Escalating tensions involving Iran could affect South Caucasus economies through several channels, with Armenia particularly vulnerable through trade links, according to a research note by GlobalSource Partners.

In the note, Ivan Tchakarov of GlobalSource analysed economic ties between Iran, Persian Gulf countries and Israel and the three South Caucasus states — Armenia, Azerbaijan and Georgia — across trade, foreign investment, tourism and remittances.

“The key conclusion is that the trade channel dominates for Armenia in a significant way,” Tchakarov wrote. While Armenia is not the most dependent on Iran, the Gulf states and Israel in terms of investment, tourism or remittances, he noted that “the magnitudes of these other statistics are smaller when contrasted with trade.”

According to the report, Armenia conducts about 14.8% of its total trade turnover with Iran, the Persian Gulf countries and Israel combined, making it the most exposed among the three economies.

Tchakarov said Armenia relies heavily on transit routes through Iran to reach external markets. “Armenia has a lot to lose from disruption of trade routes in Iran given that about 30% of its foreign trade uses that space to find its final buyers,” he wrote.

Georgia and Azerbaijan have lower exposure through trade with those countries, the report said.

In foreign direct investment, Azerbaijan shows greater reliance on inflows from the Persian Gulf region. “To be sure, Persian Gulf FDI in Azerbaijan remains smaller than Western or Turkish investment, but it still accounts for about 5.4% of GDP,” the note said.

Tourism represents a different potential vulnerability, particularly for Georgia. “I argued recently that Georgia has been setting records in the last two years regarding income received from foreign travel, so this appears to be a weak point for Tbilisi even if revenues from Iran/Persian Gulf/Israel amount to only 2.4% of GDP.”

Remittances from those economies play a smaller role overall. “Remittances account for less than a percent of GDP for all three economies,” the note said.

GlobalSource added that a previous flare-up involving Iran in June 2025 had limited economic impact, writing that the episode “was short-lived, so there was virtually zero adverse effect on Armenia, Georgia and Azerbaijan in terms of their growth performance last year”.