World Markets Research Center
Global Insight
Nov 12 2009

Pipeline Explosion Disrupts Armenian Gas Supplies, Raises Rationing Concerns

BYLINE: Lilit Gevorgyan

Yesterday, representatives of Armenian gas company Armrusgasard
announced that an explosion has damaged a segment of the Iran-Armenia
gas pipeline that provides Armenia with Iranian gas. This has led to
Iran suspending gas supplies to Armenia. Iran promised to resume the
gas supply once the damage, in the Armenian section of the pipeline,
was repaired. The pipeline was only built recently, following a 2004
agreement between the two countries, and Armenia received the first
supply of gas in May this year. In exchange for the gas Iran receives
electricity generated by Armenia’s Metsamor Soviet-era nuclear power
station. Neither Armenia nor Iran have commented on the causes of the
explosion.

Significance:The Armenia-Iran gas pipeline provides an energy lifeline
for the small, landlocked and resource-poor Armenia. Armenia has long
suffered from inconsistent supplies of gas from Russia via Georgia,
prompting it to seek more stable supply resources through the
construction of the pipeline with Iran. The country’s businesses and
population are heavily dependent on gas rather than electricity as it
is cheaper. Therefore, they are bound to be affected by yesterday’s
pipeline explosion. This has led to fears that rationing could be
introduced in order to deal with a possible shortage causing
significant disruption to businesses already struggling to deal with
the global economic slowdown which has caused a double-digit
contraction of Armenia’s GDP.