Iran and Armenia Propose Gas Transit to Georgia

A state visit by Armenian Prime Minister Nikol Pashinyan to Iran has resulted in an agreement between the two countries to cooperate on the potential transiting of Iranian gas through Armenia to Georgia.

If implemented, the agreement promises to be controversial, not least because it would involve Armenia challenging Russian control of its gas distribution sector, and potentially pitching both Armenia and Georgia into conflict with the United States, which last November re-imposed its stringent sanctions against Iran. 

The suggestion for the transit deal appears to have come from Iranian President Hassan Rouhani, who brought up the issue in a Tehran press conference following his February 27 meeting with Pashinyan.

"As to cooperation in the field of gas supply, we expressed the Iranian side’s readiness to step up supplies,” Rouhani said. “We are likewise prepared to launch tripartite cooperation to export gas to Georgia."

Pashinyan said he was amenable. "Armenia is ready to cooperate with Iran and become a transit country for Iranian gas,” he said following Rouhani’s remarks. “The establishment of an energy corridor is also of great importance both in terms of bilateral and regional dimensions and in broader terms."

Neither commented on whether Georgia has yet been involved in discussions on the possible trade and an Armenian foreign ministry spokesperson was unable to confirm to Eurasianet whether Georgia had been consulted.

The possible export of Iranian gas to Georgia was first raised in 2016 with the National Iranian Gas Company (NIGC) making successive claims of a deal with both the Georgian state and an unnamed private sector company.

However, these reports were subsequently denied by Tbilisi, which has yet to confirm any form of gas agreement with Iran.

If implemented, the plan would introduce some competition into the Georgian gas market. Georgia is currently supplied entirely from Azerbaijan.

Transit of gas from Iran through Armenia to Georgia is technically possible, as pipelines with sufficient spare capacity linking the three countries already exist. But there are a number of technical and political hurdles that would have to be overcome to make it work.  

The line linking Georgia and Armenia is part of a Soviet-era pipeline that currently delivers Russian gas to Armenia. Exporting Iranian gas to Georgia through this line would require its flow to be reversed, and for Armenia to halt its imports of Russian gas. That in turn would require Armenia to replace that gas with increased imports from its only other source of supply, Iran.

That, then, could see the volume of gas needed to supply both Armenia and Georgia exceed the current capacity of the Iran-Armenia pipeline, requiring the line to be expanded, a move which would be both expensive and time consuming.

In theory, gas trade between Iran and Georgia could also be managed by a swap deal, under which Russia would supply a given volume of gas to Georgia, and Iran would supply the same volume to Armenia in exchange.

This would not require the flow through the Georgia-Armenia pipeline to be reversed, and would see Armenia only reducing, and not ending, its gas imports from Russia.

Both options are technically possible but would require support from both Moscow and Washington, either of which could block gas trade between Iran and Georgia or at the very least make it difficult to realize. 

Yerevan is already at loggerheads with Gazprom, which owns Armenia's gas distribution network and controls around 80 percent of the country's gas market, after the company hiked gas prices for Armenia at the start of the year.

Gazprom would be unlikely to welcome further competition in the Armenian market, although the possibility of increased Iranian gas exports to Armenia could persuade the Russians back to the negotiating table.

Ultimately, though, the final decision on whether an Iran-Georgia gas trade could go ahead appears to lie with Washington and the terms of its re-imposed sanctions regime against Iran.

The situation regarding Iran's gas exports is "not so straightforward,” Erika Olson, economic counsellor at the U.S. embassy in Ankara, said February 16 at a regional energy conference in Istanbul.

While Iran's gas exports are currently exempt from sanctions, financial transactions to pay for the gas are sanctioned, Olson said. Payments for gas are to be deposited into a local bank account where it can be used only in payment for the exports of sanctions-exempt goods back to Iran.

As such, Armenia's gas imports from Iran under the existing barter agreement are exempt from U.S. sanctions, and swap deals for Georgian gas could also be ruled exempt.

However, Olson also cautioned that the situation for any new gas deals involving Iran could face uncertain prospects depending on a number of “variables.”

Photo Credit: Press Office of the Government of Armenia

Iran Sanctions Herald Energy Trouble for Caucasus Nations

This article has been republished with permission from Eurasianet.

The resumption of wide-ranging American sanctions on Iran promises economic uncertainty for the Islamic Republic’s neighbors in the Caucasus: Azerbaijan, Georgia and Armenia.

Washington's goal of reducing Iran's oil exports to zero will not directly impact any of three Caucasus states, as none of them imports Iranian crude. All three, however, have to various extents relied on Iran for natural gas, and stand to be affected—if only by uncertainty until the exact scope of the sanctions becomes clearer.

U.S. National Security Adviser John Bolton recently visited all three countries to try to shore up support for Washington’s efforts to isolate Tehran, though his results were inconclusive. When Washington imposed the new round of sanctions on November 5 it exempted eight countries, including neighboring Turkey, but none of the Caucasus states were spared.

As a major exporter of both crude oil and natural gas, and a sometime importer of Iranian gas, Azerbaijan's position is most complex.

