Today, the Caucasus region has become a scene of competition among the major global powers, including Russia, Turkey, the United States, and European countries, according to both domestic and foreign experts. Based on the Heartland Theory, this region plays a key role in global leadership and is considered one of the most strategically important areas in the world. For this reason, both regional and extra-regional actors regard the Caucasus not only from a geopolitical and geostrategic perspective but also as a sensitive area from a geoeconomic viewpoint. The Caucasus, especially its southern part, is deemed geopolitically, geoeconomically, and geostrategically important for several reasons. First, it serves as a crossroads for East-West and North-South communication and has historically been a bridge connecting the two continents of Asia and Europe—particularly through China’s Belt and Road Initiative and the North-South Corridor linking India, Russia, and Iran. Second, it is a route for Russia to the West and vice versa. Third, the region is rich in energy resources, particularly oil and gas, and serves as a transit route for these resources to Europe; this means that important pipelines for energy transfer in this region pass through the Southern Caucasus. Lastly, the area is a meeting point for various religions and ethnic groups. Regarding the influence and role of global actors in this region, it is noteworthy that prior to the collapse of the Soviet Union, Russia had full control over Central Asia and the Caucasus. However, after the collapse, on one hand, due to weaknesses in Russia’s industrial and economic power despite its nuclear and military capabilities, and historical, cultural, and linguistic ties with its neighbors, and on the other hand due to the geoeconomic position of the region owing to the energy potentials of the Caspian Sea, Central Asia and the Caucasus became the focus of both regional and extra-regional powers. The war between Russia and Ukraine in early 2022, along with the second Nagorno-Karabakh war (2020), transformed the balance of regional power in the post-Cold War era and reconfigured the strategic environment of the Southern Caucasus in light of emerging geopolitical and geoeconomic realities. In this context, new actors have emerged, and the role of traditional actors has somewhat diminished. Another reason for the emergence of new players relates to the fact that Central Asian and Caucasian countries, due to their infrastructural weaknesses and excessive reliance on energy reserves, have a strong need for foreign companies to extract oil and gas. Therefore, many extra-regional countries, seeking to diversify their energy supply channels and achieve reliable and low-cost access while also aiming to reduce dependence on Russia, have expressed interest in these regions. Additionally, the United States has emerged as a serious competitor in the region, supporting routes that would align with its long-term geopolitical goals and restrict the actual and fundamental roles of Russia and Iran in the area. Moreover, being landlocked has meant that the economic and social development of landlocked countries largely depends on their access to open seas via land and transit routes through neighboring countries. Considering that only Georgia has access to open waters in the Southern Caucasus, Azerbaijan and Armenia require neighbors like Iran and Turkey to access free waters. Therefore, each political entity in the region finds it difficult to resolve its issues without cooperation from others. Recent developments in the Caucasus, especially in the relations between Azerbaijan and Armenia, have created ambiguous conditions in Iran’s foreign policy, generating mutual opportunities and threats. If no smart approach is adopted, this situation will not benefit Iran and may lead to significant losses for the country. Furthermore, in recent decades, the Islamic Republic of Iran has not been able to capitalize on its geopolitical opportunities in Central Asia and the Caucasus as needed; this issue has led to considerable tensions between Iran and its neighbors in the Caucasus, a growing distance between Iran and this region despite many commonalities, as well as the adoption of less strategic and targeted policies. This study employs grounded theory and semi-structured interviews with experts in this field to diagnose the general policies of the Islamic Republic of Iran regarding the crises in the Caucasus region, particularly Nagorno-Karabakh. The main question of this research is: What flaws exist in Iran’s relationships and policies towards this region? We analyze this issue through three stages of coding (initial, secondary, and axial) and ultimately arrive at an exploratory theory that will be presented in the analysis section. Additionally, to further comprehend the subject, it is necessary to examine that the Southern Caucasus region is one of the important and strategic areas for the Islamic Republic of Iran and some significant countries like Russia. Russia inherited the extensive military power of the Soviet Union but did not inherit its communist culture and ideology. This occurred at a time when a cultural and civilian image was thought to play a significant role in presenting a positive image of countries compared to the Cold War era. Moreover, it is crucial to note that three states—Azerbaijan, Armenia, and Georgia—declared independence following the collapse of the Soviet Union in the early 1990s. Due to demographic ties, relocations, and changes during the Soviet era, the differentiation and partitioning of national borders in these areas faced new challenges and tensions. In recent years, Georgia has had severe border disputes with Russia, and Azerbaijan has faced significant border conflicts with Armenia. In this article, we aim to examine Iran’s foreign policy regarding this important region, particularly Nagorno-Karabakh, and the disputes between Armenia and Azerbaijan. Over the past three decades, disputes over the Nagorno-Karabakh region have led to two bloody wars between Baku and Yerevan. The second Nagorno-Karabakh war ended swiftly with Azerbaijan's victory; however, we cannot foresee a resolution, as the effects and consequences of this war extend beyond the two involved countries. Iran shares borders with both Azerbaijan and Armenia and maintains close relations with both countries; nevertheless, their territorial disputes and prolonged conflicts have harmed Iran’s vital interests. Under such circumstances, shortcomings such as the lack of specific planning and the failure to adopt appropriate and calculated policies on the part of the Islamic Republic have become increasingly evident. It is noteworthy that the main issue of this research is to explore and diagnose the foreign policy of the Islamic Republic of Iran in the Caucasus, specifically questioning why Iran has been unable to adopt a sound strategy and foreign policy toward this strategic region and its countries over the years, often being characterized as a country lacking adequate agency. In this study, upon conducting semi-structured interviews with experts in the fields of the Caucasus and foreign policy, we identified some critical factors contributing to the diagnosis of Iran's policies in the Caucasus, which we will discuss further. The aim of this research is to identify the factors that explain the reasons for the failure of Iran's foreign policy in the Caucasus region and to provide a sufficient response to the question of what the shortcomings of the Islamic Republic of Iran's foreign policy towards the Caucasus are. Given the aforementioned points, it is essential to conduct a thorough and detailed examination of the foreign policy of the Islamic Republic of Iran. Additionally, a proper diagnosis is necessary for improving Iran's political behaviors and reforming certain policies regarding the important and strategic region of the Caucasus. In this article, through extensive research and studies, as well as discussions and interviews with specialists in the fields of Central Asia, the Caucasus, and foreign policy, we were able to arrive at significant propositions regarding this matter.