[NGW Magazine] Iran Pins Hopes on Armenian Transit

Iran wants to exploit divisions between former Soviet Republics in order to deliver its gas into European markets but the republics themselves also have ambitions to eat into Gazprom's market share.

Iran has shown a rising interest in providing gas to Armenia. Tehran’s desire corresponds with Armenia’s new government’s intention to gain more control over the gas lines and possibly to play a role in helping Tehran to send its gas to broader markets.

Iran has one of the biggest gas reserves in the world and naturally it wants to send it to markets abroad. There are several problems, however. To start with, Iran does not have a well-developed gasline system. The biggest problem though is Iran’s geopolitical environment, which creates serious barriers for exports to foreign markets, especially the most lucrative one: Europe.

Indeed, even before sanctions, there were several logistical problems. Iran has no direct borders with Europe, and Iranian gas lines need paths through the territory of other countries. Turkey seems to be the most natural intermediary between the European market and Iran. 

But the relationship between Ankara and Tehran has been tense, owing to the fact that the two are competing for regional influence. To the northeast of Iran is Turkmenistan. Yet Turkmenistan itself is a gas-producing country, and has been engaged in search of its own to deliver gas to the European market.

There is also Russia which, like Turkmenistan, is also seeking markets for its gas, and jealously defends its market share. Even when Iran and Russia were on good terms, Moscow expressed little interest in helping Iran to send gas to Europe. Now it has even less reason to help Iran. Relations between Moscow and Tehran have soured since Russia acceded to Israel’s demand that Iran withdraw its forces from Syria’s border with Israel.

At the same time, change in Armenia has provided Iran with the opportunity to increase its market in Armenia and possibly in Georgia too, and also exporting gas to European markets.

Change in Armenia

Armenia has been Russia’s traditional ally, or at least one of the friendliest countries to Russia for centuries. After the collapse of the USSR, Armenia and its capital of Yerevan continued to gravitate towards Russia. One of the major reasons was Armenia’s bloody war with nearby Azerbaijan. 

While tensions between Indo-European Christian Armenia and Turkic, Muslim Azerbaijan may be traced back to the distant past, they flared anew in 1988 after ethnic violence in Nagorno-Karabakh, the enclave inside Azerbaijan. It had led to a full-fledged war which persisted even when both Armenia and Azerbaijan were part of the USSR. The war ended in 1994 but without a peace treaty. One of the reasons was that not only was Armenia able to repel the Azerbaijani army from Nagorno-Karabakh, but it was also able to take a considerable part of Azerbaijan's territory itself. 

For Baku, the return of this territory became a national priority, partly explaining Yerevan’s strong attachment to Moscow. Indeed, the ruling Armenian elite, defined as the Karabakh clan, convinced the electorate that Russia was the only guarantor of Karabakh’s independence from Azerbaijan.

Not only does Russia have a military base in the country, but it also takes advantage of Armenia’s economic weakness: Gazprom took control of Armenia’s gas lines and used its monopoly to charge Armenian consumers higher prices than Russian consumers. This might have been merely to reflect transport costs but Armenian politicians made much of this seeming unfairness. 

This arrangement, however, could be changed. After the recent revolution, the Armenian government, while professing its geopolitical loyalty to Russia, made it clear that it planned to take over Gazprom’s property in the republic, in the context of general redistribution of the property, or at least to limit its role in distributing gas to Armenian factories and consumers.

The very fact that both Gazprom and Rosneft could lose their monopolist positions in the Armenian market alarmed Moscow, and this is the reason why Putin called the new Armenian leader. Those who posted comments on the quoted article noted that Putin was not just concerned with the fate of Gazprom and Rosneft, but with potential changes in Armenia’s geopolitical orientation.

According to these observers, the very fact that Armenia was historically close to Russia does not mean much. Ukraine had been quite close to Russia for centuries, but now the two are mortal enemies. Some observers see the new Armenian government as motivated by a desire to separate Armenia from Russia.

One could assume that the Kremlin understands this and also the following implication that problems with Gazprom would lead to problems with sending Russian gas to Armenia. Consequently, Yerevan has tried to reduce its dependence on Russian gas, and here Iran has emerged as an appropriate alternative supplier.

Iran has a long-standing influence on Armenia, which can be traced back to the time when Armenia was a part of Iran. After the collapse of the USSR, Iran’s connection with Armenia was strengthened for a variety of reasons. One of them was that Iran had a rather tense relationship with Azerbaijan.

