The U.S. and Israeli airstrikes on Iran, now entering their third week as of mid-March 2026, have thrown the entire South Caucasus into a state of acute vulnerability. Armenia, Azerbaijan, and Georgia — three nations whose economies, security arrangements, and diplomatic trajectories are deeply intertwined with Iran — face cascading risks that range from trade route collapse to refugee crises to the unraveling of a fragile peace process. The killing of Iran’s Supreme Leader Ayatollah Khamenei in the opening wave of strikes removed a linchpin of regional power dynamics, and the aftershocks are already being felt: a drone struck Azerbaijan’s Nakhchivan exclave on March 5, Israel issued travel warnings for all three countries on March 9, and Armenia is staring down the potential strangulation of up to 40 percent of its import capacity.
This is not a hypothetical exercise. The Carnegie Endowment has reported that at least 12 countries have been drawn into the expanding conflict. For the South Caucasus, where Iran functions alongside Russia and Turkey as one of three major regional powers, the fallout threatens to undo decades of fragile balances. Experts at PoliticsGeo have warned that regime collapse in Tehran would “open a Pandora’s box of existential challenges.” This article examines how each of the three countries is exposed, what the economic and military consequences look like on the ground, and why the Armenia-Azerbaijan peace process may be the most significant diplomatic casualty of the entire crisis.
Table of Contents
- How Are Events in Iran Destabilizing Armenia, Azerbaijan, and Georgia Right Now?
- Why Armenia Faces an Existential Economic and Security Crisis
- Azerbaijan’s Windfall and Vulnerability — A Country Pulled in Two Directions
- Georgia’s Precarious Position as the Region’s Transit Lifeline
- The Armenia-Azerbaijan Peace Process May Be the Biggest Casualty
- Iran’s Role as a South Caucasus Power Broker Is Irreplaceable — For Now
- What Comes Next for the South Caucasus
- Conclusion
- Frequently Asked Questions
How Are Events in Iran Destabilizing Armenia, Azerbaijan, and Georgia Right Now?
The destabilization is not theoretical — it is unfolding in real time across multiple dimensions. On March 5, 2026, a drone launched from Iranian territory struck both the airport and a school in Nakhchivan, Azerbaijan’s geographically isolated exclave that depends on air and land links transiting through Iran. The attack came just one day after Azerbaijani President Ilham Aliyev visited the Iranian embassy in Baku to offer condolences for Khamenei’s death. The crisis required a direct phone call between the Iranian and Azerbaijani presidents to de-escalate, underscoring how quickly military incidents can spiral in this environment. Azerbaijan also announced that it foiled an Iranian plot to attack the Baku-Tbilisi-Ceyhan oil pipeline, the critical export artery that runs from Azerbaijan through Georgia to Turkey’s Mediterranean coast. This pipeline is not just an Azerbaijani asset — it is the backbone of Georgia’s role as the principal east-west transit corridor between Europe and the Caspian basin.
A successful attack would have had devastating economic consequences for both countries and sent shockwaves through European energy markets. Meanwhile, Israel’s National Security Council issued updated advisories on March 9 warning Israeli citizens against travel to all three South Caucasus nations, citing fears that Iran would target Israelis abroad. Armenia’s situation is the most precarious. Between 25 and 40 percent of the country’s foreign trade passes through Iranian territory or the Meghri-Norduz border crossing, one of only two open land borders Armenia has. With Turkey maintaining a blockade and Azerbaijan remaining hostile, Iran and Georgia are Armenia’s only lifelines to the outside world. The Carnegie Endowment has bluntly assessed that a collapse of order in Iran would “strangle the Armenian economy at a moment of extreme vulnerability.”.
