Prague, 12 February 1998 (RFE/RL) -- Iran's growing importance as a regional power is creating a dilemma for its northern neighbors in the Caucasus and Central Asia. The dilemma is how to reap the benefits of increased trade with Iran while not alienating the United States, which maintains sanctions against Iran for its support of international terrorism.
During the Soviet era, Iran was more or less an outpost. It was cut off from what are now the eight independent Caucasian and Central Asian states which cluster along its northern borders. But the collapse of the Soviet Union changed that dramatically. Iran now finds itself in a new geo-political situation as the natural focal point though which the eight mostly-landlocked states can reach the outside world. That geographical reality is reinforced by the strong desire of all these newly-independent states to reduce their dependence on Russia.
An international affairs expert, now based in London but who regularly visits Iran, told RFE/RL that one of the major priorities of the Iranian Foreign ministry is to further develop links with its northern neighbors. By pushing northwards, Iran can tap into other links heading west and east, thus profiling itself as a regional power and reducing the isolation imposed on it by the U.S. sanctions. The London source says Iran has been nurturing good-neighborly ties with its neighbors on more than one level. Apart from offering trade and transport possibilities, Iran has at various times mediated in regional disputes, such as between opposing factions in Tajikistan, and between Azerbaijan and Armenia in the Nagorno-Karabakh dispute.
The dilemma for Iran's neighbors is well illustrated by the three Caucasian states Armenia, Georgia and Azerbaijan. Each of these has links with the United States, links which they consider essential to preserve. Each receives substantial foreign aid from the United States, ranging up to about $100 million annually in the case of Armenia.
At the same time, Iran is the number one exporter to Armenia, mainly in food, manufactured goods and machinery, while Iran is Armenia's second biggest export market, mainly in metals and building materials. Iran also supplies some 10 per cent of Armenia's electricity demands. The key importance to Armenia of relations with Iran is thus clear. One Yerevan-based journalist said that for Armenia, the huge Iranian market is an el-dorado. On the political level, relations are cordial, if passive.
In the case of Azerbaijan, there is also considerable trade with Iran. But perhaps because the two states share a Muslim heritage, Teheran appears to have taken a more active political line. Azerbaijani President Heidar Aliyev told RFE/RL recently that Iran's spiritual leader Sayyed Ali Khamenei had raised objections to Azerbaijan's links with the United States and Israel. Aliyev said he replied to that by asking Khamenei why Iran maintained good trade links with Armenia, which -- as Aliyev put it -- had carried on a war with Azerbaijan.
Like the other two Caucasus states, Georgia has friendly and growing ties with Iran. The two countries have signed agreements, and a direct rail link is planned. Georgian officials tend not to say too much too loudly about the links with Teheran, but they realize their potential. In Georgia's case, however, Turkey is still a more important partner than Iran. Central Asian countries are similarly building links with Iran, particularly with a view to moving their oil and gas riches to the world market. In the case of Turkmenistan, a gas pipeline has already opened onto Iranian territory, and plans call for the line to be extended to Turkey.
For Iran, the economic links with it neighbors are useful in the first line as steps towards regional leadership. To boost its own economy significantly, Iran needs more investment than can be found in Central Asia or the Caucasus. The U.S. sanctions bar it from receiving American capital, so it turns mostly to western Europe, where French companies in particular have been willing to defy the sanctions, even at the risk that they too will come under sanctions. Some 80 per cent of Iran's export income of some 12,000 million dollars per year comes from oil. And it badly needs investment to upgrade its oil wells, particularly to develop modern re-injection processes, which will allow more oil to be won from the aging fields.