The EU's lifting of sanctions on Iran this month has been hailed as a "golden page" in the country's history in Teheran, and as a victory of pragmatism over isolationism and conservatism. But while Iran has expressed its intention to prioritise relations with its close vicinity, its small Caucasian neighbours to the north – Georgia, Armenia and Azerbaijan - might fail to take full advantage of Teheran's opening up.

Geography has not been on the side of Transcaucasia throughout the centuries, for Georgia, Armenia, and Azerbaijan are squeezed between larger-than-life neighbours -– Russia in the north, and Turkey and Iran in the south – which frequently do not see eye to eye. Armenia's close ties with Russia have helped it in many a dire situation, but are a hindrance when it comes to diversifying its foreign relations. Meanwhile, Georgia and particularly Azerbaijan have moved closer to Turkey, while trying to maintain significant commercial ties with Russia.

Georgia would be very interested in closer links with Teheran, particularly for gas, but since it lacks a land border with Iran, this is unlikely to happen. In order for Georgia to receive Iranian gas one of the following two things need to happen: Azerbaijan needs to allow the construction of a gas pipeline from Iran to Georgia through its territory, which is unlikely and goes against Baku's best interest to dominate the Georgian market; or, Russia would have to allow the existing gas pipeline between Armenia and Iran to be filled to capacity, which is also unlikely because it would undermine Russia's role as a gas monopolist in Armenia, and an additional connection to Georgia would have to be built.

Either way, the prospects of Iranian gas exports are small and distant, which might explain why Tbilisi had the most delayed reaction of all three Caucasian countries in welcoming Iran to the global economy.

With Armenia and Azerbaijan in a state of frozen war over the breakaway region of Nagorno-Karabakh – a conflict that is skewed in Armenia's favour thanks to Russian support – the region could benefit from some fresh air. But Iran is unlikely to be that gust, for its track record of support for Armenia clashes with its pragmatic interest of prioritising ties with Azerbaijan, the region's largest economy.

On the surface, both countries could benefit from the opening up of Iran. Baku and Yerevan have congratulated Teheran over the lifting of sanctions, while local newspapers have been running daily headlines about trade negotiations, the launch of ferry transport  (in the case of Azerbaijan), easing of visa requirements, and cooperation in various sectors, such as e-commerce, IT, pharmaceuticals, construction, and oil and gas exploration.

However, Azerbaijan needs to change its mindset if it is to make the most of this opportunity, according to Richard Giragosian, director at the Yerevan-based Regional Studies Centre (RSC).

"The way I see it," Giragosian tells bne IntelliNews "is that, although Armenia is the natural beneficiary to the end of sanctions, Azerbaijan will accomplish more because it has a bigger economy. The challenge for Armenia will be Russia, because Armenia can only go as far in its relations with Iran as Russia allows. Azerbaijan theoretically has more freedom, but it needs to overcome its short-sighted, zero-sum approach to relations with Iran."

Baku's courting of Teheran has been reactive, rather than proactive, so far, and designed to trump Armenia's bids to Teheran, Giragosian believes, for ultimately Azerbaijan wants Iran to drop its partnership with Armenia. Case in point, after Armenia proposed a (poorly thought-out, expensive and challenging to construct) railway connection to Iran, Azerbaijan did the same and won because its link was shorter, cheaper and easier to build.

After Armenia suggested that Iran could export more gas to Georgia using an existing pipeline that runs through its territory, Baku proposed that it join the Trans Anatolian Pipeline (TANAP) and export to Turkey – a proposal that is impossible to implement in the next decade because of the pipeline's limited capacity, as it would mean that Azerbaijan would have to reduce its own gas exports to accommodate Iran's.

Divided by history

The distrust between Baku and Teheran runs deep. The two Shia Muslim states share a history and culture, as reflected in the fact that Iran is home to more ethnic Azerbaijanis than Azerbaijan itself, but that divides rather than brings them together. The secular administration in Baku has frequently scandalised the conservative elements in Teheran while courting the West and Israel for oil and gas deals and trade. Meanwhile, Iran's alleged participation in attempted terrorist attacks in Baku, its close ties with Armenia and the fact that it built a hydroelectric power plant in Azerbaijan's occupied territories has done little to endear it to Baku.

Thomas de Waal of Carnegie Europe goes further, saying that the lifting of sanctions on Iran deals a "triple blow" to Baku. "[The lifting of sanctions] removes a major card Baku was playing with the West [that it was a bulwark against a hostile Iran], reinvigorates a regional power [Iran] which has a number of quarrels with Azerbaijan, and depresses oil prices. Moreover, there is talk in Georgia of importing oil from Iran via Armenia, which would end Azerbaijan's monopoly on [Georgian] gas imports," he writes in a January 19 analysis.

Arastun Orujlu of the Baku-based East West Research Centre is equally pessimistic about Baku-Teheran ties. "There are no real joint projects between Azerbaijan and Iran, relations have always been superficial," he told bne IntelliNews. As for the future of bilateral relations, Orujlu contends that it depends on whether Teheran's foreign policy will be informed by its pragmatic government or the clergy. "If [Ayatollah] Khomeini dictates state interests, relations will Azerbaijan will not improve," he adds.

Turkey's allegiance to Saudi Arabia and the Saudi-Iranian hatred might also influence relations between Azerbaijan and Iran. "Turkey is a sister nation of Azerbaijan's, and Azerbaijan will likely stand by Turkey's position," Orujlu adds. Turkey's dependence on Russian gas, however, could complicate the geopolitical puzzle, for Iran is as good a gas source as any to replace a belligerent Russia.

Even if ties between Iran and Azerbaijan strengthen, the latter will likely stop short of allowing its larger neighbour to use its oil and gas pipelines. Cooperation in other sectors is more likely, for it would serve Baku's need to diversify its economy.

Energy and transport are also the most attractive areas that Armenia is eyeing in its relations with Iran as a way out of of its isolation. But Giragosian believes that those sectors are "a red line for Moscow”. He speculates “that “Moscow might, however, use Armenia by bolstering its position in the [Russia-led trade organisation] Eurasian Economic Union, for instance, and have it serve as an intermediary in its relations with Teheran".

In any case, for all of Baku and Yerevan's efforts, Teheran is more likely to preoccupy itself with bigger markets such as India, Pakistan and Europe, rather than Armenia and Azerbaijan in the foreseeable future.