Armenian president Serzh Sargsyan led a high level delegation to the Iranian capital Tehran on 27-28 March for bilateral talks aimed to deepen already solid commercial ties between the two neighbouring countries.
IHS Global Insight Perspective
Significance – The Armenian and Iranian leaders have pledged to boost commercial and energy co-operation between the two neighbouring countries after concluding a fresh round of talks in the Iranian capital Tehran, overcoming religious and political differences.
Implications – The Armenian and Iranian leadership gave their political commitment to furthering energy and mining co-operation and expanding railroad infrastructure, mutually beneficial for both countries.
Outlook – Due to political pressures and cultural differences Armenia and Iran make unlikely yet reliable commercial partners. The political problems experienced by both countries are set to shape bilateral commercial ties—Armenia remains under Turkish and Azerbaijani blockades and needs economic outlets, as does Iran, which is pressed by international sanctions over its controversial nuclear programme.
Boosting Co-Operation in Face of Sanctions
Armenian president Serzh Sargsyan held high-level talks with his Iranian counterpart Mahmoud Ahmadinejad in the Iranian capital Tehran on 27-28 March. The Armenian delegation included a group of high-ranking officials as well as businessmen visiting Iran to take the opportunity for finalising a swathe of bilateral projects. After the successful round of talks, Iranian media outlets had reported that Ahmadinejad told Sargsyan that he "has placed no limits on the development of cooperation with Yerevan", calling for the expansion of political and economic ties. However, the political aspect of talks was limited to both parties throwing their support behind wider commercial co-operation. Talks were dominated by energy co-operation projects, which make up 80% of the total bilateral trade. Armenia and Iran are building a new hydroelectrical power plant on the Arax River that runs between the two countries. Armenian minister of energy and natural resources Armen Movsisyan, also visiting Iran, stated that aside from USD450 million that is already invested in bilateral energy projects, the two countries are considering new programmes that will turn Armenia and Iran into energy operators in the region. To meet this goal they have agreed to construct another high-power electricity transmission line in addition to two others that already link up Armenia and Iran with total power transfer capacity of 220 kw per hour. Currently Iran swaps its natural gas exports to Armenia with electricity power supply imports through two existing transmission lines.
On the sidelines of official meetings, Iranian deputy minister of industries and mines Ahmad Khadem ul-Melleh and Armenian envoy to Tehran Grigor Arakelyan also explored ways to expand co-operation in the mining industry to boost the volume of bilateral trade that currently stands at USD270 million annually. The Iranian government has long been interested investing in Armenia’s mines and given that the South Caucasian country lacks the investment means to develop these mines, Iranian capital is certainly welcome. The parties have also agreed to build new railroad infrastructure which will make up part of the North-South transport corridor in the region.
Unlikely Partnership
Armenia and Iran have maintained close political and economic ties since the former gained its independence in 1991 after the collapse of the Soviet Union. In some ways this partnership has been puzzling for many observers given that Armenians pride themselves on being the first Christian state in the world (adopting the religion as a state faith in 301AD). Furthermore, since 1988 Armenia has been in war with neighbouring Muslim Azerbaijan—a predominantly Shi’a country, much like Iran, which was expected to have closer ties with its religious kin. Against this background, close relations with the Islamic Republic may indeed seem strange. However the two countries share millennia of history which predates both Christianity and Islam. Furthermore the Armenian presence in Iran has been significant and repeatedly boosted by an often forcible influx of Armenians, moved to Iran by its rulers in the past centuries who believed that the country’s economy would benefit from skilled Armenians. In return, Iranian rulers have accepted the limited freedoms extended to the Armenian Christian community. This tradition of religious tolerance seems to continue nowadays and has certainly benefited Armenia, where 30% of businesses are joint ventures with Iranian partners. It must be said though that a good part of these businesses have been set up by members of the Iranian-Armenian community, which in turn has facilitated good relations between the two countries.
With the mounting international pressure on Iran over its dubious nuclear ambitions and introduction of economic sanctions on the country, Armenia’s economy has also suffered. Thus, the Armenian government had to cave in to European Union (EU) demands and restrict its export of dual purpose hi-tech products that cannot be found in Iran. This restriction even includes personal computers, according to Armenian sources. This limit was a blow to Armenia’s IT sector but on the positive side, other sectors involved in economic co-operation remain intact. At the same time, Western countries have also eased their pressure on Armenia when it comes to its economic ties with Iran. Firstly, there is a broader understanding on areas such as non-transfer of arms and new technologies to Iran that the Armenian government has agreed to. Secondly, Western mediators have failed to force Azerbaijan and Turkey to lift the economic blockade that has been in place for the past 17 years. Azerbaijan and its ethnic kin Turkey imposed the blockade to cripple Armenia economically and force it to withdraw support for Armenian-populated Nagorno-Karabakh, which seceded from Azerbaijan in 1988. Unsurprisingly, following the talks in Tehran, the deputy speaker of the Azerbaijani parliament Bahar Muradov has described Iran’s co-operation with Armenia as "harmful for Azerbaijan’s national interests" since it will benefit the Armenian economy—diminishing the effects of the Turkish and Azeri blockade. The Azeri call is not likely to be heeded by Tehran, which has its own fears when it comes to the sizeable Azeri community in Northern Iran. Many Iranian Azeris continue to advocate the unification of Northern Iran (or Southern Azerbaijan) with Azerbaijan proper. Landlocked Armenia can co-operate only with Georgia and Iran, hence the EU and US realise that it would be unrealistic to expect the Armenian government to close the door to the vital Iranian route for its economy.
Outlook and Implications
Despite the wider geopolitics, Armenian-Iranian commercial ties are set to expand. The Armenian government realises that Iran offers not only a wide market, but also is crucial for diversifying Armenia’s energy supplies. The country receives most of gas supply from Russia via Georgia which has proven to be an unreliable supply route in the past. Iran and Armenia have already built a gas pipeline and are currently launching the construction of an oil pipeline that will take Iranian oil products to Armenia. For Iran, which is being marginalised by the international community, Armenia presents an attractive export route. The scope of the bilateral co-operation will also depend on Iran’s relations with the international community. Should Iran manage to improve its international standing and stop the sanctions, Iranian exports will not be limited to the Armenian market but can be taken further, a prospect which could turn Armenia into an important transit country. However, the chances of this happening in the near term are unlikely. Tourism is already booming and is set to expand further. In March alone 20,000 Iranians visited Armenia to celebrate Iranian new year, Now Ruz. While Armenia benefited from the influx of Iranian tourists it also gave a chance for especially young Iranians to celebrate the holiday in a much freer society—something that many of them would like to recreate in the future.
IHS Global Insight Limited
United Kingdom