Russia & Armenia: united by geopolitics, divided by energy resources

Eurasianet Organization
May 17 2004

Sergei Blagov: 5/17/04

Russia has long viewed Armenia as its most dependable ally in the
volatile Caucasus region. However, a recent pipeline deal between
Armenia and Iran has emerged as a source of discord in Moscow’s
relationship with Yerevan.

The Armenian-Iranian pipeline pact was signed May 13 in Yerevan.
Under terms of the deal, the roughly 140-kilometer pipeline would
cost an estimated $220 million to build (including a $100 million
outlay on the Armenian side), and become operational by January 1,
2007. In addition, Iran and Armenia agreed on a gas-purchase deal
in which Yerevan would buy upwards of 36 billion cubic meters of gas
over a 20-year span, the Mediamax news agency reported.

The pipeline potentially could be extended, via Georgia and Ukraine,
to the European Union. Linking to the EU would require construction
of a 550-kilometer-long underwater section from the Georgian port
of Supsa to the Crimean town of Feodosia at an estimated cost of
$5 billion. The planned gas supply would amount to 60 billion cubic
meters per annum, including 10 billion cubic meters for Ukraine.

For Armenia, the deal has the potential to greatly reduce the country’s
energy dependence on Russia. Armenian Foreign Minister Vardan Oskanian
told Armenian television May 14 that Yerevan placed “great importance”
on Iran’s “balancing role” in geopolitical and economic developments
in the Caucasus. At the same time, other Armenian officials sought
to downplay the impact of the deal on Yerevan’s energy dealings
with Russia.

Until recently, Russia was critical of the pipeline project. After
Armenian Energy Minister Armen Movsisian said in February that
an Armenia-Iran gas pipeline deal was pending, the Russian daily
Nezavisimaya Gazeta published an article entitled: “Yerevan carries
out an anti-Russian gas project.”

In recent weeks, Moscow appears to have softened its stance. On
May 13, Kocharian met Gazprom head Alexey Miller to discuss Russian
gas supplies to Armenia as well as Armenia internal and transit gas
pipelines. They also talked about the ArmRosGazprom joint venture,
which is 45-percent owned by the Russian gas giant. No details were
revealed, but no sharp disagreements surfaced.

What appears to still make Moscow nervous is the prospect of an
extension of the Armenian-Iranian pipeline. Officials in Moscow
are reportedly concerned that an EU extension could create damaging
competition for Russian energy exports. An Iran-EU connection could
also enable Turkmenistan to circumvent Russia’s gas pipeline network.
[For background see the Eurasia Insight archive].

Moscow may already be working to discourage an extension. On May 15,
Ukrainian Prime Minister Viktor Yanukovich made an unexpected visit to
meet with Putin at his Novo-Ogaryovo residence outside Moscow. Two days
later, Putin met with visiting Iranian Foreign Minister Kamal Kharrazi
and described Iran as Russia’s “long-standing and stable partner.”

The Armenian-Iranian pipeline pact was announced the day before
Armenian President Robert Kocharian flew to Moscow for talks with
Russian leader Vladimir Putin – the fifth such meeting between the
two in less than a year.

Both behaved as though Armenian-Russian ties were as strong as ever.
Putin welcomed developing economic cooperation between Russia and
Armenia, adding that in 2003 bilateral trade was 34 percent up year
on year. Putin also hailed “coordinated efforts by Russia and Armenia
on the international arena,” notably among former Soviet states.
Kocharian, likewise, welcomed the strengthening of economic ties.

Armenia has traditionally been Russia’s closest partner in the
Caucasus. Sandwiched between hostile Azerbaijan and Turkey, and
volatile Georgia, Armenia has little option but to remain a supporter
of Russia’s geopolitical moves in the Caucasus.

In 1997, the two countries signed a friendship treaty, under which
they provided for mutual assistance in the event of a military threat
to either party. [For background see the Eurasia Insight archive].

The pact also allows Russian border guards to patrol Armenia’s
frontiers with Turkey and Iran. In economic terms, Armenia is heavily
dependent on Russia for its natural gas and nuclear fuel supplies.
[For background see the Eurasia Insight archive].

Editor’s Note: Sergei Blagov is a Moscow-based specialist in CIS
political affairs.