Iran – Armenia economic relationship

The economic relations between Armenia and Iran began immediately after the establishment of the Armenian Republic. The beginning of these economic relations, immediately after the declaration of the Armenian republic, played an important role for Armenia. From one side, the problematic situation with Azerbaijan and Turkey and the bad economic situation in Armenia, from the other side the collapse of the socialist economic regime were increased by the economic cooperation of Armenia with Iran.  As pointed out above, in the first half of 1992 the Armenian Foreign Affairs Minister, then the Armenian president’s visit to Iran and the signed documents, created the base for the economic cooperation between the two states.

The agreed economic relations with Iran solved some economic problems for Armenia. It is not accidental that, Armenian circles are calling the relations between Iran and Armenia as “way to life”.

Especially, Iran’s creating a suitable ground for the expansion of the two-sided economical attitudes gave impetus to the commodity circulation. A result of this brought Iran, in 1992, to be the second economical partnership after Russia.

In the past years many documents were signed about the different fields of improvement in the economy. These documents included: the cooperation in economic and trade areas, in the banking area, cooperation on drawing plans for the bridge on the Araz river, custom services cooperation, post and telecommunications, to carry over the air and land, education, exchange of food-stuffs etc.

To be profitable in these fields there were established many committees and commissions between the two countries. For example, the financing of the gas pipelines committee, transport cooperation committee, committee of industry, bank committee, energy committee and so on.

According to agreed agreements, there is also much cooperation in areas other than the economy. Now, in the Armenian market we can see goods which are produced in Iran such as, raw materials, glass materials and so on.

 There are also agreements between the two countries over agriculture. There are good agricultural relations between the Iranian north regions and especially with the Mazandaran region. Now, Armenia is importing harvests products of cattle-breeding and garden products from Mazandaran. The officials of Mazandaran province wanted to draw, in Armenia, a diary products factory which was to cost 15 million American dollars. But Iran agreed to buy approximately 8 thousand tons of meat products.

The signed agreements between the two countries which was related to a stimulation of investments between the two countries, the canceling the taxes, customer and trade cooperation was brought to the good co relations. The speech of the Foreign Affairs Minister of Iran in December 2008 showed that, the Iran side supports every plan about improving the broadening of the collaboration and the industrial projects.

There are two reasons for Iran to cooperate with Armenia: a) the cooperation in transportation, and b) fuel-energy cooperation. These areas were like a rule and in every meeting they were discussing these issues.

a)      Transportation

In the Soviet period there were no relations between Iran and Armenia. But these connections/ relations would be able to be implemented from Nakhchivan. The closed situation of borders between Azerbaijan and Armenia during these relations was impossible. With the active participation of Iran a temporary bridge was created over the Araz River, in 1992, to the Armenian Mehri province. 

This bridge was to help the transfers for a wider situation. That is why, in 1994, they started to draw plans for the permanent bridge over the Araz River and in 1996 the bridge in use. With the opening of this bridge the Armenian routes were unified with Iran’s routes and Armenia had the chance to open routes to the Persian Bay and to the neighbor states of Iran. It is necessary to mention that, now freight carried between Armenia and Iran is mostly done over land and that is why automobile transportation is such a huge influence between these countries.

The Iranian side also helps with building of Armenian roads, repair of the roads, and building the tunnels for Armenia. However, it is understandable that, the trade done over land is more expensive and the transit chances are very limited. That is why; Iran and Armenia have discussed how to draw the railway line: a) Transports will increase and the price will be low, b) both sides will have the right to transit.  Because, if Armenia seriously carries out this issue, Iran wants to transfer its goods by this new railway to Georgia and the Black Sea and with this Armenia will get extra income.

From 2006 the idea about the Iran-Armenia railway arose and in 2007 the two states signed a memorandum about this issue. According to that memorandum, the parties should research about the benefits of this railway.

In the Armenian elections of 2008, the newly elected President S. Sarkisyan, in his speech to the Armenian nation argued that the Iran-Armenian railway will be the most important issue and it will take the first place. After the situation between Georgia and Russia, in 2008, the borders between Russia and Georgia were closed. As a result of this, Armenia, as a trade alliance, closed the relationships about the railway. This situation increased attention to the Iran-Armenian railway.

 After having the idea about the railway, they started to research it. They came to a conclusion; the project could be done possibly by three transportations. Respectively, the length of these routes is 397 km, 443 km, and 449 km. On the Iranian side approximately 80 km of railways should be created.

