Purchase and Sale of Natural Gas and Cooperation in the Field of Transit: Opportunities and Threats

After 1991, the Caucasus republics, became a special focus of the foreign policy of Iran.

Relations with the IRI were important for Armenia also. Armenia needed Iran for ensuring its energy security. İt is possible to identify four areas of Iran-Armenia cooperation in the field of hydrocarbon resources and energy security until the 44-day Patriotic War:

1. Cooperation in the field of liquefied gas sales from the Islamic Republic of Iran to Armenia in the period before the construction of natural gas pipelines;

2. Attempts to export Iranian natural gas to Armenia and European countries via the Armenia-Georgia-Black Sea route;

3. Electricity exchange and transit;

4. Organization of joint use of hydropower resources of border waters (Aras River).

Back in 1992, Armenia and Iran signed an agreement on the construction of a natural gas pipeline. However, due to serious economic and financial difficulties during this period, both sides needed foreign financial support. Although the $120 million natural gas pipeline was expected to be completed in 1995, there were some technical and financial problems. The construction work could not be completed on time. The pipeline, with a capacity of 1 billion m3 of natural gas per year, was expected to be 141 km long. 100 km of it would pass through Iran and 41 km through Armenia. Another agreement on the construction of the Iran-Armenia gas pipeline was signed in 1995. Two years later, the two countries signed an agreement for transport Iranian gas. According to the agreement, 1 million cubic meters of gas will be delivered to Armenia annually for 15 years. However, due to the lack of sufficient financial credit, the project could not be fully implemented at that time. This project has remained on paper for the first ten years after Armenia's independence.

The geopolitical processes that took place in 2001 led to real steps to be taken to develop this cooperation. Joint documents signed by the leaders of the United States, Turkmenistan, Azerbaijan, Georgia, Kazakhstan, and Turkiye at the OSCE summit in Istanbul in November 1999 expressed support for the Baku-Tbilisi- Ceyhan project and along with this, they acquired the agreement on the construction of the pipeline exporting natural gas from Shahdeniz deposits to Erzurum. The Islamic Republic of Iran has made no secret of its unwillingness to implement USled projects in the region. For Armenia, the Republic of Azerbaijan shouldn't have implemented and strengthened such large-scale economic projects. The position of both Iran and Armenia was influenced by Russia's approach to such projects. For this reason, during the period from 1999 to 2003, various maneuvers were made to prevent such economic projects.

On the other hand, the position of the European Union, which wants to reduce its energy dependence on Russia, coincided with that of Iran and Armenia. The European Union, which has political interests in resolving Armenia's Energy problems, supported the project. In the context of this support, the European Union allocated €30 million in 2001 to develop technical and legal infrastructure projects related to the Iran-Armenia natural gas pipeline construction project. A treaty was signed between Iran and Armenia in January 2001. Following the EU's financial support for the project, Armenia and Iran intended to extend the natural gas pipeline through Georgia to the Black Sea coast, deliver the seabed to Ukraine and ensure the export of natural gas to Europe via Ukraine. In this case, the total length of the pipeline was estimated at 550 kilometers, and the cost of the project was estimated at $5 billion. In the autumn, a treaty was signed between the two countries on gas supplies from Iran to Armenia.

Discussions on cooperation between Armenia and Iran in the field of hydrocarbon resources and energy security have intensified since 2003. On September 17, 2002, a groundbreaking ceremony was held at the Sangachal terminal in Azerbaijan, where the BTC began, with the participation of the leaders of the countries through which the pipeline passes. On September 10, 2003, construction of the BTC pipeline began. After that, Armenia and the Islamic Republic of Iran tried to strengthen cooperation in energy production and natural gas trade, sometimes even as an alternative to projects led by Azerbaijan, and to attract Georgia to the Yerevan-Tehran line.

Iran-Armenia talks have intensified after Azerbaijan implemented projects to export hydrocarbon resources to Europe with the support of the United States. Armenian Energy Minister Armen Movsesyan, who visited the Islamic Republic of Iran in October 2003, also met with Minister of Petroleum of Iran Bijan Namdar Zanganeh to discuss the project to transport Iranian gas to Armenia. At that time, a memorandum of understanding in the field of energy was adopted between the Ministry of Energy of the Republic of Armenia and the Ministry of Energy of the Islamic Republic of Iran. After lengthy discussions, work on the Iran-Armenia gas pipeline began in January 2004. In the same year, the 5th meeting of the intergovernmental commission coordinating economic cooperation between Armenia and Iran was held. An agreement on the construction of the Iran-Armenia gas pipeline has been signed.

