ARMENIA DEEPENS ECONOMIC TIES WITH IRAN
By Emil Danielyan

Eurasia Daily Monitor, DC
July 25 2007

Armenia and Iran have agreed to give new impetus to their
bilateral relations and press ahead with the implementation of more
multimillion-dollar energy projects. The agreements were announced
in Yerevan after the July 20 meeting of their intergovernmental
commission on economic cooperation, co-chaired by Iranian Foreign
Minister Manuchehr Motaki and Armenian Energy Minister Armen Movsisian.

Motaki also held separate talks with President Robert Kocharian
and other Armenian officials. Official press releases cited them as
praising the Armenian-Iranian relationship and stressing the need
to utilize its untapped commercial potential. Motaki was reported to
be satisfied with "thorough discussions" held during the commission
meeting. He and Movsisian divulged key details of those discussion
at a joint news conference.

Movsisian revealed that in "one or two months" the two sides would
start work on a third high-voltage transmission line linking the power
grids of Armenia and Iran. The facility will enable a substantial
increase in exports of Armenian electricity to the Islamic Republic,
which is expected after the completion of a pipeline that will pump
Iranian natural gas to Armenia. The pipeline’s first Armenian section
was inaugurated last March in the presence of Kocharian and Iranian
President Mahmoud Ahmadinejad.

Construction of its second, much longer stretch is due to be completed
by the end of next year. That will allow Armenia to annually import
up to 2.3 billion cubic meters of Iranian gas, or approximately twice
the level of its current gas imports from Russia.

It is expected that much of Iranian gas will be converted into the
electricity that will be supplied to Iran.

Another Armenian-Iranian energy project involves the construction of
two big hydroelectric plants on either side of the Arax River, marking
the border between the two countries. Movsisian announced that its
construction would likely start early next year. It is still not clear,
however, how the Armenian side will finance its share of the project,
estimated at $200 million. Some analysts believe that it will borrow
the required sum from the Iranian government. Tehran already lent
Yerevan $34 million to construct the first pipeline section.

Also on the agenda of the commission meeting was the Russian-backed
ambitious idea of building a big oil refinery near Meghri, a small
Armenian town close to the Iranian border. Kocharian reportedly
discussed it with Russian President Vladimir Putin last January.

Around that time an oil subsidiary of Russia’s Gazprom monopoly
confirmed reports that it is interested in the project and ready,
in principle, to provide most of the hundreds of millions of dollars
needed for its implementation. The project envisages that Iranian
crude will be delivered to Meghri through a 200-kilometer pipeline
before being turned into gasoline and other oil products that will be
shipped to Iran by rail. Despite its vast oil reserves, the Islamic
Republic lacks refining facilities and has to import gasoline to
meet domestic demand. Officials have said the refinery would have
the capacity to process about 3 million tons of oil each year.

The governments of Armenia, Iran, and Russia recently formed an ad
hoc working group tasked with looking into the matter. It is scheduled
to hold its first meeting before the end of this month.

According to Movsisian, high-level government officials from the
three countries plan to meet in September to discuss the group’s
recommendations.

It also emerged that Yerevan and Tehran plan to sign a free trade
agreement soon in order to boost the volume of their commercial
exchange, which remains quite modest in both absolute and relative
terms. One of the apparent reasons for that is Iran’s huge import
tariffs that effectively keep the Iranian market off limits to Armenian
manufacturers. A statement by the Armenian government quoted Motaki
as telling Prime Minister Serge Sarkisian that facilitating imports
from Armenia is now a "priority" for Tehran. Motaki sounded optimistic
about broader Armenian-Iranian trade, telling journalists that its
volume could more than double to $500 million this year.

These developments come just over a month after the United States
publicly expressed concern at Armenia’s growing relations with Iran
through its then charge d’affaires in Yerevan, Anthony Godfrey.

Speaking at a June 15 news conference, Godfrey warned that those
ties could run counter to U.S. sanctions imposed on Tehran over
its controversial nuclear program. He said that although Washington
appreciates the "transparent way in which the government of Armenia
conducts its energy relations with Iran," it expects Yerevan to be a
"more active partner" in US-led international efforts to prevent Iran
from developing nuclear weapons.

Armenia has until now managed to maintain close political and economic
ties with Iran, while being one of the world’s leading per-capita
recipients of U.S. economic aid. The U.S. warning could make it
more difficult for Yerevan to continue to pursue what it calls a
"complementary" foreign policy. Still, Armenian Foreign Minister
Vartan Oskanian insisted on June 19 that his country’s growing
cooperation with its large Muslim neighbor does not breach the U.S. and
international sanctions and will not damage U.S.-Armenian relations.

A warm rapport with Iran is a key element of Armenia’s national
security doctrine and a rare point of consensus among its main
political parties. They believe that the landlocked South Caucasus
state, blockaded by neighboring Azerbaijan and Turkey, has no choice
but to be a close partner of what is one of its few conduits to the
outside world.

(Azg, 21 July; Regnum, July 20; Statements by the press services of
Armenia’s president and government, July 20; Arminfo, June 19)