This article explores the questions related to the current relations between Azerbaijan and Iran, namely vectors of development and milestones over the period from 2000 to 2020. Analysis is conducted on the contradictory positions and most favorable spheres for cooperation. An attempt is made to answer the question, why the promising relations between Baku and Teheran transitioned into a moderately tense state, and what factors influenced this process. Special attention is given to the process of harmonization of relations between the countries at the time of coming to power of the President of Azerbaijan I. G. Aliyev. Based on the acquired results, the authors came to the conclusion that the relations between Azerbaijan and Iran have high potential, first and foremost due to cultural and historical commonality of the nations. At the same time, the conducted research demonstrates profound systemic contradictions that impede achieving potential in development of bilateral relations between Azerbaijan and Iran. Such contradictions may constitute a threat to the regional international relations and often involve other countries (USA, Israel, Turkey, Russia, and Armenia). The novelty this work consists in comprehensive analysis of key events in the history of modern Azerbaijan-Iran bilateral relations, as well as transformation of foreign policy vectors of the countries, namely in the conditions of coming to power of the President of Azerbaijan Ilham Aliyev.