Publication: Eurasia Daily Monitor Volume: 4 Issue: 144

Armenia and Iran have agreed to give new impetus to their bilateral relations and press ahead with the implementation of more multimillion-dollar energy projects. The agreements were announced in Yerevan after the July 20 meeting of their intergovernmental commission on economic cooperation, co-chaired by Iranian Foreign Minister Manuchehr Motaki and Armenian Energy Minister Armen Movsisian.

Motaki also held separate talks with President Robert Kocharian and other Armenian officials. Official press releases cited them as praising the Armenian-Iranian relationship and stressing the need to utilize its untapped commercial potential. Motaki was reported to be satisfied with “thorough discussions” held during the commission meeting. He and Movsisian divulged key details of those discussion at a joint news conference.

Movsisian revealed that in “one or two months” the two sides would start work on a third high-voltage transmission line linking the power grids of Armenia and Iran. The facility will enable a substantial increase in exports of Armenian electricity to the Islamic Republic, which is expected after the completion of a pipeline that will pump Iranian natural gas to Armenia. The pipeline’s first Armenian section was inaugurated last March in the presence of Kocharian and Iranian President Mahmoud Ahmadinejad.

Construction of its second, much longer stretch is due to be completed by the end of next year. That will allow Armenia to annually import up to 2.3 billion cubic meters of Iranian gas, or approximately twice the level of its current gas imports from Russia. It is expected that much of Iranian gas will be converted into the electricity that will be supplied to Iran.

Another Armenian-Iranian energy project involves the construction of two big hydroelectric plants on either side of the Arax River, marking the border between the two countries. Movsisian announced that its construction would likely start early next year. It is still not clear, however, how the Armenian side will finance its share of the project, estimated at $200 million. Some analysts believe that it will borrow the required sum from the Iranian government. Tehran already lent Yerevan $34 million to construct the first pipeline section.

Also on the agenda of the commission meeting was the Russian-backed ambitious idea of building a big oil refinery near Meghri, a small Armenian town close to the Iranian border. Kocharian reportedly discussed it with Russian President Vladimir Putin last January. Around that time an oil subsidiary of Russia’s Gazprom monopoly confirmed reports that it is interested in the project and ready, in principle, to provide most of the hundreds of millions of dollars needed for its implementation. The project envisages that Iranian crude will be delivered to Meghri through a 200-kilometer pipeline before being turned into gasoline and other oil products that will be shipped to Iran by rail. Despite its vast oil reserves, the Islamic Republic lacks refining facilities and has to import gasoline to meet domestic demand. Officials have said the refinery would have the capacity to process about 3 million tons of oil each year.

The governments of Armenia, Iran, and Russia recently formed an ad hoc working group tasked with looking into the matter. It is scheduled to hold its first meeting before the end of this month. According to Movsisian, high-level government officials from the three countries plan to meet in September to discuss the group’s recommendations.

It also emerged that Yerevan and Tehran plan to sign a free trade agreement soon in order to boost the volume of their commercial exchange, which remains quite modest in both absolute and relative terms. One of the apparent reasons for that is Iran’s huge import tariffs that effectively keep the Iranian market off limits to Armenian manufacturers. A statement by the Armenian government quoted Motaki as telling Prime Minister Serge Sarkisian that facilitating imports from Armenia is now a “priority” for Tehran. Motaki sounded optimistic about broader Armenian-Iranian trade, telling journalists that its volume could more than double to $500 million this year.

These developments come just over a month after the United States publicly expressed concern at Armenia’s growing relations with Iran through its then charge d’affaires in Yerevan, Anthony Godfrey. Speaking at a June 15 news conference, Godfrey warned that those ties could run counter to U.S. sanctions imposed on Tehran over its controversial nuclear program. He said that although Washington appreciates the “transparent way in which the government of Armenia conducts its energy relations with Iran,” it expects Yerevan to be a “more active partner” in US-led international efforts to prevent Iran from developing nuclear weapons.

Armenia has until now managed to maintain close political and economic ties with Iran, while being one of the world’s leading per-capita recipients of U.S. economic aid. The U.S. warning could make it more difficult for Yerevan to continue to pursue what it calls a “complementary” foreign policy. Still, Armenian Foreign Minister Vartan Oskanian insisted on June 19 that his country’s growing cooperation with its large Muslim neighbor does not breach the U.S. and international sanctions and will not damage U.S.-Armenian relations.

A warm rapport with Iran is a key element of Armenia’s national security doctrine and a rare point of consensus among its main political parties. They believe that the landlocked South Caucasus state, blockaded by neighboring Azerbaijan and Turkey, has no choice but to be a close partner of what is one of its few conduits to the outside world.

(Azg, 21 July; Regnum, July 20; Statements by the press services of Armenia’s president and government, July 20; Arminfo, June 19)