Armenian experts gave detailed attention to the first route. We have to mention that, all this transport would pass through mountainous conditions and for every route the big tunnels would have to be built. Now, the experts are thinking about the distance of 500 km and how to pass these mountainous ways, and this may make conditions hard.

From June 2008 the Armenian railway was given to the Russian South Caucuses company. At this time, there may be a question like, if the Armenian railways were given to the Russian company who will draw plans for the Iran Armenian railways? However, the Russian officials declared that they are interested in drawing the Iranian-Armenian railways and it was discussed in 2008 between Russia and Armenian presidents meeting in Sochi. A group of workers was established to work on this project, by the Russian, Armenian and Iranian ministry of transportation.

The issues in Georgia in 2008, increased the Turkish impetus in the South Caucuses’ and it increased the negotiations and impetus of the Iran-Armenian railways project, the Iran-Armenian railway line may be seen as an alternative line to the Baku-Tibilisi-Ceyhan line and it also may increase the Iran-Armenian position in the region. 

In April 2009, at the time of the visit of the Armenian President to Iran, by the ministers of transportation of these countries, a new memorandum was signed about the Iranian-Armenian railway project.

 In other words, both state leaders again showed that they are supporting the Iranian-Armenian railway project.

With this, in spite of the huge negotiations, this project is not yet under construction. In June 2009, the established had not met.  A meeting was held at the end of the June. Of course, it has its own reasons. Firstly, this project is too expensive. They declared the price of this project, first time it was 1 milliard dollars, then 1-1.2 milliard dollars, then it increased to 1.2-1.5 milliard dollars, then to 2 milliard dollars, and then it came to 2-2.5 milliard dollars. But it is not even the last price. If there is further research about the definite price of the project it may increase even double. It is true that, the Asia bank and the international bank, have not taken a concrete decision about this project. There are different prognoses about the starting date of the project. The better prognosis takes a minimum of 5 years.

From the other side, the projects economic benefit is still in doubt. Because of the low economic circle between Iran and Armenia, the benefits of this project are not sure. This project may just be beneficial if there is a connection to the international railway which is passes through Armenia. But many experts think that an alternative to the Iranian-Armenian railway may be the Qezvin-Rast-Astara railway. Because, without paying more Iran may with this transport, to the South, get more benefits. But this may decrease the importance of the Iranian-Armenian railway

.

The Armenian government declared that they are in hope of starting to construct the Iranian-Armenian railway at the end of 2009. But, at the end of 2009, the transportation minister of Armenia, Qurgen Sarkisyan, declared that, they will start on the technical and economical groundwork of this railway. From his words, we can understand that after the technical and economical groundwork is ready then we can start to talk about the graphics of the railway.

 There was cooperation between Iran and Armenia also in air passenger transportation and the Iranian airlines are flying to Erivan some days each week.

b)     Fuel-energy

After the declaration of Armenia it met with serious energy problems. During the Soviet period Armenian energy needs were provided mostly by the Armenian Metamora atom station. But, after 1989, the station’s activities were stopped, and Armenia again was faced with energy problems. To resolve this problem Armenia again addressed for help from Iran. After the cease-fire in Nagorno-Karabakh and around, there started to be drawn the first electric line and it was used in 1995. This line started to transfer electric energy from Iran to Armenia. At the end of 1995 the Metamora atom electric station was used again. This helped Armenia with its energy problems. However, year’s later Armenia cooperated in the energy area Iran. With the help of Iran, there was drawn a second line. The Armenian ministers of energy signed a new memorandum about drawing the third energy line. So, according to this agreement, this line had the capacity of 400 kilowatts of electric energy and it needed 90 million dollar to draw this line. And also, according to this agreement the building of this fifth Razdan heat electric energy station, Iran should finance the line.

But I should note that, from the beginning of 2006 the Razdan heat electric station’s fifth block was given to Russia. Drawing the third energy line between the two countries has still not started. According to the Iranian ambassador to Armenia, the Iranian side is ready to draw this energy line. But the Armenian side still did not make serious steps. The agreement which was made in 2005 between Armenia and Iran, said Iran should draw four wind electric station blocks. Those wind stations were drawn by the Iranian side in the summer of 2006 these started to be used.

In 2006 Iran and Armenia agreed to draw a water electric station over the Araz River. They agreed to draw a line of 42 km of combined boundaries. This station should produce 800 kw/h of electric energy in one year and it would be the biggest electric energy station in the South Caucuses.

