The Iran crisis is affecting the South Caucasus primarily through trade

An escalation of tensions with Iran could have significant economic consequences for the countries of the South Caucasus. Armenia would be particularly affected—mainly due to its close trade ties. This is the conclusion reached in an analysis by the economic research institute GlobalSource Partners.

In his report, economist Ivan Tchakarov examined the economic interdependencies between Iran, Israel, and the Persian Gulf states on the one hand, and Armenia, Azerbaijan, and Georgia on the other. The focus was on trade, direct investment, tourism, and remittances.

According to Tchakarov, Armenia’s central vulnerability clearly lies in foreign trade. Iran, Israel, and the Gulf states together account for around 14.8 percent of the country’s total trade volume—a significantly higher share than in the two neighboring countries.

Even more important, however, is Iran’s role as a transit country for Armenian exports. About 30 percent of Armenian foreign trade uses transport routes through Iran to reach international markets. Should these routes be disrupted by political tensions or sanctions, this could significantly impact the Armenian economy.

For Georgia and Azerbaijan, dependence on trade with these countries is significantly lower.

Differences are also evident in foreign direct investment. In Azerbaijan, a comparatively large number of investments originate from the Gulf region. While capital inflows from Western countries and Turkey continue to dominate, investments from the Gulf states nevertheless account for around 5.4 percent of gross domestic product.

Another potential vulnerability lies in the tourism sector—especially in Georgia. The country has generated record revenues from international tourism in recent years. While revenues from visitors from Iran, Israel, and the Gulf states account for only about 2.4 percent of GDP, they could decline sharply in the event of a regional escalation.

Remittances from migrant workers in these countries, on the other hand, play a comparatively minor role in all three economies. They amount to less than one percent of gross domestic product in each case.

The study also notes that previous tensions have so far had only limited economic consequences. During a brief military escalation in June 2025, the impact on economic growth in Armenia, Georgia, and Azerbaijan remained minimal.

However, if a conflict were to persist or disrupt trade routes, the picture could change rapidly.