Iran has moved closer to gaining a strategic foothold in Caucasian energy markets with the start of work on a gas pipeline to Armenia that has been heralded by Yerevan as bringing "definite changes in the region." The project has the potential to undercut Russia's control of Armenia's energy supply, yet two new gas projects could act as potential deal sweeteners for this longtime Armenian ally. Plans were recently announced for an increase in Armenian orders for Russian gas and a possible role in the Iranian pipeline project for Russian energy giant Gazprom.
Construction on Armenia's section of the 142-kilometer gas pipeline began on November 30, with $30 million in costs for the 42-kilometer strip from the Armenian border town of Agarak to Kajaran, south of Yerevan, picked up by the Iranian Export and Development Bank. Upon completion in late 2006, the pipeline will supply the tiny South Caucasus state with 36 billion cubic meters of Iranian gas over the next 20 years. Gas from Turkmenistan is also scheduled to be delivered to Armenia via the pipeline.
At an official ceremony to mark the project's debut, Armenian Deputy Prime Minister Andranik Margarian stated that the pipeline, in the works since 1992, would bring economic benefits to Armenia as well as foster regional stability. "This project has been implemented throughout Armenia's political and economic sufferings," Armenian media reported Margarian as saying. "In Armenia's years of hardship, Iran has stretched out its hand to help us."
Expanding Armenia's energy sources is a critical goal for the administration of President Robert Kocharian for both economic and political reasons. Chronic energy shortages contributed to much of the country's economic decline after the collapse of the Soviet Union, and Armenia's economic woes continue to attract the criticism of the country's opposition. Speaking to reporters about Armenia's energy deal with Iran, Kocharian commented during a December 2 visit by Iranian Energy Minister Habibollah Bitaraf that "[w]e are ready to do everything possible to support the current level of cooperation," according to the Russian news agency Interfax.
In exchange for the gas, Armenia will eventually deliver up to 1,000 megawatts of electricity to Iran with the construction of two high-voltage power lines between the countries. Additional electricity projects are also in the works. In 2005 or 2006 Armenia hopes to start construction on two hydropower plants on the banks of the Arax River between Armenia and Iran, according to Margarian.
Oil could reinforce Tehran's ties with Yerevan still further. At a December 4 meeting between Armenian Defense Minister Serzh Sarkisian and Iran's Armenian Ambassador Alirza Hagigian, plans were discussed for construction of a 60-kilometer oil pipeline from the Iranian town of Julfa to the Armenian border town of Meghri.
Geopolitics, though, rather than the attractions of the Armenian energy market, appears to drive much of Iran's push for partnership. With American troops stationed in neighboring Afghanistan and Iraq and Iran's nuclear energy program under intense international scrutiny, the country's ruling clerics have taken steps to assure the outside world that the Islamic Republic is a force for stability in the region. Iranian President Mohammad Khatami's September 2004 visit to Armenia, a close US ally, reinforced that campaign with a "good neighbor" message that "Iran is interested in peace and stability in the South Caucasus."
But in drawing closer to Iran, Yerevan has risked alienating another longtime ally Russia. Though Russian Deputy Prime Minister Boris Alyoshin assured reporters in Yerevan earlier this year that the pipeline deal with Iran would only provide additional business for Russian-operated electricity stations in Armenia, the deal has been scrutinized with some trepidation. The Russian company United Energy Systems controls 40 percent of Armenia's electricity generation facilities, while heavy hitters Gazprom and Itera control 55 percent of ArmRogazprom, currently Armenia's sole natural gas supplier.
When the Iranian pipeline is complete, however, Armenia will no longer need to depend solely on Russia for its natural gas needs. In Yerevan, Kremlin concerns about the prospect of Armenia providing a conduit for Iranian gas to Europe, a key Russian market, are widely believed to have resulted in a reduction of the pipeline's size to a width too narrow for exports.
Yet Russian energy companies have not been idle in defending their interests. The Russian news agency Interfax reported an unidentified Armenian government source as saying on December 8 that Gazprom may be invited to build and repair one part of the Armenian-Iranian gas pipeline, between Kadjaran and Ararat, at a cost of $90 million. As payment for its work, Gazprom would receive the No. 5 generating unit at the Razdan power plant, Armenia's largest heating and power plant, which supplies 20 percent of the country's electricity needs. Armenian President Robert Kocharian had earlier dismissed reports of such a deal.
Still other sweeteners are in the works. On December 11, ArmRogazprom CEO and General Director Karen Karapetyan announced plans to increase gas supplies to Armenia by roughly 31 percent during 2005 to some 1.6-1.7 billion cubic meters. A $27 million expansion of Armenia's gas pipeline from Russia is planned to handle the increased flow. "I am convinced that the problem of Armenia's energy security will be solved soon," the Russian news agency Novosti reported Karapetyan as saying, "given the forthcoming opening of the alternative Iran-Armenia gas pipeline."
For now, the government line out of Yerevan is that what benefits Iran benefits Russia. At a May 13-15 summit in Moscow with Russian President Vladimir Putin, Kocharian took pains to stress that the pipeline deal with Iran would not damage Russia's own energy interests in Armenia or result in a fall-off in Armenian orders for Russian gas. Gazprom, Itera and United Energy Systems will all collect "major dividends from the deal," Kocharian said, Novosti reported. "They will benefit, too."
Samvel Martirosyan is a Yerevan-based journalist and political analyst.