Thus, Iran has taken the next step to support Armenia in overcoming its Energy problems. In one of the WikiLeaks documents released in April 2004, a US source in Armenia wrote in a confidential letter that the project was unprofitable, noting that Armenia had virtually no financial resources to do so. The document read: "There is no money to build the pipeline ... Assuming that Iran is ready to complete part of the pipeline (with $ 100 million), Armenia has not yet allocated any funds to finance the construction of the pipeline in Armenia”.

The document also touched upon Russia's approach to the issue. Although Armenian officials told Americans that Russian energy giant Gazprom wa interested in financing the project, Oleg Korobkov, Russia's political and economic adviser, said that the Russian government would not allow Gazprom to invest in any project that would limit Russia's influence in Armenia. This factor was also reflected in the archival documents of other countries. One of such documents stated that Russia did not consider it expedient to transport Iranian gas to Armenia and from there to the Black Sea coast via Georgia. Even as a result of pressure from Russia in 2005, the parties had to agree to use gas from Iran only to meet Armenia's domestic needs

The prospects of the pipeline and its transportation of Iranian gas to other countries were also in question. According to Wikileaks documents, a pipeline with a capacity of 3 billion cubic meters is being built, which is many times more than Armenia can use. However, opportunities for future gas sales were not appreciated. It is known that Georgia and Turkey had supply options from Azerbaijan, and foreign investors did not support the Iran-Armenia or any other pipeline, taking into account this factor. In May 2004, Armenia and Iran signed a 20-year gas and electricity treatment agreement.

The main issue discussed during Kocharian's next visit to Iran in 2006 was the gas pipeline from Iran to Armenia. It should be noted that in August 2005, the construction of a 22.5-kilometer section of the gas pipeline (Gajaran-Mehri line) between Armrosgazprom and Iran's Arvandan began. According to the contract, construction of the gas pipeline was expected to be completed by January 2007, but for some technical reasons, it was completed in March. In the same year, the Iranian side declared its readiness to export gas to Armenia, noting that Armenia was unable to receive the gas, and thus placed the responsibility on the other side. This opinion of Mohammad Reza Lorzadeh, the Iranian curator of the construction of the gas pipeline, was confirmed by the then Foreign Minister of Armenia Vartan Oskanian.

Finally, the President of the Islamic Republic of Iran Mahmoud Ahmadinejad, and Robert Kocharyan attended the opening ceremony on March 14, 2007. The final phase of the gas transmission project ended on December 3, 2008, with the connection of the Iranian gas pipeline to the national pipeline in the Gujarat region of Armenia. The length of the section of the line along the territory of Armenia was 206 km. The construction of the line, which passes through rather unfavorable mountainous areas, cost $ 130 million. At that time, the Minister of Energy of Armenia A. Movsesyan noted that through this pipeline, Armenia has the opportunity to receive 2.5 billion cubic meters of gas annually. The Armenian side was concerned that Iranian gas was slightly more expensive than Russian gas.

However, after a while, Armenia began to try to reduce the price of gas from Iran. In particular, in 2013-2014, the Armenian side insisted on paying $ 400 for 1,000 cubic meters of gas to Iran and only $ 189 for Russia for the same amount, as well as for Iran to export gas to some neighboring countries at a lower price. Armenia also suggested that it could increase imports if gas prices were reduced. It should be noted that in 2013, Armenia received 1.96 billion cubic meters of Russian gas, and in December 2013, Russia's Gazprom and Armgazprom signed an agreement on the supply of Russian gas to Armenia for 2014-2018. Gazprom will supply 2.5 billion cubic meters of gas to Armenia annually, and prices will be determined following Russia's formula related to gas prices. In this situation, Russia supplied almost all the gas needed by Armenia and did not leave room for Iranian gas. At the end of 2013, Armenia rejected Iran's initiative to sell additional gas to the country.

