As conflict flares between Iran and Israel, Armenia finds itself increasingly isolated in a volatile neighbourhood, surrounded by historic foes, uncertain allies and rising geopolitical threats.

The small, landlocked South Caucasus republic is wedged between adversaries Azerbaijan and Turkey, an increasingly fragile Georgia, and a once-dependable but now distant Russia. A longstanding friend in the region, Iran, is now embroiled in a deadly conflict that raises questions about Armenia’s trade and security. 

The outbreak of hostilities between Iran and Israel in the early hours of June 13  –  triggered by Israeli airstrikes on Iranian nuclear and military targets and Tehran’s retaliatory missile barrages – has sparked alarm in Yerevan over the potential disruption of trade routes and a further erosion of regional stability.

Iran as a lifeline

Iran has become an increasingly important strategic partner for Armenia since the Second Karabakh War in 2020. The two countries aim to triple their trade volume to $3bn, officials announced during a meeting in April.  A vital gas-for-electricity agreement, expanded in 2023, has eased Armenia’s dependence on Russia for gas imports, while Iran imports electricity from Armenia. Iran is also an important trade route for Armenia, which has expressed an interested in investing in Iran’s Chabahar port. 

Several high-level agreements were signed during Armenian Prime Minister Nikol Pashinyan’s visit to Tehran in July 2024, including the development of the Aras power plant, supplying 300 megawatts to Armenia, and the launch of a $15mn joint technology park in Yerevan focused on IT and biotech. The Iranian Trade Center in Yerevan aims to position Armenia as a hub for Iranian companies seeking access to the Eurasian Economic Union (EEU) markets.

In the security sphere, Armenia and Iran carried out joint military exercises along their shared border in April, designed to simulate coordinated responses to hypothetical "terrorist groups" attempting to infiltrate their border crossings.

Just days before Israel’s first aerial attacks on Iran, labour ministers from Armenia and Iran also pledged to deepen cooperation in skills training and social insurance. 

But the deepening Iran-Israel conflict threatens these gains. Armenian Finance Minister Vahé Hovhannisyan acknowledged after fighting broke out that delays and cost increases in shipments through Iran have already begun. 

"There are still many uncertainties. The assumptions of these scenarios can deviate greatly. When we feel that the impacts are concrete and visible, we will naturally present the appropriate analyses to the government," the minister said, according to Armenian media reports. 

“If the situation escalates, deliveries via Iran could be disrupted, take longer or become more expensive,” Hovhannisyan warned. This could have a damaging impact on Armenia’s economy, with GDP growth potentially dropping by several percentage points this year if the conflict continues.

Azerbaijan ascendant

Armenia’s vulnerability has been compounded by Azerbaijan’s expanding regional clout. The Nagorno-Karabakh region, under Armenian rule for decades but part of Azerbaijan according to international law, was won back by Baku in the 2020 and 2023 wars, thanks to vastly superior Azerbaijani firepower. Israel is one of the main suppliers of military equipment to Azerbaijan. 

While Azerbaijan and Iran recently pledged to deepen ties, Baku’s close relations with both Ankara and Tel Aviv place it at odds with Tehran, and have driven Iran and Armenia into closer security cooperation, including joint border monitoring and cybersecurity projects launched in late 2023. 

Iran has repeatedly warned Azerbaijan against attempting to create a land corridor to its Nakhchivan exclave through Armenian territory by force. Such a corridor would cross Armenia's Syunik province, the only Armenian region bordering Iran. 

Azerbaijan’s ascendancy – and the lack of support from Moscow when Armenia appealed for help against Azerbaijan’s military offensive in 2023 – have pushed Armenia into a tighter embrace of Iran, even at the risk of alienating its Western partners.

This prompted Armenian officials to issue statements condemning Israel’s actions towards Iran, while Baku took a more balanced stance, calling for dialogue. 

The Armenian foreign ministry described the attack as "deeply concerning", especially since it occurred before the planned US-Iran negotiations. "This action endangers peace efforts, as well as overall regional and global stability," the ministry stated, calling for an immediate end to hostilities and for all parties to adhere to international law.

