the second half of the 1990s, Iran and Azerbaijan sought to improve their relations. Both sides faced regional security challenges, and neither saw any merit in pushing a potentially friendly neighbour into the enemy camp. Yet there remain significant obstacles to rapprochement, among them Iran’s exclusion—under American pressure—from the major Azeri oil-development projects.

In the late 1990s and into the new century, there were several high-level visits between officials of the two countries, including presidential meetings. But these ventures at reconciliation were thwarted by a territorial dispute over the ownership of an offshore oilfield in the Caspian Sea in late 2001, which nearly escalated into a military conflict. Both Baku and Tehran subsequently renewed efforts to improve ties, as reflected in President Heydar Aliev’s visit to Iran in 2002. Those efforts appeared to be bearing fruit, when a year later Aliev died. The thaw, however, has continued under Aliev’s successor as president, his son Ilham. But Iran’s almost complete exclusion from Azerbaijan’s oil industry remains a major impediment to the establishment of harmonious bilateral relations.

The Shadow of the US Presence

Factors contributing to the tensions between Iran and Azerbaijan are mirrored in Iran’s relations with the entire Caucasus. Iran’s first and foremost concern is the region’s tilt towards the United States. Washington has increased its political and economic influence in the Caucasus since the Soviet collapse. Since 2001, it has added a growing military dimension to its presence. The United States now operates an air base in Georgia to support its military campaign in Iraq. The leasing of the base is supposedly temporary. There is also a growing number—more than two thousand—of American “military advisers” in Georgia, training the Georgian military.

A variety of arms sales, military assistance and co-operation agreements has significantly expanded the United States’ military relations with Azerbaijan. Washington also provides direct assistance to the Azeris to beef up their weak navy, primarily against Iran but to a lesser extent against Turkmenistan as well. There have been talks on the possibility of Azerbaijan granting use of an air base to the United States. That would pose a definite security threat to Iran. Azerbaijan and Georgia are also widely tipped as launching points for any future US attack on Iran. In particular, Azerbaijan is seen as the ideal location from which to launch a US ground attack. Moreover, Azerbaijan provides safe haven for a number of Iranian opposition groups, one of which has enjoyed implicit US support in provoking separatist sentiment in Iran’s Azeri provinces.

Needless to say, all these factors have soured relations between Iran and Azerbaijan, and have the potential to ignite a military conflict between the two neighbours.

The Caucasian tilt towards Washington is not confined to Azerbaijan and Georgia, but includes even Armenia to a certain extent, despite Yerevan’s good ties with Russia and Iran. This is a major source of concern for Tehran. Apart from direct ties between the Armenian military and its US counterpart, and the presence of small Armenian, Azeri and Georgian military units in Iraq as members of the “coalition of the willing”, the participation of the three Caucasian states in NATO’s “Partnership for Peace” programme has provided another avenue for American military penetration of Armenia. It could also be the precursor to the further expansion eastwards of NATO, which both Iran and Russia oppose as a threat to their national security.

US domination of the Caucasus would be an alarming development for Iran, which already feels surrounded by allies or clients of the United States. To Iran’s east lie Afghanistan and Pakistan, to its west are Turkey and Iraq, and to its south are the Arab states of the southern Persian Gulf. All of these countries host US military forces. The degeneration, in Tehran’s eyes, of Iran’s north-western neighbour, the Caucasus, into a pro-American region hosting US military forces would complete the encirclement of the Islamic Republic by potentially hostile states. That would leave Iran’s north-eastern neighbour, Turkmenistan, as the only friendly state with no significant US military presence. But even here Iran has cause for concern. Although Turkmenistan is highly unlikely to be involved in any future US military attack on Iran, its granting of overflight rights to the United States for its operation in Afghanistan has created unease in Tehran.

A related worry for Iran would be the extension of Turkey’s influence in the Caucasus. Turkey is a neighbouring and rival power whose strategic interests differ from Iran’s. As a close ally of the United States (and Israel) and as a member of the US-dominated NATO alliance, Turkey is seen as a US proxy by Iran and consequently as a country whose “strategic footprint” in the Caucasus should be kept to a minimum.