In 2015, Armenia's attitude towards Iran changed in the energy issue. Thus, in June of the same year, Armenia announced a plan to sell a 41-kilometer section of Iran's natural gas export pipeline to Russia's Gazprom. This decision allowed Moscow to take full control of the existing natural gas supply routes to Armenia.During Iranian Foreign Minister Mohammad Javad Zarif's visit to Armenia in November 2017, the issue of exporting Iranian gas to Europe via Armenia was discussed. These attempts were thwarted by various obstacles created by Armgazprom, whose shares are owned by Russian companies. Under the influence of Russia, Armenia withdrew in this matter. That is why Javad Zarif said in Yerevan that Iran does not need gas for electricity, that Armenia needs it, and that Iran is helping Armenia as a friend. He then outlined Iran's main intentions and said that Armenia was interested in using transit opportunities. When it came to transit, the Iranian side intended to export Iranian gas to Europe via the Armenia-Georgia-Black Sea pipeline. The details of the opening of a free economic zone between Iran and Armenia were also discussed during Javad Zarif's talks in Yerevan.

On February 20, 2019, the 5th Ministerial Meeting of the Southern Gas Corridor Consultative Council was held in Baku. The meeting was attended by the heads of the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, and Energy ministers of the United Kingdom, the United States, Turkey, Italy, Georgia, and other European countries. Georgia's consistency in strategic cooperation with Azerbaijan, as well as the de facto deprivation of Azerbaijan's support for the Iran-Armenia gas pipeline project by European countries, led Armenia to take new steps. The Armenian Ministry of Energy and Natural Resources has issued a statement on its readiness to discuss the export of Iranian gas from Armenia to Georgia and from there to Europe via the Black Sea.

This issue was also discussed during Nicol Pashinyan's visit to the Islamic Republic of Iran, which ended on February 26-27. However, the fact that the diameter of the gas pipeline from Iran to Armenia was not at the required level created the problem of re-laying this line. That would have cost millions of dollars.

The Islamic Republic of Iran was somewhat concerned about the Second Karabakh War in September-November 2020, the victory of Azerbaijan, the opening of transport and communication lines, and economic cooperation between the countries of the region in the signed capitulation agreement. Iranian researcher Akbar Kazemi wrote that earlier Azerbaijani President Ilham Aliyev had repeatedly stated that Armenia could benefit from transit, energy transfer, and transport projects in the region if it accepts peace in Karabakh. Ensuring the dependence of Armenia's gas supply on the Republic of Azerbaijan can be a guarantee for maintaining Baku's advantage in Karabakh. According to Kazemi, in the future, and especially with the expiration of the 20-year agreement signed between Iran and Armenia, the start of gas supplies to Armenia by the Republic of Azerbaijan may reduce or stop the import of Iranian gas by Armenia. On the other hand, this will fail the idea of exchanging Turkmen gas from Iran to Armenia under an agreement between Turkmenistan, Iran, and Armenia.

The analysis of energy cooperation between the two countries allows us to draw some conclusions. The most important of these results is that the issues of Energy cooperation between the two countries are mainly in the interests of Armenia. The main goal of Iran's energy diplomacy towards Armenia is to achieve the transportation of natural gas to European countries through Armenia and then through Georgia. The failure of energy projects discussed between Armenia and Iran is due to several factors. Russia, Armenia's main energy supplier, does not want to see a rival like Iran in this market. There is a lack of funding for many projects. The economic unprofitability of projects discourages investors from investing. The analysis of current processes shows that Iran, which previously tried to use Energy resources as a tool of geopolitical influence, is losing its influence due to the new geopolitical conditions are emerging after the 44-day Karabakh war. The Armenian government has to make a choice for the future development of the country: continuing the fictitious ideological challenges, deepening the country's problems about oil and gas restrictions, keeping on the agenda projects that are unprofitable with Iran and seem very difficult to implement or normalize relations with the Republic of Azerbaijan, the country with significant energy resources in the region, and Turkey, an energy corridor, and take advantage of more favorable conditions.

The article was published within the framework of the project "44-day Patriotic War and its reflection on social media" implemented by the Public Union of Democracy and Women's Initiatives with the financial support of the Agency of State Support to Non-Governmental Organizations of the Republic of Azerbaijan (ASSNGORA). The ASSNGORA bears no responsibility for the opinions expressed in the article.

Elnur Kalbizada, Head of the Armenian Studies Department of the Institute of Caucasus Studies of ANAS