On March 2009 they agreed to build the energy station over the Araz river which Iran would finance for 280 million dollar for Armenia and then after the completion of the station Armenia would return this debt with the electric energy. 1.5-2 month later the Armenia Energy Minister declared that we can start to draw the water electric station. In April 2009 the Armenian President S. Sarkisyan, on a visit to Iran, the leaders discussed the water energy station issue and with the participation of two leaders they signed regarding financing the energy station over the Araz river. However, construction of the station had not started in 2009. According to Armenian officials, the construction was late because of the arising internal issues in Iran. According to these officials, the construction may start in 2010.

Armenia also shows greet interest with Iran regarding oil products. Nowadays, there is an agreement between Iran and Armenia on two big projects. The first one is the construction of a pipeline from the oil refinery plant in Tabriz to Yarasx city in Armenia. The second one is the building of the oil factory on the boundaries of Iran with Armenia and this factory will work with Iranian oil.

The idea about building a petrol pipeline from Tabriz to Yerasx was discussed in 2005. In the first agreement the Iranian side must build the fuel oil terminal together with the belt pipe and also should gather oil products in that terminal.

After the situation in Georgia in 2008, the discussion about the surroundings of the drawing of the oil products pipe became more real. Because, the cutting of a direct connection, Armenia with Russia, forced Armenia to change its attention to Iran. Iran said that they were ready to collaborate with Armenia in the solution of this problem too. Although, the Iranian produced petrol is not enough for its internal needs, and they are importing petrol from outside. The length of pipe line from Tabriz to Yerasxa is 300 km, but the diameter should be 250 mm. It is supposed that it will be finished in 2 years time and 200-240 million dollars will be spent for construction of this line.

The Armenian officials stated that construction of this pipeline would begin in the spring of 2009. But construction had not even started at the end of 2009 and no reason was given for the delay. At the end of 2009 the Armenian minister of energy, A Marsosyan, declared that they are planning to build this pipeline in 2010. He said that, we need 250 million dollar for construction of this pipeline and 10% of this will be financed by “Gazprom”. According to the Armenian minister, other needs for the construction will be financed by Iran.

The idea about the oil plan refinery on the boundary of Iran with Armenia, primary strength which is 7 million ton, was given by the Russian President during his visit to Armenia at the beginning of 2007. First figures showed that this oil plant would cost 3 milliard dollars and it was accepted cheerfully by the Armenian administration and community which were in bad situation. From the Russian side, for construction of this oil plant Gazprom-oil should take part and the constructed plant will be worked in accordance with Iranian oil.

There was an established commission which consisted of Russia, Iran and Armenian specialists to discuss this issue; the possibility of the project was researched. Some time later, it became clear that, the plant construction was not possible. That is why they were searching new territory for this oil plant.

However, in October 2008 at the Russian-Armenian commission on economical cooperation meeting, the Russian head of this commission, I. Levitin, announced that in general it is not profitable, on the economical side, to build this oil plant. This news was met with surprise by the Armenians. Because, their hopes were very high. The Russian co-chairmen explained his thoughts by saying that, there are no selling bases for products which are produced in this plant.

This news was also approved by the Prime Minister of Armenia, T. Sarkisyan, it the end of 2008. So, from his words we can come to the conclusion that, if the oil pipeline between Armenia and Iran is constructed, so, there is no need for an oil plant.

 In previous years Iran – Armenian fuel-energy relations depended on the gas pipeline which was started. Cooperation in the gas area had been discussed in 1992. In the same year they signed international an agreement, by both countries presidents. There was an issue about giving Iranian gas to Armenia. Armenia, which was in a war situation with Azerbaijan, could not take any actions over this issue. But in 1995, between Erevan and Tehran a new agreement about gas was signed. In that agreement both sides accepted that they were ready to cooperate over gas issues and the first primary route of the gas line was defined. But this protocol also could not find its execution and for this reason it is impossible to exclude Russian influence too. Because, Russia which controls the Armenian fuel-energy market and also production, could not completely control in the area of Armenian cooperation with Iran. 

Generally, serious steps for the drawing of gas pipelines from Iran to Armenia started in 2004. During the visit of Iranian President M. Xatami, in that year, to Armenia, many issues were discussed and especially the selling of Iranian gases to Armenia and also for the drawing of a gas pipeline from Iran to Armenia. At that visit, the sides signed 7 different documents, two of them related to gas cooperation. One of the signed documents was about the Iranian-Armenian gas pipeline, the parts drawing of the Armenian side’s pipeline, and the other was the financing of the Iran-Armenian gas pipelines. With the agreement of both sides they took a decision, that construction of the gas pipeline credits would be given by Iranian banks and 15% of gas pipeline which ought to be 140 km. It was coordinated that, in the first periods each day there ought to be 3 cubic meters of gas and in a year, approximately, 1.1 milliard cubic meters of gas would be given to Armenia.