Why Armenia Faces an Existential Economic and Security Crisis
Armenia is, by virtually every measure, the most exposed country in the South Caucasus to Iranian instability. The country’s geographic reality is brutal: it is landlocked, blockaded by turkey to the west, separated from its ally Russia by Georgia to the north, and bordered by a hostile Azerbaijan to the east. That leaves Iran’s Meghri-Norduz crossing and the Georgian border as the only functioning trade routes. CivilNet has reported that disruptions to Iranian transit could cause serious supply shortages across the Armenian economy, affecting everything from food imports to industrial inputs. The security implications are arguably even more dire. Iran has historically served as a counterbalance to Azerbaijan’s military ambitions in the region. With Tehran consumed by its own crisis — leadership decapitated, infrastructure under sustained bombardment, internal power dynamics in flux — that deterrent effect is weakening.
EVN Report has flagged a scenario in which a destabilized Iran removes the last meaningful check on Azerbaijani military action against Armenia. This is not paranoia; Azerbaijan seized the entirety of Nagorno-Karabakh in September 2023 when geopolitical conditions aligned in its favor. However, if Iran’s government reconsolidates quickly or a ceasefire holds, this window of vulnerability could close before Azerbaijan acts on it. The danger lies in the uncertainty itself. There is also a humanitarian dimension. Pravda Armenia has reported on scenarios in which tens of thousands of Iranian refugees could flee northward into Armenia, a country of roughly 2.8 million people with limited infrastructure to absorb a sudden influx. Additionally, concern exists about the fate of Iran’s ethnic Armenian community, which numbers in the tens of thousands and could face persecution or displacement if internal Iranian power dynamics shift toward factions less tolerant of religious and ethnic minorities.
Azerbaijan’s Windfall and Vulnerability — A Country Pulled in Two Directions
Azerbaijan presents the most paradoxical case in the region. On one hand, the sustained spike in oil prices triggered by the Iran conflict has created a substantial economic windfall. A $20 to $25 rise in Brent crude could generate an annual export windfall of $6 billion to $7.5 billion for Azerbaijan, roughly $500 to $600 million per month, according to Carnegie Endowment estimates. For a petrostate economy, this is a significant cushion that could fund military modernization, infrastructure projects, or simply shore up the regime’s domestic standing. On the other hand, Azerbaijan’s Nakhchivan exclave is acutely vulnerable. The territory’s air and land connections depend heavily on transit through Iranian airspace and territory.
The March 5 drone strike on Nakhchivan’s airport and school demonstrated this exposure in the starkest possible terms. Nakhchivan is home to roughly 460,000 people and has limited self-sufficiency; prolonged disruption of Iranian transit routes would create a genuine humanitarian problem for Baku. The foiled plot against the BTC pipeline further illustrated that Azerbaijan’s most valuable economic asset runs through territory within range of Iranian-linked threats. There is also a wildcard that few Western analysts discuss adequately: an estimated 15 to 25 million ethnic Azerbaijanis live in northern Iran, a demographic reality rooted in the 1828 Treaty of Turkmenchay that divided the Azerbaijani population between Russian and Persian empires. If Iran’s central authority weakens significantly, ethnic grievances in the north could reignite, potentially drawing Baku into a crisis it has no institutional framework to manage. This is not a scenario Azerbaijan’s leadership openly welcomes despite nationalist rhetoric — a fragmenting Iran on its southern border would create unpredictable security challenges far more dangerous than any economic windfall could offset.
Georgia’s Precarious Position as the Region’s Transit Lifeline
Georgia occupies a unique and unenviable position in this crisis. Tbilisi sits only 215 kilometers — roughly 130 miles — from the Iranian border, according to Haaretz, making it geographically proximate to the conflict zone even though it has no direct political quarrel with Tehran. Georgia’s significance lies in its role as the principal east-west transit corridor between Europe and the Caspian basin. The Baku-Tbilisi-Ceyhan pipeline, the Baku-Tbilisi-Kars railway, and multiple fiber optic and gas pipelines all traverse Georgian territory. If any of these arteries were disrupted — whether by direct military action, sabotage, or the cascading effects of regional instability — the consequences would ripple far beyond Tbilisi. The tradeoff for Georgia is straightforward but difficult. Maintaining its role as a neutral transit corridor requires careful diplomatic balancing between all parties to the conflict.
