EurasiaNet Organization
Sept 22 2004

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 Iranian ally, 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 1.5 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.