Instability and Exclusion

Besides the growing US presence in the Caucasus, the region poses other security concerns for Iran, not least the possibility of a spillover into its territory of instability from a number of local conflicts. This is particularly true of the unresolved territorial dispute over the enclave of Nagorno-Karabakh. A renewal of war over the enclave remains possible between Armenia and Azerbaijan, both of which share borders with Iran. Tehran could not be indifferent to such a war for many reasons, including the possible spread of hostilities to the northern Iranian territory bordering those countries. Renewed war over Nagorno-Karabakh would also probably cause an influx of arms and refugees into Iran, and give rise to the smuggling of weapons and drugs. The inflow of war refugees would impose serious financial burdens on Iran, and could have a radicalising impact on its Azeri citizens.

A new round of intra- and inter-state wars in the Caucasus, whether over Nagorno-Karabakh, or involving Georgia and its breakaway regions of Abkhazia and South Ossetia, could drag other regional powers (Russia and Turkey) and a non-regional power (the United States) into the conflicts in support of one side or another. Iran would find it difficult to remain aloof from hostilities along its borders or from a major confrontation elsewhere in the Caucasus. In the worst-case scenario, it could be embroiled in a regional war pitting it against Turkey and the United States.

Apart from military/security threats, another major concern for Iran is the US drive to exclude it from the Caucasus. In its efforts to isolate, weaken and “contain” Iran, Washington has sought to deny the Islamic Republic any significant economic and political gains in the regions of importance to it, including the Middle East, the Persian Gulf, the Caucasus, and Central Asia. In particular, it has sought to limit Iran’s sources of revenue in order to prevent, slow down, or at least create barriers to, its economic recovery and the strengthening of its military power.

The United States has striven in particular to exclude Iran from the Caspian Sea’s oil and gas industry. To that end, it has opposed Iran’s becoming the major, or even a major, transit route for the region’s oil and gas exports, despite its merits as the safest, cheapest and shortest such route. As a result, many export projects, including those supported by leading Western oil companies and even US ones on grounds of economic sensibility, have remained unimplemented years after their conception because of American opposition. This situation has limited Iran’s role in Caspian oil exports to swap-deals with non-American oil companies and with regional countries that export oil produced in development projects in which US companies are not involved. In such cases, Iran receives Azeri oil for its northern refineries and provides designated buyers with equal amounts of oil at one of its Persian Gulf terminals. As a means of eliminating Iran (and Russia) as a major export route, a key US-backed project for Caspian oil exports, the Baku–Tbilisi–Ceyhan pipeline, began operating in May 2005. The $4.2-billion project is a potential source of friction for Iran in its ties with Azerbaijan, Georgia and Turkey, through which the pipeline passes.

Besides oil exports, Washington has also opposed Iran’s involvement in regional oil-development projects. In the case of Azerbaijan, that led to Iran’s exclusion from three major Azeri offshore development plans in the mid-1990s, causing a deterioration in relations between Baku and Tehran. Baku’s engaging Iran in much smaller projects helped mitigate the damage, but did not heal the wound of that exclusion.

A Mutual Dependency

Iran is a regional power with sufficient assets to pursue its foreign-policy objectives and defend its national interests. It has the capacity to influence the pace of events in the Caucasus. While it needs the Caucasian countries for various reasons, they also need Iran’s co-operation on political, economic and security matters. In particular, the establishment and maintenance of peace and stability in the Caucasus require Iran’s active help.

Iran is also a neighbour that provides the Caucasus with access to international markets, an important reality especially for Azerbaijan and Armenia, which otherwise would have to depend on their unreliable northern and eastern neighbours. Hence, to varying degrees and for different reasons, Iran and the Caucasus need each other and will continue to do so. The clearest example of this mutual dependency is the existing gas projects in the Caucasus and the likely future ones, which will benefit Iran and the Caucasian states, a point appreciated by both sides. Such projects should encourage mutual co-operation and reduce tension.

However, a deterioration in Iranian–US relations will have a strong impact on the Caucasian countries, thanks to the growing US (military) presence in the region. Such a deterioration would probably be translated into further US measures to weaken Iran’s influence in the Caucasus or even into the use of the region as a springboard for a military attack on Iran, moves that would provoke a predictable Iranian response. In short, the Caucasus will remain a scene of rivalry, competition and possibly even conflict between Tehran and Washington.

Endnotes

1. Although Azerbaijan has its own oil and gas resources, since the outbreak of the Nagorno-Karabakh conflict, Armenia has denied it access to Nakhichevan, an Azeri enclave separated from Azerbaijan’s mainland by Armenia. As a result, Iran, which borders both parts of Azerbaijan, has provided a land link between them and supplied fuel to Nakhichevan. Moreover, since independence, factors such as refinery problems have intermittently obliged Azerbaijan to import from Iran refined oil products such as diesel fuel.