There were several reasons for this. Present-day Azerbaijan is part of a much larger Azerbaijan. While the northern part of Azerbaijan was taken by Russia in the beginning of the 19th century – and is now an independent state of Azerbaijan – the southern part of Azerbaijan was part of Iran. 

Tehran believed that present-day Azerbaijan should be brought back into Iran, whereas Baku believed that southern Azerbaijan should be united with the north. Second, Baku and Tehran have different views on the division of the Caspian Sea. 

Third, Baku is strongly pro-American and pro-Israel, seen by people in Tehran as Iran’s mortal enemies. All of this made for a tense, or at least an unstable, relationship between Baku and Tehran and made Tehran a natural ally of Yerevan. 

As a matter of fact, Armenia is among Iran’s very few strong allies. Iranian gas supplies to Armenia have been, therefore, defined not just by purely economic, but also by geopolitical, considerations. Iran has provided Armenia with gas since 2007, and new gas lines were opened in 2009.

This gas has mostly been used for producing electricity, some of which has been re-exported to Iran since 2009.

One could assume that these gas deliveries did not bring much economic benefit to Iran, and was a peculiar form of subsidy/help for an ally. It was hardly a unique model. Other countries do the same. China, for example, promised to buy Alaskan gas, not so much because it really needed it, but because it tried to please the Trump administration, which is concerned with the trade balance. 

At the same time, Yerevan’s potential issue with Gazprom created a potential economic opportunity. Armenia could be a route for Iranian gas to reach Europe.

Not only could Iran increase its gas flow to Armenia, but – and this was even more important – to Georgia, and then to Europe. One might state here that because of the US sanctions, Iranian gas would have a problem reaching Europe. Still, help could come from Turkmenistan. Like Iran, Turkmenistan has huge reserves of gas and is anxious to export.

Iran blends into Turkmenistan

Turkmenistan is limited in its options. It could send gas to China, but no other realistic outlet exists at present.

In the past, Turkmenistan sent some gas to Iran, plainly because Iran did not have a sufficiently developed gas transmission system to send gas to the north. Turkmenistan provided help and sent a small amount of gas to Iran. But the problems between Ashgabad and Tehran emerged and Turkmenistan ended gas deliveries. 

That did not stop co-operation between Tehran and Ashgabad. Tehran tried to convince Ashgabad to drop the Turkmenistan-Afghanistan-Pakistan-India project, aimed at sending gas to Pakistan and later to India.

Tehran clearly sensed the improbability of the project, owing to the lack of funds and instability in Afghanistan, and proposed its own plan to deliver Turkmen gas to Pakistan through Iran's gas lines.

Iran had built its own pipelines to the Pakistan border some time ago but Pakistan abandoned the plan under US pressure. Iran assumed that Turkmenistan gas could blend with Iranian gas and, in this new form, could well be delivered to Pakistan.

There are other plans for co-operation. One of them apparently implied that Turkmen and Iranian gas could be sent to Armenia. In the process, Iranian gas could well lose its “identity” and become transformed into Turkmen gas. It went without saying that Armenia itself could consume Turkmen gas. 

The plan seemed to evoke some interest in Yerevan, which would hardly oppose the idea of providing transit territory for sending Turkmen gas to Georgia. The plans for sending Turkmen gas to Europe were apparently discussed when the Armenian president visited Turkmenistan, and the Turkmen leader visited Armenia. 

This, apparently, is one of the reasons why Turkmenistan is anxious to send gas to Armenia, despite the limited size of the Armenian market. After this, Iranian/Turkmen gas could be sent to Georgia – Yerevan and Tbilisi are already building infrastructure, connecting Armenia to Georgian ports; later it could be liquefied and sent to European markets. 

Georgia’s role as window to Europe is a major one. Iran regarded Georgia as important a partner as Armenia, and the relationship between the two countries is indeed good.

In Georgia, Iranian gas could well be plunged into the Agri (Azerbaijan-Georgia-Romania Interconnector) project, which envisages liquefying Azerbaijani gas on Georgia’s Black Sea coast and shipping it to the Romanian port of Constanta. Then it is regasified and sold in Romania and other European countries.

Iranian gas could also use Armenia as a transit country to join the TransAnatolia pipeline where it could be mingled with Azerbaijani gas and flow into southern Europe that way. Besides Iranian gas, Azerbaijan felt that it could finally tap Turkmen gas. And this idea is bothering Moscow much more than the loss of the small Armenian market.

Dmitry Shlapentokh