IRAN AND ARMENIA FINALISE MUCH-DELAYED GAS PIPELINE DEAL, EXPORTS TO START IN OCTOBER
by Samuel Ciszuk
World Markets Research Centre
Global Insight
August 29, 2008
A new deal has been reached between Armenia and Iran over the export of
Iranian gas through a long-finished pipeline in exchange for Armenian
exports of electricity,Upstreamreports (seeIran: 12 August 2008:). In a
2007 deal, the countries originally agreed to construct a gas pipeline
and entered into a supply agreement, but gas failed to flow after the
pipeline’s completion by mid-2007, with unspecified technical problems
on the Armenian side cited as the main cause of the standstill. The
newly reached deal specifies that Iranian gas exports will start by 1
October 2008 at a rate of about 1.1 bcm/y, eventually increasing to
2.3 bcm/y. Armenia will pay Iran in electricity from a power plant
close to the Iranian border at 3KWh per every cubic metre of gas.
Significance:While the recent conflict between Georgia and Russia
is handy to blame for Armenia’s sudden willingness to start using
the Iranian import option–Armenia currently imports all of its
gas from Russia through a pipeline passing Georgia–there seems
to be a confluence of interests making this moment particularly
opportune. Russia’s Gazprom took a leading stake (57.6%) in the
Russian-Armenian company that owns the pipeline, ArmRosGazprom,
indicating that the switch to Iranian supplies–if it actually gets
under way–will be in Russia’s best interests too. With Armenia no
longer dependent on the trans-Georgia pipeline, Russia will be free
to shut down its exports to Georgia, which also supplies the country,
giving it further political leverage over its neighbour. Meanwhile,
Armenia is given a golden opportunity to escape rising Russian
gas export prices in favour of Iranian gas, bought from Iran with
electricity at a time when Iran is in the midst of a deep electricity
shortage and seems to have agreed to a more favourable pricing scheme
than before (seeArmenia: 1 August 2008:). With Armenia a close ally
of Russia, its large protector might not see Iran’s role as Armenian
supplier as a particular threat anyway, preferring for the moment to
help shield its poor, but strategic ally from rising costs. However,
Iran’s chronic gas shortages do cast doubt over its chances of
guaranteeing steady supplies to Armenia, especially later this year,
when the winter kicks in.