Azerbaijan shares long land and maritime borders with Iran, as well as ownership of a number of undeveloped Caspian oil and gas fields subject to a joint development agreement signed in March this year.

Development of those fields is now unlikely to proceed, but other joint ventures have advanced beyond the point where even Washington can impose a halt.

Azerbaijan's main gas field, Shah Deniz, is being developed by a consortium led by UK oil giant BP, but in which Iran's national oil company, NIOC, holds a 10 percent stake.

Shah Deniz is currently the only source of gas for the long-planned, EU-backed Southern Gas Corridor (SGC), aimed at lessening Europe’s dependence on Russian energy.

Already in August, Washington made the position of Shah Deniz and the SGC project clear when the Treasury Department granted a permanent waiver from Iran-related sanctions for "the development of natural gas and the construction and operation of a pipeline to transport natural gas from Azerbaijan to Turkey and Europe."

That concession means that neither BP, the Azerbaijani state oil company SOCAR, nor the other three shareholders will face sanctions related to that project.

Azerbaijan also stands potentially to benefit from any increase in global oil prices caused by the halting of Iranian exports. That uncertainty also would lead to an increase in natural gas prices, which are for the most part indexed to oil prices. 

"Azerbaijan may well reap some secondary benefits from U.S. sanctions on Iran, since it stands to gain if oil prices increase as a result of heightened tensions in the Persian Gulf," Caspian energy analyst and Atlantic Council fellow John Roberts told Eurasianet, though he cautioned that any potential benefits are unpredictable as they rely on factors beyond Baku's control.

Roberts added that Azerbaijan's position is further complicated by its position as an importer of natural gas from Iran.

Azerbaijan imports small volumes of Iranian gas into its exclave of Nakhchivan for local consumption. Also, in recent years, gas from Turkmenistan has transited via Iran into mainland Azerbaijan to supplement its own production and to meet export commitments to Georgia, which is expected to import around 2.7 billion cubic meters of gas from Azerbaijan this year.

SOCAR spokesman Ibrahim Ahmadov told Eurasianet that the company’s gas imports via Iran have now stopped thanks to increased domestic production. 

"A big part of the imported gas was used to fill our gas storage during summer which is then re-exported in winter when there is higher demand," Ahmadov said. With more than 3 billion cubic meters currently in storage, and further imports due from Russia before the end of the year, SOCAR doesn't anticipate shortages. "There should be no problems with the gas supply in Georgia," Ahmadov said.

Sandwiched between Iran and Armenia, and with a tiny outlet to Turkey, Nakhchivan's geography limits its alternatives. 

An agreement with Ankara for a pipeline link to bring gas into Nakhchivan from Turkey was signed in 2010, but to date no pipeline has been laid, leaving the exclave still dependent directly on swap arrangements with Iran.

Such barter deals would not necessarily put Baku in breach of the U.S. sanctions. Ahmadov confirmed that SOCAR is “not planning any payment-based transactions with Iran in the near future.”

If Azerbaijan's gas exports to Georgia will indeed be unaffected, then Georgia – which with its Black Sea coast has no need to import Iranian petroleum products – should be little troubled by the U.S. sanctions.

Few Options for Armenia

The same, though, cannot be said for Armenia, whose landlocked geography and regional political isolation leave it few options.  

With few natural resources of its own, and still getting over 40 percent of its power supply from the aging Metsamor nuclear power plant, Armenia has become increasingly dependent on imported gas to meet its energy needs.

The bulk of Armenia’s gas is imported from Russia (via Georgia), but Yerevan also imported about 400 million cubic meters of gas from Iran in 2017, and sends Iran power in exchange. In late 2017 an agreement was announced for Armenia to boost Iran gas imports by up to 25 percent, and to increase power exports by a similar amount.

The status of that agreement and of existing Iranian gas exports to Armenia is currently unclear.

On November 6, Armenian foreign ministry spokesperson Anna A. Naghdalyan tweeted that her ministry was closely monitoring developments. "A comprehensive examination of the effects the new sanctions will have on Armenia is ongoing," she said. She did not respond by press time to queries from Eurasianet.

Armenia's position is further complicated by the fact that much of its gas pipeline network is owned by Russia's Gazprom. The two have long bickered over the price Gazprom charges for the gas it supplies.

Forcing Yerevan to abandon Iranian imports will thus leave it more dependent on Russia, and in a far weaker bargaining position. 

Photo Credit: BP

After Bolton Takes aim at Russia and Iran, is Armenia the Collateral Damage?

Befitting his bull-in-a-china-shop reputation, John Bolton's whirlwind tour of the Caucasus left a trail of geopolitical wreckage that his hosts are still trying to pick up even after Bolton himself is back in Washington.

As expected, the visit of Bolton, the U.S. National Security Adviser, focused on getting the states of the South Caucasus—Georgia, Armenia, and Azerbaijan—on board with Washington's efforts to isolate Iran.

Bolton visited all three countries, but his public statements in Tbilisi and Baku were more or less pro forma for an American official visiting the Caucasus. It was in Yerevan where he repeatedly made provocative comments that vexed his hosts, and where the fallout from his visit continues.