But, after some years, the Iranian gases annual dig should be increased to 2.3 milliard cubic meters. For 1 cubic meter of gas Armenia ought to be paying with 3 kwt of electric energy. With mutual agreement the construction of the gas pipeline must end in 2006, Iranian gas must be given to Armenia at the end of that year or at the beginning of 2007. But the same processes which happened surrounding this gas pipeline was the reason which lengthened the construction of the gas pipeline and the period of the Iranian gas which should be given to Armenia. Firstly, the issue about supervision of Armenian sides gas pipeline cropped up. The Armenian side, of course, wanted to control all its sides pipeline. But it was clear that, the Armenian fuel-energy area wanted to be taken under the control of Russia in future and also Russia wanted to control the Iran–Armenian gas pipeline. It shows that, the Armenian administration was not happy with this kind of offer and wanted to keep the pipelines on the Armenian side under the control of “Yuksekvoltlu fluel-line” national company. The Armenian power energy minister, A. Maseyan, specially informed that the Armenian side of gas pipeline will not sell to “Gazprom”.

After the visit of Armenian President P. Kochoryan to Moscow, at the beginning of November 2006, it was announced that, the Armenian minister of energy reneged in his speech and control of the gas pipeline’s on the Armenian side was given to “Gazprom”. In reality, the Armenian side of the pipeline was given under control of this “ArmPosgazprom”, but the control of this company was under <Gazprom>.

It was not enough for Russia just to control the pipelines on the Armenian side. At the same time, these demanded to reduce the diameter of the gas pipeline from Armenia. In conclusion the pipelines diameter became 76 cm. With this, Russia did not allow Armenia to become as a gas transit country. Because, it was impossible even for Armenia to supply its gas demands with this kind of pipeline.

However, the other gas pipelines also were not started in 2006. The Armenian Prime Minister visited Tehran in December of 2006 and after this visit it was announced that, the gas pipeline would be given in use in March 2007.

So, in March 2007 during the Iranian President M.Ahmedinejad’s visit to Armenia, the gas pipeline was put into use. But, gas was not sent to the pipeline. The Armenian officials declared that, Armenia does not need Iranian gas now, when there is a need, then the gas will be supplied in the pipeline from Iran.

This did not happen even in 2008, in spite of mutual declarations about giving gas to the pipeline. Although, Armenia needed this gas. Iranian gas was given to Armenia on 14 of May 2009. It is supposed that, during the visit of Armenian President S. Sorkisyan in April 2009 to Iran, reasons were discussed for cutting Iran-Armenian gas pipelines and the Armenian side accepted to resume the Iranian gas.

 But, information at the end of 2009 shows that, there is still dissatisfaction between the two countries in the gas area. So, the Iranian national gas expert company’s leader R. Salnani pointed out that, Armenia started to import Iranian gas later than it should, and at the same time it is not importing the agreed amount, which is 3 million cubic meters of gas. Armenia is buying just 1-1.2 million cubic meters gas per day.  He is saying that, for broking an agreement Armenia should pay compensation to Iran. 

According to Armenian energy minister, the gas which it is demanding from Iran is paid by electric energy.Armenian Energy Ministry was adding that after the drawing of the third electric pipeline, they will be getting the amount of gas which was pointed at in protocols and it will be paid for. But, the construction of the third electric energy line has not started yet. As mentioned above, according to S. Saqian, the Iranian ambassador to Armenia, his country is ready for the drawing of the third electric pipeline. But, the Armenian side did not made any serious steps in this direction.

It is necessary to say that the generalizing of relations between Armenia and Iran, in spite of there are positive opportunities, trade between the two countries is not that high. For example, in 1994 trade between Armenia and Iran was 40.3 million dollars, in 1995 it was 61.7 million dollars, in 1996 it was 85 million dollars, in 1997 it was 82.5 million dollars, in 2000 180 million dollars, in 2005 105 million dollars, in 2007 it was 200 million dollars and in 2008 it became 227 million dollars.

According to experts and politicians they think that the weak trade between the two countries is surprising, because there are acceptable conditions. However, Armenian specialists also accept that trade circle between the two countries is low.

For debate, we have to mention that, in spite of closed borders between Turkey and Armenia there is around 280 million dollar trade between these countries. In general, the main trade supporters of Armenia is still Europe and Russia. But it is accepted that, after the opening of the borders between Turkey-Iran and Armenia the trade circle between these countries will be increased many times.