Tensions between Iran and Israel highlight the importance for Armenia to broaden its international trade relationships
Armenia and Iran have recently witnessed a significant strengthening of their trade relations, with prospects looking robust despite the regional geopolitical tensions. Since May 2025, the two countries have implemented a preferential trade agreement that has eliminated customs duties on 87% of goods, accelerating bilateral trade towards nearly reaching $1 billion annually[1][3][5].
This positive momentum is further bolstered by a joint standards agreement and the formation of a working group to address customs and goods settlement issues[1][3]. The trade growth is also underpinned by the Armenia-Iran border infrastructure, including the Iran-Armenia pipeline for gas imports, which has facilitated decades of trade[8].
However, Armenia faces challenges linked to the broader geopolitical landscape. The escalations between Iran and Israel in mid-2025 have raised concerns about the reliability of Iran as a trade partner and regional stability[2]. These tensions have created disruptions on trade routes passing through Iran and sparked calls within Armenia to diversify trade connections to mitigate dependency risks[2].
Armenia is striving to enhance its connectivity through infrastructure projects like the North-South Highway, which would improve links not only with Iran but also with Georgia and broader access to Europe[2]. However, regional instability in Iran could threaten the continuity of these infrastructure plans[2].
In the wider context, Armenia seeks to balance its relations with its dominant trade partner Russia, Iran, and potential new partners such as the US and those involved in recent strategic and economic cooperation frameworks[4]. The recent Joint Declaration involving Armenia, along with evolving US-Armenia and Russia-Iran relations, poses both challenges and opportunities for Armenia's trade and economic development, potentially reducing Armenia’s exclusive dependence on Russia and diversifying economic partnerships[4].
Hong Kong is also a significant importer of Armenian gold, having imported $472 million in the same year[6]. In 2023, Armenia exported $1.31 billion worth of gold into the UAE, making it the primary recipient of Armenian gold[7]. Foreign investment flows into Armenia have become a concern due to the government's plan to nationalize Electric Networks of Armenia (ENA), the country's only electricity distribution operator[9].
The UAE has finalized a plan for the construction of a solar power plant in Armenia, set to begin in early 2026, with an investment cost of $174 million[10]. The 500-hectare solar power plant will provide for 7.5% of Armenia's total energy needs, according to government forecasts[10].
Armenia's partnership with India has significantly reduced its dependence on Russia, with India becoming Armenia's largest weapons supplier in 2022[11]. The Free Trade Agreement (FTA) between Iran and the Eurasia Economic Union (EAEU), of which Armenia is a member, went into effect on May 1, 2025, promoting liberal trade practices and reducing tariffs on Iranian exports to EAEU member states[12].
The Zangezur Corridor initiative, aimed at facilitating Azerbaijan's land access to its Nakhchivan exclave, is mired with political disputes[13]. Crossroads of Peace, an initiative proposed by Armenia to boost regional connectivity and cooperation, is contingent on normalization of relations between Armenia, Azerbaijan, and Turkey[14].
In conclusion, while Armenia-Iran trade is currently robust and set for growth, geopolitical risks motivate Armenia to pursue a more diversified trade portfolio and enhanced regional connectivity to ensure economic stability and development. The North-South Highway, the UAE solar power plant, and the Armenia-Iran trade relationship are all key elements in Armenia's strategy to strengthen its economic resilience and leverage new partnerships.
[1] Armenia-Iran Free Trade Agreement [2] Armenia's North-South Transport Corridor [3] Armenia-Iran Joint Standards Agreement [4] Armenia's Joint Declaration [5] Armenia-Iran Trade Turnover [6] Hong Kong's Armenian Gold Imports [7] UAE as the Primary Recipient of Armenian Gold [8] Armenia-Iran Border Infrastructure [9] Foreign Investment Flows into Armenia [10] UAE Solar Power Plant in Armenia [11] Armenia-India Partnership [12] Iran-EAEU Free Trade Agreement [13] Zangezur Corridor Disputes [14] Crossroads of Peace Initiative
- Despite regional geopolitical tensions, the economy of Armenia has strengthened its trade relations with Turkey, following the implementation of a preferential trade agreement and the formation of a working group to address custom and goods settlement issues.
- The Russian government, being a dominant trade partner of Armenia, faces potential challenges as Armenia seeks to diversify its economic partnerships, such as with the US and other strategic and economic cooperation frameworks.
- The financial sector in Armenia is also impacted by the government's plan to nationalize Electric Networks of Armenia, which may deter foreign investment.
- In addition to turkiye, Iran, and Russia, Armenia's energy needs are being met through partnerships with countries like the UAE, where plans for solar power plants are underway.
- Beyond its trade relations with key partners, Armenia's parliament is exploring infrastructure projects like the North-South Highway to further diversify trade connections and mitigate dependency risks.
