BACKGROUND: During 2012-13, these bilateral relations were about as bad as one could imagine. Azerbaijan’s efforts at modernization and reform, including tolerance for religious minorities, and refusal to commit to any specific form of Islam aroused Iranian ire. Indeed, Iran played the Islamist card by inciting what used to be called agitation and propaganda against the Aliyev government, denouncing Azerbaijan as an insufficiently Islamic or even anti-Islamic state. Iran was also extremely anxious that Azerbaijan might allow itself to serve as a base for either the U.S. or Israel’s military forces. Indeed, on many occasions Iran has let it be known that it will hit back at Azerbaijan if any such strike occurs. Given the sizable Iranian military capability in the Caspian, its arsenal of missiles and the pro-Iranian terrorist groups at its disposal, these could hardly be considered empty threats.

However, beyond incitement Iran has also engaged in more violent and clandestine activities. In early 2012, Azerbaijan had arrested 22 people, including some Lebanese Hezbollah operatives, for complicity in a plot to assassinate Israeli and U.S. diplomats and Jewish children in Azerbaijan. This episode perfectly exemplifies the linkage between internal and external challenges to Azerbaijan’s security, especially as Azerbaijan also caught the Iranian agent who was leading the incitement against the regime. In May the same year, Azerbaijan exposed a terrorist plan to kill foreigners at the Eurovision contest, while reports emerged in December of a fresh plot even as Iran and Azerbaijan were discussing how to improve relations between them. Thus, Iran has incited unrest in Azerbaijan and three separate terror plots against Azerbaijan’s government, Israel’s ambassador there, and Azerbaijani Jews were uncovered in 2012.

Iran clearly waged a low-level but unremitting and long-running campaign of subversion, terrorism, and threats against Azerbaijan, fearing that the country may be used as a base by Israel or the U.S., in which case Iran has on several occasions threatened Azerbaijan that it would be attacked. Finally, Iran is also the main Caspian actor responsible for the impasse on reaching a legal delimitation of the Sea, a stance that clearly impedes Azerbaijan’s efforts to explore and to help build a Trans-Caspian pipeline and network of Caspian suppliers who would ship gas through its ports and pipelines.

IMPLICATIONS: Undoubtedly, Rouhani’s efforts at détente with the West have led him to reduce the pressure on Iran by improving ties with Azerbaijan and other South Caucasian states. Yet, while the potential détente with the U.S. is clearly a factor, so is Crimea. Moscow is steadily building its Caspian Fleet, its North Caucasus Military District, and its forces in Armenia and could clearly threaten Azerbaijan, which must realize it is alone and needs friends. Thus, Baku has signed new agreements with Turkey on defense cooperation. Similarly, Azerbaijan has announced its readiness to make progress on the Caspian littoral and demarcation issues. Iran might do so too at the upcoming conference of the littoral parties as the noises coming out of Moscow on this issue appear to be optimistic that a resolution may finally be in sight. 

Iran is clearly trying to improve its external relations in all direction, not just with the U.S. or the South Caucasus. It is negotiating an agreement with Russia that would allow for a resumption of Russian defense sales in return for oil and would essentially break the sanctions regime. It also has a strong relationship with Turkmenistan from where it imports gas. Yet, Iran has hinted that it is willing to do serious business with Turkey, and to transport gas through the Caspian Sea if it can be delimited. This in turn necessitates coming to terms with Azerbaijan as well as a prior resolution of outstanding issues pertaining to the Caspian Sea itself. There may be circumstances whereby Iran would like to export its own gas through the Caspian and maybe even Turkmen gas. Either way, it must then deal with Turkey and Azerbaijan but risk Russia’s displeasure. In other words, an Irano-Azerbaijani rapprochement, to the extent that it is serious and genuine, could open up many of the logjams in the Caspian basin that have inhibited progress on key issues like Caspian delimitation  and energy flows from Central Asia to Europe.

This process has only begun although it is clearly discernible. But it clearly bears watching for it will have a big impact on many critical issues, potentially the Nagorno-Karabakh issue, but certainly the relationships between Iran, Azerbaijan, and Turkey both regarding the Caucasus and energy flows to Europe. Likewise, it will clearly have a major impact on the treatment of the Azeri minority in Iran, which has been a long-term object of Tehran’s suspicion, due to its questionable loyalty to Iran and Iran’s vulnerability to a Crimea-type scenario given the presence of that minority in border areas adjacent to Azerbaijan, as happened in 1920-21, and 1946.  Likewise, the complex issue of demarcating the Caspian, the potential for its militarization or alternatively its demilitarization, Iran’s ties to Turkmenistan, and especially to Russia are all issues that will be affected by the course of this relationship.

CONCLUSIONS: This relationship is also closely connected with the ongoing 5+1 negotiations with Iran over its nuclear program. Iran is clearly looking to break out of its previous isolation, and like Azerbaijan, reduce the number of hostile states that it must deal with. Its overtures to Azerbaijan and Georgia as well as Armenia are also intended to register in Western capitals. So too is the announcement that NATO’s relationship with Azerbaijan has now reached the level of strategic partnership, a clear response to the Crimean crisis. However, the democracy and human rights issues still plague Baku’s relations with Washington, which may help explain its overtures or receptivity to Iran, especially given the charged environment within which Azerbaijan must now function. Would it be far-fetched, then to hope that this rapprochement, if it goes forward, could help generate a so called virtuous circle of relationships involving Tehran and Washington as well as Baku? Should such a development come to pass, the repercussion and benefits garnered thereby would  far exceed or transcend the borders of those three states and could benefit Europe and the entire Caucasus. On the other hand, failure to move forward leaves the entire Caspian basin in a state of “frozen conflict” and tension. That is a condition where ultimately neither Baku nor Tehran benefits. Therefore, if for no other reason, the stakes involved merit giving this relationship the scrutiny and attention it deserves.

AUTHOR’S BIO: Stephen Blank is a Senior Fellow with the American Foreign Policy Council.