Georgia issued condolences for Khamenei’s killing, as did Armenia and Azerbaijan, in an effort to avoid provoking any faction. But neutrality becomes harder to sustain as the conflict widens. Israel’s March 9 travel advisory warning its citizens against visiting Georgia suggests that intelligence agencies assess a real risk of Iranian-linked operations on Georgian soil. For a country that has been actively pursuing European integration and recently received EU candidate status, being drawn into a Middle Eastern conflict — even peripherally — threatens to derail its most important strategic objective. Georgia also serves as Armenia’s other lifeline. If Iranian trade routes collapse and Armenia becomes more dependent on Georgian transit, Tbilisi will face increased pressure to accommodate Armenian needs while managing its own relationship with Azerbaijan and Turkey. This is a balancing act with very little margin for error.
The Armenia-Azerbaijan Peace Process May Be the Biggest Casualty
Armenia and Azerbaijan pledged in August 2025 to ratify a peace agreement in the coming months, but progress had already been limited before the Iran conflict erupted. The RAND Corporation noted in January 2026 that the prospects for lasting peace remained uncertain, with unresolved issues including border demarcation, the status of Armenian cultural heritage sites in Azerbaijani-controlled territory, and the return of prisoners of war. The Iran crisis threatens to derail what momentum existed. The problem is multifaceted. First, the conflict diverts political attention and diplomatic bandwidth. Both Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Aliyev are now consumed by immediate security concerns — managing borders, reassuring populations, responding to military incidents — rather than engaging in the painstaking work of peace negotiations. Second, the shifting regional power balance creates incentives for delay. Azerbaijan, flush with oil revenue and facing a weakened Iranian deterrent, may calculate that time is on its side and that a post-Iran-crisis settlement could be more favorable.
Armenia, conversely, may feel too vulnerable to make concessions under duress. Third, the involvement of external mediators — the EU, the United States, Russia — is complicated by their own entanglements in the Iran conflict. Washington, in particular, is simultaneously prosecuting airstrikes against Iran and ostensibly encouraging South Caucasus peace. The credibility gap is obvious. However, there is a counterargument worth noting. Crises sometimes accelerate peace processes by clarifying the costs of continued conflict. If both Armenia and Azerbaijan conclude that regional instability makes a settlement more urgent — rather than less — the Iran crisis could paradoxically provide impetus for a deal. History offers precedents in both directions, and the outcome likely depends on whether leaders in Baku and Yerevan view the current moment as an opportunity or a threat.
Iran’s Role as a South Caucasus Power Broker Is Irreplaceable — For Now
Iran is one of three major powers in the South Caucasus, alongside Russia and Turkey, and its influence operates through channels that neither Moscow nor Ankara can easily replicate. Iran shares a border with both Armenia and Azerbaijan. It provides a critical trade corridor for landlocked Armenia. It has complex ethnic ties with Azerbaijan through the massive Azerbaijani minority in its northern provinces. It has served as an informal guarantor of Armenian sovereignty by counterbalancing Turkish and Azerbaijani ambitions.
And it has maintained economic and cultural relationships with Georgia that, while less strategically significant, contribute to the region’s overall stability. OC Media has described all three South Caucasus nations as “treading carefully” in response to the conflict, and for good reason. The removal of Iran as an active regional player — whether through prolonged conflict, regime collapse, or internal fragmentation — would create a power vacuum that Russia and Turkey would inevitably seek to fill. Given that Russia is itself weakened by its war in Ukraine and Turkey has its own agenda in the region, the result would likely be not a new equilibrium but a period of intensified competition and instability. As one expert quoted by PoliticsGeo warned, regime collapse would mean “undoing decades of fragile balances” — and no one in the South Caucasus can afford that.
