Iran crisis hits South Caucasus primarily through trade

An escalation of tensions with Iran could have tangible economic consequences for the countries of the South Caucasus. Armenia would be particularly affected - especially due to its close trade links. This is the conclusion of an analysis by the economic research institute GlobalSource Partners.

In his report, economist Ivan Tchakarov examined the economic ties between Iran, Israel and the countries of the Persian Gulf on the one hand and Armenia, Azerbaijan and Georgia on the other. The focus was on trade, direct investment, tourism and money transfers.

According to Tchakarov, Armenia's main vulnerability clearly lies in foreign trade. Around 14.8 percent of the country's total trade volume is accounted for by Iran, Israel and the Gulf states combined - 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. Around 30 percent of Armenia's foreign trade uses transportation routes through Iran to reach international markets. Should these routes be disrupted by political tensions or sanctions, this could have a significant impact on the Armenian economy.

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

Differences can also be seen in foreign direct investment. In Azerbaijan, a comparatively large amount of investment comes from the Gulf region. Although capital inflows from Western countries and Turkey continue to dominate, investments from the Gulf states still account for around 5.4 percent of gross domestic product.

Another potential weakness lies in the tourism sector - particularly in Georgia. The country has generated record income from international tourism in recent years. Although income from visitors from Iran, Israel and the Gulf states only accounts for around 2.4 percent of GDP, it could fall sharply in the event of a regional escalation.

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

The study also points out that previous tensions have only had limited economic consequences to date. During a brief military escalation in June 2025, the impact on economic growth in Armenia, Georgia and Azerbaijan remained low.

However, if a conflict were to last longer or affect trade routes, the picture could change quickly.