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

Bolton Visits Caucasus Amid Anti-Iran Campaign

This article has been republished with permission from Eurasianet.

A senior adviser to U.S. President Donald Trump is visiting the Caucasus, where he is expected to try to enlist the region's three governments in Washington's campaign of isolating Iran. But leaders in the Caucasus, wary of confronting Tehran, will likely instead be promoting their own interests to an administration that has thus far largely neglected the region.

National Security Adviser John Bolton is scheduled to arrive in Baku on October 24, before visiting Yerevan and Tbilisi. It will be the highest-profile visit yet by a Trump administration official to all three countries of the Caucasus. None of the three currently has a U.S. ambassador, and policymakers have complained of a lack of American engagement.

Bolton has said his visit will focus on regional security. He told radio host Hugh Hewitt before the trip that he will be “in the Caucasus to see the very significant geographical role that they have dealing with Iran, dealing with Russia, dealing with Turkey.”

In particular, Bolton is expected to focus on Iran, a country that maintains good relations with Armenia, Azerbaijan and Georgia, but which the Trump administration is aggressively attempting to isolate. Bolton is a longtime Iran hawk and a leading advocate in the administration for leaving the Iran nuclear deal and reimposing sanctions on Tehran.

“I can't figure out what else [besides Iran] he would have to discuss” in the Caucasus, said Paul Stronski, senior fellow in the Russia and Eurasia Program of the Carnegie Endowment for International Peace, a Washington, DC, think tank.

“Last month at the United Nations, Trump called for international action to deter Iran, but his efforts have for the most part been unsuccessful,” said Carey Cavanaugh, a retired U.S. ambassador who worked in the Caucasus, in an interview with Armenian news website news.am. “Now Bolton is trying to secure support in the Caucasus and in Moscow so as to counter Iran influence.”

In its long diplomatic and economic campaign against Iran, Washington has tried to force other countries to also curtail ties with Tehran. But it has tended to look the other way at the Caucasus countries' growing ties with Iran, given their geographic proximity. Especially in the case of Armenia, Iran provides a critical lifeline as its borders to the east (Azerbaijan) and west (Turkey) are closed.

“It's always a friction point,” Stronski told Eurasianet. “Because of U.S. concerns and U.S. sanctions, these countries have not developed as robust economic ties [with Iran] as you would expect for such close geographic neighbors. But they have always been able to push back at criticism, simply because they have no other options.”

It is not clear, however, whether the Trump administration intends to stick to this hands-off policy with regard to the Caucasus and Iran. “U.S. policy is so muddled right now that it's really hard to figure that out,” Stronski said. “The M.O. of this administration is to make big pronouncements and then not be as clear in the follow through. But Bolton and Trump certainly feel strongly about Iran and so maybe they will be putting in that second level of guidance.”

In any case, the increasing pressure has complicated the Caucasus countries' already precarious geopolitical position.

“The pullout from the JCPOA puts these countries in a difficult position,” Stronski said, referring to the Trump administration’s withdrawal from the 2015 nuclear deal with Iran. “The horrible deterioration in U.S.-Russia relations has made their balancing act very difficult, and to the south you have a similar deterioration. It really puts these countries between a rock and a hard place.”

While Iran is likely at the top of Bolton’s agenda, his interlocutors in the Caucasus may instead try to steer the conversation away from Iran and towards their priorities instead.

In Tbilisi, Georgian government officials are unlikely to want to get drawn into a U.S.-Iran conflict, instead preferring to keep the agenda focused on issues like security cooperation, said Kornely Kakachia, the director of the Georgian Institute of Politics.

“Georgia remains a steadfast supporter of U.S. initiatives,” Kakachia told Eurasianet. “However, due to permanent pressure from Russia it can't endanger its national interest, which seeks pragmatic and balanced relations with Iran. So, as in the last decade, Tbilisi will try to find a delicate balance between its regional interests and those of the West.”

Similarly, the Azerbaijani side is likely to seek more active engagement of the U.S in resolving the conflict with Armenia over Nagorno-Karabakh, said Zaur Shiriyev, a Baku-based analyst for the International Crisis Group. “The Azerbaijani side is reluctant to be seen in Iran as participating in U.S. policy. It could be misinterpreted by Tehran, and Baku doesn’t want to damage its bilateral relations with Iran,” Shiriyev told Eurasianet. “The Nagorno-Karabakh issue will be the top issue [for the Azerbaijanis when Bolton visits], but it is hard to expect much new initiative from the U.S. side,” he added.

“Baku nurtures hopes for U.S. efforts as co-chairman of the Minsk Group of the OSCE,” the body attempting to resolve the Nagorno-Karabakh conflict, wrote the haqqin.az website in a recent commentary. “And, of course, Baku will be conducting negotiations with Bolton exactly on this.” 

In Armenia, Bolton will be meeting with a new leadership which has promised dramatic domestic reforms but thus far vowed no significant foreign policy shifts. Still, Yerevan is trying to formulate a strategy for dealing with an administration that has moved away from the traditional U.S. emphasis – at least rhetorically – on democratization and toward a “more neorealist approach which is predicated on interests-sharing and functions-sharing,” said Eduard Abrahamyan, a London-based analyst of Armenia.

“From Armenia's perspective, there is a genuine intention to balance Russia through proactive engagement with the United States on one side and with Iran from the other,” Abrahamyan told Eurasianet. “This means advancing Armenia-Iran strategic ties while being transparent with the U.S. about the core intentions.”

Photo Credit: U.S. Embassy Kyiv