What Comes Next for the South Caucasus
The trajectory of this crisis depends on variables that are largely outside the control of Armenia, Azerbaijan, and Georgia. If the U.S.-Israeli campaign against Iran concludes relatively quickly and a successor government in Tehran maintains basic state functions and foreign relationships, the South Caucasus may weather the storm with manageable economic disruptions and delayed diplomacy. If the conflict escalates further, or if Iran’s government fragments and the country descends into prolonged chaos, the consequences for all three nations could be transformational — and not in a good way.
For policymakers in Washington, this situation presents an uncomfortable reality. The United States is simultaneously conducting military operations that are destabilizing a region where it has spent years encouraging democratic development, economic integration, and peace negotiations. The administration’s ability to compartmentalize these objectives is being tested in real time. Armenia, Azerbaijan, and Georgia are not bystanders to the Iran conflict — they are among its most immediate and vulnerable casualties, and the decisions made in the coming weeks will shape the South Caucasus for a generation.
Conclusion
The South Caucasus is experiencing a cascading crisis driven by the U.S.-Israeli military campaign against Iran. Armenia faces the most severe immediate risks, with up to 40 percent of its trade routes threatened and its last strategic counterbalance to Azerbaijan potentially neutralized. Azerbaijan is navigating the contradiction of an oil windfall paired with direct military threats to its Nakhchivan exclave and critical pipeline infrastructure. Georgia is trying to preserve its role as a neutral transit corridor while intelligence agencies warn of potential Iranian-linked operations on its soil.
The Armenia-Azerbaijan peace process, already fragile, may be the most consequential long-term casualty of the entire situation. None of these three countries chose this crisis, and none has the power to resolve it unilaterally. What they can do — and what the international community should support — is maintain open channels of communication, avoid opportunistic military moves that exploit the chaos, and preserve the diplomatic framework for an eventual Armenia-Azerbaijan peace agreement. The alternative, as regional experts have warned, is the unraveling of decades of carefully constructed balances in one of the world’s most geopolitically sensitive corridors. The stakes extend far beyond the South Caucasus itself — they reach into European energy security, global oil markets, and the broader question of whether the post-Cold War order in Eurasia can survive another major shock.
Frequently Asked Questions
Why is Armenia more affected by the Iran conflict than Azerbaijan or Georgia?
Armenia is blockaded by Turkey and has a hostile border with Azerbaijan, leaving Iran and Georgia as its only two open land routes. Between 25 and 40 percent of Armenian imports transit through Iranian territory, making it uniquely dependent on Iranian stability. Neither Azerbaijan nor Georgia faces comparable trade route vulnerability.
How has the Iran conflict directly affected Azerbaijan so far?
On March 5, 2026, a drone launched from Iranian territory struck the airport and a school in Nakhchivan, Azerbaijan’s exclave. Azerbaijan also reported foiling an Iranian plot to sabotage the Baku-Tbilisi-Ceyhan oil pipeline. At the same time, higher oil prices have generated a potential windfall of $6 to $7.5 billion annually for Baku.
What is the Baku-Tbilisi-Ceyhan pipeline and why does it matter?
The BTC pipeline is the major oil export route running from Azerbaijan through Georgia to Turkey’s Mediterranean coast. It is critical to Azerbaijan’s economy, Georgia’s role as a transit corridor, and European energy diversification away from Russian supplies. A successful attack on the pipeline would have consequences far beyond the three countries it passes through.
Could the Iran crisis reignite the Armenia-Azerbaijan conflict?
Possibly. Iran has historically served as an informal deterrent against Azerbaijani military action toward Armenia. With Iran’s government weakened, that deterrent effect diminishes. However, Azerbaijan is also dealing with its own vulnerabilities in Nakhchivan, which may temper any appetite for new military adventures.
Why did Israel warn its citizens against traveling to all three South Caucasus countries?
Israel’s National Security Council issued advisories on March 9, 2026, citing fears that Iran would target Israeli citizens abroad in retaliation for the joint U.S.-Israeli airstrikes. The geographic proximity of all three countries to Iran — Georgia’s capital is only 215 km from the Iranian border — makes the region a plausible theater for such operations.