Armenia’s prospects after economic sanctions against Iran lifted

31.07.2015900
Chemical plant in Vanadzor, one of prospective examples of Armenian-Iranian cooperation

Chemical plant in Vanadzor, one of prospective examples of Armenian-Iranian cooperation

On 14 July, an historic agreement was signed between Iran and the P5+1 (the UN Security Council permanent members and Germany) in Vienna. Along with solving one of the main issues in international security of recent times, it clears the road for large-scale economic cooperation thus far hindered by sanctions. Even taking into account that the complete removal of every restriction is only expected after ten years, companies and governments all over the world are already planning new projects with Iran.

Iran’s return to the world market promises enviable possibilities for Armenia. Geopolitically, one can expect a change in the status and role of the country in the region. Economically, current and future projects are gaining new momentum.

Euphoria

According to the Yerevan newspaper Novoye Vremya, Serzh Sargsyan stated that a promising project for the near future could be the construction of a railroad connecting the two countries and that this would be part of the New Silk Road (from China to Europe). In addition, according to the Deputy Head of the Parliamentary Commission on Economy, Mikael Melkumyan, Armenia is counting on the completion of the construction of the Meghri HPP on the Arax River bordering the two countries and the third high-voltage electricity transmission line with which Armenia will supply power to Iran, expanding the Gas in Exchange for Electricity Programme.

The announcements of the diplomatic representatives of the two countries made in recent times attest to the fact that Iran is counting on Armenia’s help in concluding agreements with the Eurasian Economic Union (EEU). “Armenia is an excellent corridor for connecting the Persian Gulf with the Black Sea,” noted in particular the Iranian Ambassador in Yerevan, Mohammad Reisi (Tert.am). Armenia’s Ambassador to Iran, Artashes Tumanyan, made it clear that Tehran will receive such cooperation. (Donya-e-Eqtesad).

Furthermore, a high-placed official from one of the ministries told Europe Insight on conditions of anonymity that an agreement on the establishment of a preferential trade regime – similar to the one currently in place between Iran and Turkey – must become a priority for Armenia. And negotiations about it will be conducted while taking into account the positions of EEU country-members.

“Being one of the major players in the region, Iran having regained its status as a full-fledged member of the international community will positively impact the broader Near East, and I can only see advantages for Armenia,” the dean of the Faculty of Oriental Studies at Yerevan State University and one of the greatest experts on Iran, Gurgen Melikyan, told Europe Insight. The professor thinks that Iran, having huge economic potential, could very rapidly become a powerful regional leader, which will only benefit Armenia. According to him, it is remembered in Tehran that when they were subjected to intense international pressure, Armenia did not cur but rather increased cooperation with its neighbour.

In addition to developing economic and trade institutions, Gurgen Melikyan sees the education sphere as attractive to Iran. “Our universities, with the necessary infrastructure, could work with Iranian students,” he said. The expert noted that the role of mediator between Iran and Russia is attractive to Armenia since Armenian entrepreneurs are familiar with both the Russian and Iranian markets.

Businessman Ruben Simonyan, who has been working with his Iranian colleagues for some years and who imports plastic products and other goods, told  Europe Insight in an interview that he hoped financial transactions with this country would open soon. “What haven’t we contrived in order to fund transactions!” he said. “Basically, we’ve had to carry cash in a briefcase.” In his opinion, the situation should now improve.

Modest optimism

Some experts, however, call for taking a realistic look at relations with Iran. They point out that if Tehran was glad to participate in any project before, it might become more discriminating now. In their opinion, lifting of the sanctions will contribute to Armenia’s industrial revival, but not to the degree people are talking about.

Armenian Prime Minister Hovik Abrahamyan is in talks with Iranian Export and Development Bank Director Ali Saleh Abadi. Credits: Armenian government's press office

Armenian Prime Minister Hovik Abrahamyan is in talks with Iranian Export and Development Bank Director Ali Saleh Abadi. Credits: Armenian government’s press office

Thus, political scientist Sevak Sarukhanyan noted in a conversation with Europe Insight that the biggest plus for Armenia is that at the present moment there is no confrontation between the USA and Iran and that there will be no military activities near the country’s southern border. However, from an economic point of view, the effect is not so obvious. “We do no have the capability of exporting to Iran since Armenia cannot be considered an industrial country and Iran is an industrially developing state,” says the expert. He reminded us that Iranians were interested in the large chemical plant in Vanadzor. Its launch (whether the Iranians buy it out or create a joint enterprise) would already be a definite plus for the country’s economy. In his opinion, there are also possible prospects in livestock.

Sergey Minasyan, the deputy director at the Caucasus Institute (Yerevan) was sceptical in his interview with Europe Insight. He noted that the Iranians want to work with Armenia in many areas but, being fully pragmatic, could also turn to other markets. “They have two global driving factors: oil and gas, and it is unlikely anyone will refuse to work with them,” he said.

The officials and experts who spoke with Europe Insight all agreed on one thing: despite the diversity in its industrial capacities, there’s no point in expecting an massive influx of products from Iran. “They barely live up to their own potential,” thinks a high-placed source in one of the ministries. In addition, Iranian companies will hardly be able to compete in terms of price on a large scale in the Armenian market.

Figures

It was not long ago that Iran was Armenia’s second economic partner. But subsequently trade turnover declined and by the end of last year it was $291.1m. Meanwhile, a considerable share in it was an exchange of Iranian gas for electric power produced in Armenia.

Europe Insight was informed by the Armenian Ministry of Economy that as of February of this year, 2,847 companies with Iranian investors participating in them were registered in the country. Especially well-represented were tourist agencies working only with Iranian tourists. In 2013, 94,000 came to Armenia, and in 2014 there were over 116,000.

The government’s press office reported on 28 July that the implementation of proposed programmes in various sectors was discussed in the meeting of Armenian Prime Minister Hovik Abrahamyan with Iranian Export and Development Bank Director Ali Saleh Abadi. The Iranians then held talks with Energy Minister Yervand Zakharyan regarding development of the energy sector, in particular, the financing of the Meghri HPP, which after completion will be operated by Iran for 15 years before being returned to Armenia.

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