BACKGROUND: The deal reached on Iran’s nuclear program, with its potential consequences for the oil and natural gas markets, cannot be underestimated. One of the immediate outcomes of the deal was a decline of the oil price, followed by renewed depreciation of the Russian ruble, which had been relatively stable since March. Iran’s plans to expand its hydrocarbon exports after the sanctions are lifted may subject Russia to additional disturbances, especially considering that Russia’s gas giant Gazprom has already been losing some of its share of the European gas market.

Unsurprisingly, Iranian officials immediately proposed some projects involving Armenia. Iran’s Ambassador to Armenia, Mohammad Reyisi, suggested that a transit route traversing Armenia would be the best option for a transport corridor between the Persian Gulf and the Black Sea. Reyisi’s remark supplemented previous offers from the Iranian side to expand bilateral cooperation in the energy sphere, including the construction of a new gas pipeline, and the preliminary agreement reached a few months ago to start construction of a railway connecting Iran with Armenia.

Just before the announcement about the outcome of the negotiations on the Iranian deal, Russian troops in occupied South Ossetia (a breakaway region of Georgia) once again moved forward the fence on the de facto border as part of a unilateral border demarcation. The move was not totally unexpected, taking into account similar gradual advancements into Georgian territory in recent years. This time, however, Russia’s action resulted in its effective control of a 1,605 meter segment of the Baku-Supsa pipeline, which transports oil from Azerbaijan to one of Georgia’s Black Sea ports. Some Georgian politicians have noted that Russia may soon also target the E60 highway that connects Tbilisi with Georgia’s western regions and the Black Sea shore, and is also an important transit route for Armenia, Azerbaijan, and Turkey. After the latest Russian advancement, the remaining distance between the territory under Russian control and the highway is only about 450 meters. Georgia’s Minister of Defense Tinatin Khidasheli has warned that Russia is provoking a military clash and may aim at a rapid attack and occupation of Georgia.

As part of its response to the Russian actions, Georgia limited the working hours of the Daryali-Verkhny Lars border checkpoint on the border with Russia. Previously, that checkpoint was fully closed in 2006-2010, following a sharp deterioration of Georgia’s relations with Russia and the war in 2008. Daryali-Verkhny Lars is on the main route between Armenia and Russia, and is of principal importance to Armenia.

IMPLICATIONS: Iran’s preference for developing cooperation with Armenia is understandable, considering the friendly relations between two countries since the 1990s. The largest share of Armenia’s cargo traffic, nearly 70 percent, passes via Georgian territory, but Iranian transit has also played an important role for landlocked Armenia whose borders with Azerbaijan and Turkey have been closed. Iran was Armenia’s fifth largest trade partner in 2014.

Iran has been proposing increased energy cooperation with Armenia for about a decade. However, the Armenian leadership’s loyalty to Russia has prevented expanded cooperation with Iran. In 2005, the Armenian government rejected a proposal to consider transit of natural gas from Iran to Europe via Georgia and Ukraine and then Prime Minister Andranik Margaryan openly declared that the government could not neglect Russia’s interests. The diameter of the Iran-Armenia pipeline was reduced from the initially planned 56 inches to 28 inches, decreasing its capacity and making it of little use for transit.(See January 25, 2006 CACI Analyst) Then, as the construction was completed in 2007, Armenia sold its share to Russia, causing further disappointment in Iran. Currently, only about 35 percent of the capacity is used for supplying limited quantities of gas from Iran in exchange for electricity. In 2013, the Armenian government again rejected an Iranian offer to supply cheaper gas than Russia, and signed another agreement that guaranteed Gazprom’s monopoly position on the Armenian market for 30 years. Another offer from Iran came in January 2015, when Iran’s Minister of Foreign Affairs Mohammad Javad Zarif stated that Iran would be ready to invest in the construction of a new gas pipeline with a larger diameter. However, the Armenian government has failed to provide a clear reply. Following Ambassador Reyisi’s recent statement, Armenian pro-government media again played down the significance of the Iranian proposal, and sought to promote the idea that Armenia might become a “bridge” between Iran and the Eurasian Economic Union (EEU) – a rather incongruous idea, keeping in mind that Iran has a direct connection with Russia and Kazakhstan via the Caspian Sea and may also use other transit opportunities, while Armenia has no common border with any of EEU members and the possibility of a railway connection with Russia is practically excluded. Georgia’s position is firm: railway traffic via breakaway Abkhazia may not be resumed as long as the region remains under Russian occupation.

One of the expected consequences of the unfeasible railway connection via Abkhazia is Russia’s withdrawal from the Iran-Armenia railway project. A few months ago, Armenian and Iranian government officials announced a preliminary plan to proceed with construction. It was expected that a Chinese loan might finance close to 60 percent of the construction costs, which are calculated to over US$ 3.2 billion. The Russian side has neither clarified whether any Russian investment will be available to complete the construction works, nor explicitly excluded the possibility of a Russian investment. However, in the current situation, Russia will hardly be willing to invest in a project that may allow Armenia to play a more important role in the operation of international transportation networks: Moscow is not interested in the planned Iran-Armenia railway unless a possibility emerges for connecting it to Russia. Instead, as the main geopolitical beneficiary of Armenia’s isolation, Moscow will seek to impede the realization of any project that can make Armenia a transit country, thereby reducing its dependence on Russia.

CONCLUSIONS: As noted before on several occasions, the conflict-torn South Caucasus is highly vulnerable to Russia’s manipulations and attempts to fulfill its expansionist ambitions. Particularly, Georgia’s strategically important geographic location and military weakness has made it an easy target for further Russian expansion.

Concerning Armenia’s perspectives, its servile political class will most likely again miss the opportunity to reduce the country’s dependence on Russia and improve its socio-economic conditions. It is hardly a secret that the Russo-Armenian agreements in recent years denoting a “strategic partnership” – including the extended deployment term of the Russian military base, Gazprom’s monopoly for 30 years on Armenia’s gas distribution network and Armenia’s EEU membership – are in fact not agreements but diktats. However, not only the Armenian government but also the opposition (with a few exceptions) consider those agreements valid sources of obligations and do not offer the voters an alternative approach suggesting an eventual way out of these unfair obligations. Besides, as the recent protest campaign in Yerevan against a planned increase of electricity fees showed, even a strong mass movement could easily be manipulated and put on the defensive by the government and Russian TV propaganda by means of insinuations about the alleged anti-Russian nature of the protest. Thus, it should be no surprise if the Armenian government will also decline the current and potentially lucrative Iranian offer without even a meaningful domestic discussion.

AUTHOR’S BIO: Armen Grigoryan is an Armenian political scientist. His research interests include post-communist transition, EU relations with Eastern Partnership countries, transatlantic relations, energy security, and conflict transformation.

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