The Zangezur corridor possesses socio-economic, geopolitical and geostrategic characteristics connecting Central Asia, the Caspian region, Azerbaijan and Armenia with Turkey. This suggests that the corridor, which will expand the transport-logistics network between Azerbaijan, Turkey, Russia and Armenia, will positively impact regional trade and play an important role in establishing economic cooperation in the South Caucasus. The Zangezur corridor is redrawing the economic and transport map of the South Caucasus. This project significantly increases Azerbaijan's geo-economic weight and influence capabilities in the region. By ensuring access to international markets for previously closed and economically isolated territories, regional economic dynamism is revitalized. Thus, Azerbaijan becomes an important logistics center at the intersection of East-West and North-South routes.

Geopolitical risk is an increasingly important source of environmental uncertainty in resource-rich economies, where energy transitions depend on economic activity, energy-system composition, and foreign investment. This study examines these interrelated dynamics using annual data for Azerbaijan over 1996–2024 and an augmented autoregressive distributed lag (A-ARDL) bounds-testing framework. The approach extends conventional ARDL analysis by incorporating the F-independent statistic, enabling robust inference under uncertainty regarding the integration properties of the dependent variable. Linear and nonlinear unit-root tests confirm that all variables are integrated at either level or first difference, with none exhibiting I(2) integration, while a structural break in CO₂ emissions is identified in 2009. The A-ARDL bounds test provides strong evidence of a stable long-run relationship among geopolitical risk, economic activity, hydropower generation, foreign direct investment, and environmental performance. Long-run estimates show that geopolitical risk is positively and significantly associated with CO₂ emissions in the long run, with a one-standard-deviation increase in geopolitical risk associated with an approximately 8.1% rise in emissions. Conversely, the hydropower share exhibits the strongest negative long-run association with emissions: a one-percentage-point increase in its electricity share reduces emissions by approximately 2.8%, equivalent to an 8.6% reduction at one standard deviation. FDI is weakly negatively associated with emissions whereas economic activity has no significant long-run effect. The error-correction coefficient of −0.896 indicates rapid adjustment, with nearly 90% of disequilibrium corrected within one year. The findings underscore geopolitical exposure as an environmental risk and hydropower as a key resource-based mitigation channel for sustainable energy transitions.