Armen Grigoryan, secretary of Armenia's Security Council, spoke of the broader implications for Armenia, noting that such actions could have a negative impact on the region. “This is an encroachment on Iran's territorial integrity, which will naturally have a negative impact on the region," he said during a panel discussion in Yerevan.

One question is whether this could lead to a renewed military action by Azerbaijan, which previously reclaimed disputed territories from Armenia after Russia’s attention to the region was diverted by the war in Ukraine. 

Analyst Olesya Vartanyan warned in a series of posts on X that the Iran-Israel conflict could destabilize the entire South Caucasus, just as the Ukraine war did in 2022. 

“The situation in Iran could become a serious challenge for the nearby South Caucasus – especially if it drags on. It’s not just about humanitarian fallout or disrupted trade routes,” she wrote on the social network. 

“It could also destabilise a fragile regional balance – from the unfinished Armenia-Azerbaijan peace process to ongoing political tensions in and around Georgia. We’ve seen it before: the Ukraine war quickly triggered renewed fighting in Nagorno-Karabakh and at the Armenian-Azerbaijani border and political turbulence across the region. A prolonged Iran crisis could do the same.” 

Fitch Ratings noted recently that renewed fighting between Armenia and Azerbaijan appears unlikely for now, citing progress on a draft peace agreement signed in March. But the war in Iran has added a dangerous variable.

Waning ties with Russia

For decades, Armenia relied on Russia as its security guarantor. That dependence has waned amid Moscow’s growing ties with Azerbaijan and declining engagement in Armenia’s defence. In 2023, Yerevan suspended participation in the Russian-led Collective Security Treaty Organization (CSTO) over its inaction during fighting with Azerbaijan. 

Armenia has since taken full control over its border with Iran as part of a broader strategy by Yerevan to assert greater sovereignty over its borders and reduce dependence on Russia's military presence. Despite these risks, Yerevan has also removed Russian security forces from Zvartnots Airport. Still, Pashinyan confirmed on June 13 that his government does not currently seek to expel Russian forces.

For its part, Moscow blamed Yerevan for delays in setting up a consulate in Syunik – a southern region of the country that Armenia and Iran aim to turn into a new economic hub.  

Tensions were deepened by Yerevan’s recent overtures towards the EU. Armenia passed a law in 2024 that signals its intent to pursue EU membership – though no formal application has been submitted.

Kremlin spokesman Dmitry Peskov recently warned that Armenia’s push towards EU integration could violate its obligations under the EEU and trigger economic retaliation. 

Russia accounts for 41% of Armenia’s foreign trade, against just 7.7% for the EU. Russian officials have threatened tariffs and the expulsion of migrant workers should Armenia withdraw from the EEU, potentially wiping out a third of Armenia’s GDP.

This has also potentially created tensions in Armenia’s relations with Iran, Pashinyan acknowledged back in February 2024. 

As Georgia backslides democratically and EU prospects dim in Tbilisi, Armenia is now as the only country in the region with clear ambitions to join the EU. 

Despite the divergence in their geopolitical directions, relations with Armenia’s fourth neighbour Georgia remain generally positive, and a Strategic Partnership Declaration was signed in early 2024. Both countries have expressed enthusiasm for joint infrastructure and trade initiatives such as Armenia’s Crossroads of Peace project.

Yet strains have emerged. In recent months, Armenian brandy shipments were blocked at Georgian checkpoints, triggering protests in Yerevan and diplomatic friction.

This rapidly shifting geopolitical environment is adding to the pressure on Armenia’s leadership, already under fire over its concessions to Azerbaijan, and a series of scandals including Pashinyan’s recent public spat with Catholicos Garegin II, the spiritual leader of the Armenian Apostolic Church, and corruption allegations levelled at his wife, Anna Hakobyan. 

Iran was previously an attractive partner. Now, the country’s strong economic ties with Iran are now a potential liability amid escalating violence in the Middle East. Its historic security ties with Russia have weakened, and while the EU offers a long-term vision, that path remains uncertain.