The South Caucasus: Georgia, Armenia and Azerbaijan

The economies of three countries between Europe and Asia, from Azerbaijan's oil to Armenia's technology sector and Georgia's transit role.

The South Caucasus lies between the Black Sea and the Caspian Sea, bordering Russia, Türkiye and Iran. Its three countries, Georgia, Armenia and Azerbaijan, became independent in 1991 and have followed different economic paths.

Azerbaijan: oil and gas

Azerbaijan has substantial oil and gas reserves in the Caspian Sea. The Baku-Tbilisi-Ceyhan pipeline, opened in 2006, carries Caspian oil through Georgia to Türkiye’s Mediterranean coast, bypassing Russia. Oil and gas dominate its exports and budget, and it built a state oil fund, SOFAZ. Like other resource exporters, it faces the challenge of diversification.

Armenia: technology and diaspora

Armenia is landlocked and has closed borders with Türkiye and, for decades, with Azerbaijan due to conflict. It has limited natural resources beyond mining. Strengths include:

A technology sector with software and engineering firms.
A large diaspora, with more Armenians living abroad than in the country, providing remittances, investment and connections.

After 2022, many Russians relocated to Armenia and Georgia, boosting their economies temporarily through spending and business activity.

Georgia: transit and tourism

Georgia serves as a transit corridor for oil, gas and goods between the Caspian and the Black Sea and Europe. Tourism, wine and agriculture are important. It has close trade ties with the EU through a free trade agreement and became an EU candidate country in 2023.

Conflict and cooperation

Conflicts, including the Nagorno-Karabakh conflict between Armenia and Azerbaijan, have hindered regional trade. In 2025, Armenia and Azerbaijan initialled a peace agreement, which, if implemented, could open borders and new transport routes linking the region.

A pipeline that avoids Russia

Before the Baku-Tbilisi-Ceyhan pipeline, Caspian oil exports depended on routes through Russia. The new pipeline, running around 1,770 kilometres, gave Azerbaijan an alternative route to world markets and earned Georgia transit fees. Pipelines can reshape the geopolitics as well as the economics of a region.

Thinking small countries are isolated from global markets

The South Caucasus economies are small, but they are linked to world markets through pipelines, trade corridors, tourism and large diasporas.

Key takeaways

Azerbaijan's economy is dominated by Caspian oil and gas, exported partly via the BTC pipeline.
Armenia relies on technology, mining and a large diaspora.
Georgia is a transit corridor with tourism, wine and close EU trade ties.
A 2025 Armenia-Azerbaijan peace agreement could open borders and trade routes.