Armenia's position vis-à-vis Iran is especially delicate, as the ongoing conflict with Azerbaijan has resulted in its borders to the east (with Azerbaijan) and west (with Turkey) being closed. So Armenia relies on its southern border with Iran as a key outlet.

In the past, the U.S. has tended to look the other way at Armenia-Iran ties, even as it pursues broad sanctions against Tehran, since it understands that Armenia has few other options. Bolton, though, suggested that that lenience may be coming to an end.

As the U.S. ratchets up pressure on Iran, the Armenian-Iranian border is “going to be a significant issue,” Bolton told the Armenian service of Radio Free Europe/Radio Liberty.“We are going to squeeze Iran because we think their behavior in the Middle East and, really globally, is malign and needs to be changed.”

Bolton acknowledged that he understood why Armenia needed Iran, but said that the solution was to end the conflict with Azerbaijan.

Bolton told RFE/RL that “current circumstances highlight” the importance of Armenia and Azerbaijan “finding a mutually satisfactory agreement to the Nagorno-Karabakh issue,” referring to the territory over which the two countries are fighting. “Once that happened, then the Armenian-Azerbaijani border would open,” Bolton said. “The Turkish border, I believe, would almost certainly open.”

That is all technically true, but the notion that Yerevan would orient its relations toward Azerbaijan—which it regards as an existential threat—around the U.S.'s policy of isolating Iran fell flat among Armenians.

“John Bolton, or anyone for that matter, cannot speak on my behalf,” Armenian Prime Minister Nikol Pashinyan told a news conference following Bolton's visit. “They are moving forward with the logic that they have some kind of ownership of the Karabakh issue, and now they are attempting to sell it to me, without asking my opinion.”

Bolton's dabbling in Karabakh diplomacy followed a controversial interview given the week before by the outgoing U.S. ambassador, Richard Mills, in which the envoy said it was “disturbing” how few Armenians were willing to make concessions to Azerbaijan over Nagorno-Karabakh. “The harsh reality is that any settlement is going to require the return of some portion of the occupied territories,” Mills told the news site EVN Report.

While that is also technically true, the combined effect of the Mills and Bolton statements added to a sense in Yerevan that the new Pashinyan government's tentative steps toward the West are being repaid by a conspicuous lack of sympathy toward Yerevan's position. On top of that, the Trump administration has evinced little interest in the Caucasus – even by the low standards of the U.S. – and little indication that Washington has anything to offer Armenia in exchange for the dramatic moves Bolton proposed.

“Not since the failed and dangerous Turkey-Armenia Protocols has the United States been so keen on pressuring Armenia to adapt to American priorities in the region,” wrote the Armenian-American news site Asbarez in a commentary on Bolton's visit.

That sense was seized on by members of the former regime. In a Facebook post, former defense minister Vigen Sargsyan criticized “Pashinyan's American fiasco” and complained that “Bolton not only repeated Azerbaijan's thesis that Armenia is to blame for the blockade [of the Armenia-Azerbaijan border], but also justified Turkey's closure of its border with Armenia.”

While in the Caucasus, Bolton also mooted the prospect of the U.S. reversing its policy of not selling arms to Armenia or Azerbaijan. That would almost certainly benefit Azerbaijan more, as Baku has far more money with which to buy American weapons, which are generally much more expensive than the Russian arms on which both Armenia and Azerbaijan largely rely.

Nevertheless, the offer was presented as a sort of carrot for Yerevan. “As I said to the prime minister, if it’s a question of buying Russian military equipment versus buying U.S. military equipment, we’d prefer the latter,” Bolton told RFE/RL. “We think our equipment is better than the Russians’ anyway.”

Bolton also targeted Armenia's recent announcement that it would send a small team of sappers to help Russia in its demining efforts in Syria. “It would be a mistake for anybody else to get involved militarily in the Syrian conflict at the moment,” Bolton told a news conference in Yerevan. “There are already … seven or eight different combatant sides. To get involved with any one of them for any other country would be a mistake,” he said.

The Kremlin, naturally, did not take kindly to Bolton's attempts to drive a wedge between Armenia and Russia; Yerevan is Moscow's closest ally in the Caucasus and Armenia depends heavily on subsidized Russian weaponry.

In a sharply worded statement issued after Bolton left, the Russian Ministry of Foreign Affairs seized on the American's reference to Armenia not needing to be constrained by “historical antecedents” in its foreign relations. Bolton “demanded openly that Armenia renounce historical clichés in its international relations and hardly bothered to conceal the fact that this implied Armenia’s traditional friendship with Russia,” the MFA said, calling the demand “impudent.”

The statement continued: “Incidentally, not all of John Bolton’s statements in Yerevan deserve to be criticized. In his October 25 interview to Radio Liberty, he made a wonderful comment: 'I think that’s really fundamental to Armenia exercising its full sovereignty and not being dependent on or subject to excessive foreign influence.' It would be good if John Bolton thinks over the meaning of his own words.”

Photo Credit: Armenian Prime Minister