EurasiaNet Business & Economics - Iran Talks Peace, Energy to Buff Image

BUSINESS & ECONOMICS

IRAN TALKS PEACE, ENERGY TO BUFF IMAGE
Haroutiun Khachatrian 9/22/04

Tehran has embarked on a "good neighbor" campaign designed to highlight its role as a potential catalyst for peace and prosperity in the Caucasus and Central Asia. Plans for a $120 million gas pipeline to Armenia, a longtime friendly neighbor of Iran, have headlined this venture, but beneath the show of goodwill between Yerevan and Tehran, serious stumbling blocks remain.

"Iran is interested in peace and stability in the South Caucasus and is prepared to assist in settling all conflicts in this region," Interfax reported Iranian President Mohammad Khatami as saying during a two-day visit to Yerevan on September 9. "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."

Tehran has reason to talk cooperation. Khatami’s visit to Armenia, a subsequent trip to Tajikistan and travel last month to Azerbaijan come at a time of increased international scrutiny of Iran as a regional player with nuclear ambitions. As the wrangling between the Islamic Republic and the International Atomic Energy Agency continues, Washington has begun to raise the alarm that an Iran equipped with nuclear reactors could prove a force for instability throughout the Middle East and bordering regions.

By reaching out to nearby countries with offers of conflict negotiation, trade and investment, Khatami can present a different image of Iran. In this, Armenia proved a ready assistant.

Preserving ties with Iran, which, as Persia, once occupied the eastern half of Armenia, has long been critical for the landlocked Caucasian republic. In the years following Armenian independence in 1991, civil war in Georgia and the Azerbaijani-Turkish border embargo made Iran the country’s only avenue to the outside world. Though bilateral trade has declined in the past five years, the energy-rich country accounts for 8.9 percent of Armenia’s annual trade turnover, making it a significant trading partner.

Playing to that history, Khatami told an audience at Yerevan State University that "[e]ven religious and ideological differences . . . have been unable to destroy the civilizational unity of the Iranian world and the Armenian people." A joint statement signed by Khatami and Armenian President Robert Kocharian went on to express Iran’s support for the country’s September 15 talks on Nagorno-Karabakh with Azerbaijani President Ilham Aliyev as a way of "reaching a rapid and final solution of the problem, which takes into account the existing realities and will ensure an enduring and fair peace in the region."

But this was more than mere diplomatic-speak. In Yerevan, "existing realities" has been interpreted to mean Armenians’ current control over the disputed Nagorno-Karabakh enclave. As an additional sweetener, Khatami also endorsed Kocharian’s style of governance, telling Armenia’s parliament that discussions about democracy in "a non-Western region" should take into account local norms of behavior, Interfax reported.

Sheer economics is pushing Yerevan’s political class to listen. Khatami’s trip coincided with the finalization of a 20-year agreement for a 141-kilometer pipeline to transfer 36 billion cubic meters of natural gas from Iran to Armenia beginning in 2007. Work on the energy line is expected to start by late October, Armenia’s Iranian ambassador, Gegam Garibdzhanian, told Interfax.

Iran has provided a $30 million loan for the project, thereby removing one of the largest obstacles to the project � the construction cost for the 41 kilometers of the pipeline which will pass through Armenian territory. In exchange for the gas, Armenia will supply Iran with electricity from a new, Yerevan-based thermal power plant with an energy capacity of 23 megawatts. Under a memorandum of cooperation signed by Iran and Armenia’s energy ministries, the Islamic Republic will also receive up to 140 megawatts in electricity from a hydropower station to be built next year on the Araks River between the two countries. The planned wattage will make up nearly one-third of the current capacity of Armenia’s only nuclear power station, the Russian-operated Metsamor.

At first glance, the Iranian energy deal appears an all-round winner for Armenia. Yerevan comes away with an alternative gas supplier to Russia, currently Armenia’s sole supplier, as well as a growing market for Armenian hydropower. At a joint news conference with Khatami, Armenian President Robert Kocharian told reporters that "more serious steps will be taken based on this experience . . . to unite the infrastructure of both states," Interfax reported.

Yet despite the deal’s attractions, many specialists argue that Armenia came up short. Contrary to the government’s ambitions, the pipeline’s size will not allow Armenia to export Iranian gas to Europe. The lack of a high-capacity export pipeline is widely believed to have been the result of pressure from Russia, which controls 90 percent of Armenia’s energy market and supplies the cash-rich markets of Western Europe with about half of their natural gas. According to former Minister of Statistics Eduard Agajanov, Russia may also jeopardize Armenia’s electricity supply to Iran with the construction of a new power line via Azerbaijan that will undercut Armenian prices.

Energy also served as Khatami’s calling card in related visits to Azerbaijan and Tajikistan.

Longstanding disputes over division of the Caspian Sea’s energy resources shadowed the Iranian leader’s August 5 talks with President Ilham Aliyev, but plans exist for an energy deal that will bind the two countries closer. Under an agreement signed at the summit, Iran will start transferring up to 350 million cubic meters of natural gas to Azerbaijan each year beginning in 2005, the Islamic Republic News Agency reported.

Another longstanding bugbear for Baku � Nagorno-Karabakh � was given a similarly positive treatment, with the statement that Iran supports Azerbaijan’s "territorial integrity" � a remark interpreted by Baku as a reference to Azerbaijan’s right to the breakaway enclave.

On a September 11-14 trip to Tajikistan, where ethnic and religious ties to Iran are strong, the energy and economics theme continued. Khatami pledged to cover half of the $500 million cost of a hydroelectric plant on the Vakhsh River and promised investment of more than $700 million into the poverty-stricken Central Asian country’s economy over the next five years. A road link to Iran via Herat in Afghanistan also featured prominently as an option for boosting trade.

Editor�s Note: Haroutiun Khachatrian is a Yerevan-based writer specializing in economic and political affairs.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

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