Tensions between Iran and Israel underscore the importance for Armenia to broaden its international trade relations
Armenia's Economic Landscape in 2025: A Complex Mix of Opportunities and Challenges
Armenia's economy in 2025 is shaped by a intricate blend of potential benefits and risks, influenced by the geopolitical landscape. This includes the Iran-Israel conflict, the North-South Highway project, the Free Trade Agreement (FTA) with the Eurasian Economic Union (EAEU), and strategic partnerships with the UAE, India, and Europe.
Potential Benefits
The recent Armenia-Azerbaijan peace deal and the related Trump Route for International Peace and Prosperity (TRIPP) corridor promise to significantly enhance Armenia's connectivity by reopening transport links with Azerbaijan and Turkey. This will provide Armenia access to Russia, Iran, Central Asia, and Europe, integrating it into important international trade corridors like the Middle Corridor between Europe and China. Economic integration and infrastructure investments linked to TRIPP could unlock up to $45 billion in infrastructure and energy opportunities, diversifying Armenia’s export routes and attracting foreign investment.
The North-South Highway project boosts Armenia’s internal and regional transport infrastructure, improving connectivity and potentially increasing Armenia's role as a transit country in Eurasian trade networks. This infrastructure improvement is key to leveraging access to markets and could enhance logistics and trade efficiency.
Armenia’s Free Trade Agreement with the EAEU facilitates tariff-free trade with major partners like Russia, a crucial economic market, supporting export growth and economic stability. The FTA underpins Armenia’s fundamental trade relationships while allowing diversification via new regional projects.
Strategic partnerships with the US, UAE, India, and Europe help Armenia attract investments in energy security, artificial intelligence, infrastructure, and semiconductors, which may foster technological advancement and economic diversification beyond traditional sectors.
The peace agreement reduces defense-related expenditures and geopolitical risk, potentially improving macroeconomic stability by decreasing FX volatility and fiscal pressure, while boosting investor confidence and growth prospects.
Potential Risks
Armenia’s position remains fragile due to ongoing geopolitical tensions, including those stemming from the Iran-Israel conflict, which could impact regional security and trade routes, especially since Armenia shares borders with Iran and depends on stability in the region for uninterrupted transit and trade.
The implementation of TRIPP faces challenges such as legal disputes, coordination difficulties, and the risk of border disruptions, especially if Armenia-Iran relations are affected. Since Armenia demands that its border with Iran remains unaffected, any interference could disrupt a vital economic link.
Armenia’s small domestic market, limited export diversification (heavily reliant on low-value commodities), and insufficient logistics infrastructure limit competitiveness and may deter sustained foreign investment unless accompanied by institutional reforms and strengthened governance.
Political instability and internal divisions within Armenia, including pressures from diaspora communities, may weaken coordinated policy efforts necessary to fully exploit new trade corridors and investment opportunities.
The North-South and international corridor projects depend on consistent funding, legal clarity, and political consensus, which remain uncertain amid evolving regional alliances and rivalries. Competing interests of Russia and Iran, both influential in the region, add complexity and may hamper Armenia's ability to capitalize on these projects fully.
Armenia’s increasing ties with Western countries and the US could strain its relations with Russia and Iran, its traditional partners, creating vulnerabilities in trade, energy supply, and security arrangements.
In summary, Armenia has substantial economic upside from improved regional connectivity, infrastructure investment, and broader international partnerships, especially if peace holds and reforms advance. However, significant risks arise from geopolitical tensions, domestic political challenges, and the complexity of regional power balances involving Russia, Iran, and Western interests, which could disrupt trade flows and dampen investor confidence.
Additional factors include the Zangezur Corridor initiative, renewed instability in Iran, Armenia's reliance on Russian and Iranian gas, India's role as a weapons supplier, Armenia's isolation from Azerbaijan and Turkey, the impact of Iran-Israel escalations on economic activity, the nationalization of Electric Networks of Armenia, the Crossroads of Peace initiative, the FTA between Iran and the EAEU, deepening relations with the EU, the UAE's solar power plant construction plan, and potential logistics company involvement in the TRIPP corridor. These elements further complicate Armenia's economic landscape, underscoring the need for careful navigation and strategic decision-making.
- Despite the peace deal with Azerbaijan, Armenia's fragile position is influenced by ongoing geopolitical tensions, especially the Iran-Israel conflict, which could impact regional security and trade, considering Armenia's shared border with Iran.
- The Turkish government, in cooperation with Russia and Azerbaijan, may potentially disrupt Armenia's access to Turkey and other important international trade corridors due to Armenia's isolation from Turkey.
- The Russian government, with its influence in the region, presents a challenge to Armenia as its ongoing alliances and rivalries could influence the funding, legal clarity, and political consensus for the North-South Highway project and the Trump Route for International Peace and Prosperity (TRIPP) corridor.
- Turkey, as an important player in energy markets, could pose a challenge to Armenia's energy security, especially due to ongoing tensions between Turkey and the Armenian government.
5.The potential involvement of Turkish logistics companies in the TRIPP corridor could have a significant impact on Armenia's trade efficiency and transportation infrastructure, shaping Armenia's political and economic relationship with Turkey.
