EurasiaNet Business & Economics - Armenia Widens Ties with Iran As U.S. Attack Looms

BUSINESS & ECONOMICS

ARMENIA WIDENS TIES WITH IRAN AMID TENSION BETWEEN US AND WASHINGTON
Emil Danielyan 3/03/05

Seeking to ease its economic isolation, Armenia is expanding trade contacts with Iran. Work on a variety of infrastructure projects, including an Armenian-Iranian pipeline, is proceeding amid uncertainty. Armenian officials’ main worry is that mounting US-Iranian tension over Tehran’s nuclear program will disrupt the projects.

Armenian President Robert Kocharian issued guidelines in late February for the construction of a new highway designed to foster a rapid expansion of trade between Armenia and Iran. The launch of the highway project came amid continuing construction of the pipeline, as well as of yet another power transmission line.

Work on the highway, which will run through Armenia’s mountainous southeastern Syunik province bordering Iran, is scheduled to start in April and finish in late 2006. The estimated $20 million cost makes the highway the largest single infrastructure project undertaken by the government since the country regained its independence in 1991.

The sole existing road link between Armenia and Iran meanders through a high-altitude mountain pass in Syunik that is often closed in winter. Transport and Communications Minister Andranik Manukian says the new highway will always be passable and will be able to accommodate heavier trucks.

The road should go into service by the time the Armenian side completes work on its section of the 120-kilometer gas pipeline. Work on the pipeline began last November following a high-profile official ceremony led by Armenian Prime Minister Andranik Markarian and Iranian Energy Minister Habibollah Bitaraf. The two men also inaugurated a second high-voltage transmission line connecting their countries’ power grids. Two days later, Bitaraf and his Armenian counterpart, Armen Movsisian, signed an agreement in Yerevan on building a third such line, which they said would have twice the carrying capacity as the existing lines.

Armenia is financing both the pipeline and electricity projects with Iranian loans totaling about $64 million. Yerevan will repay them with electricity supplies. In addition, the two sides have agreed to look into the possibility of building an Armenian-Iranian railway.

Economic ties with Iran are deemed vital for land-locked Armenia, as they mitigate the effects of economic blockades maintained by Azerbaijan and Turkey, as a result of the unresolved Nagorno-Karabakh conflict. [For background see the Eurasia Insight archive].

Many Azerbaijanis view Iran’s refusal to join those blockades as a sign that Tehran favors Yerevan. Visiting Iran in January, Azerbaijani President Ilham Aliyev publicly urged the Iranians to show solidarity with fellow Shi’a Muslims and exert "economic pressure" on Armenia. [For additional information see the Eurasia Insight archive].

The Iranian government does not seem inclined to heed Aliyev’s appeal, however. Analysts in Yerevan have long suggested that Tehran’s main motive for maintaining close links with its sole Christian neighbor is to limit the spread of Turkish influence in the region.

"The relationship between the Armenian and Iranian peoples can serve as the best example for all those who want to live side by side and respect each other’s sovereignty," Iranian President Mohammad Khatami declared during an official visit to Yerevan last September.

Keeping Armenian-Iranian relations on track may prove difficult for Kocharian’s government in the light of the recent upsurge in US-Iranian tension. [For background see the Eurasia Insight archive]. "We very much hope that problems in American-Iranian relations will be settled by peaceful means," Armenia’s influential Defense Minister Serge Sarkisian said after a recent visit to Tehran where he met with virtually every Iranian leader. Sarkisian was at pains to stress that the talks focused on economic issues and that "we have no military cooperation with Iran."

Tevan Poghosian, director of the International Center for Human Development, a Yerevan-based think-tank, believes that the Armenian leadership does have cause for concern. "We will have serious problems if the Americans fail to find diplomatic solutions [to the nuclear dispute]," he says. "If they don’t, the Armenian-Iranian projects will simply be frozen indefinitely."

Other observers believe the importance of trade ties with Iran should not be overestimated in Armenia. "They are certainly not a miracle cure to resolve the Azerbaijani and Turkish blockades," a senior member of the Western donor community in Yerevan told EurasiaNet. "The Iranian economy itself isn’t exactly healthy."

Indeed, Iran was a leading trading partner of Armenia in the 1990s, but Tehran’s share of Yerevan’s overall foreign trade activity has declined dramatically in recent years, standing at a modest 5 percent in 2004. The volume of bilateral trade totaled almost $100 million. That figure is roughly the same as the trade volume between Armenia and Turkey, according to unofficial estimates. Virtually all Armenian-Turkish trade is conducted via third countries, especially Georgia, as Yerevan and Ankara have not normalized diplomatic relations, and Turkey keeps its frontier with Armenia closed. [For background see the Eurasia Insight archive].

Growth in Armenian-Iranian trade is hampered by the poor quality of Iranian consumer goods, as well as prohibitive import tariffs that hinder Armenian manufacturers from entering Iran’s huge market. Still, according to Poghosian, Yerevan is keenly interested in the success of the pipeline project with Iran, hoping that it will reduce Armenia’s energy and power dependence on Russia. Moscow currently controls about 80 percent of Armenia’s power-generating facilities and is its sole supplier of natural gas. "Armenia is looking for an alternative way of meeting its energy needs," Poghosian said. "I don’t think the Russians are happy with this policy."

Editor�s Note: Emil Danielyan is a Yerevan-based journalist and political analyst.

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