Foreign Policy Research Institute A Nation Must Think Before it Acts Armenia’s Regional Policy: New Cooperation with Georgia, Iran, and Turkmenistan?

Armenia’s Regional Policy: New Cooperation with Georgia, Iran, and Turkmenistan?

Karen Karapetyan (Source: Republic of Armenia)

What is driving Armenia toward a policy of cooperating with its neighbors in the South Caucasus and across the Caspian Sea? To answer this question, one must look to the country’s September 2016 government reshuffle that resulted in the appointment of Karen Karapetyan, the former mayor of Yerevan and the CEO of Armrosgazprom, as prime minister. This move, motivated by the need for widespread reform to ensure Armenia’s sustainable development, signaled changes in Armenia’s internal and external political environment. Presenting his program to the National Assembly, Karapetyan explained that the government will work out both “short-term measures and long-term strategic reform programs,” acknowledging that “the existing structure of the economy of Armenia cannot ensure progress in developing standard approaches to the rates that are consistent with our challenges.” Exploring new opportunities to overcome Armenia’s deepening economic hardship was the starting point for Karen Karapetyan’s government.

This information sets the background for Karapetyan’s regional policies. As soon as he entered office, the Ministry of Economy was renamed the Ministry of Economic Development and Investments, and the Ministry of Energy became the Ministry of Energy Infrastructures and Natural Resources. The messaging of these changes is clear: the new government will prioritize expanding Armenia’s infrastructure capabilities and attracting foreign investment. Increasing exports, which Karapetyan has called “the main outlook for economic growth,” will be a primary government aim. To accomplish these goals, the prime minister has sought to revitalize Armenia’s regional policy.  By forging a new partnership with Georgia, Iran, and Turkmenistan, Karapetyan wants to boost Armenia’s foreign economic policy and breathe new life into Armenia’s struggling economy.

Reactivating Armenia-Iran-Turkmenistan Cooperation

Armenia’s new Government Program of 2016 emphasizes the need to ensure “the energy independence of Armenia by seeking new markets for trading in the region and leading a policy on active import and export.” To this end, Karapetyan has sought to strengthen energy cooperation with two traditional partners, Iran and Turkmenistan. On January 9, 2017, he received the Iranian and Turkmen ambassadors and voiced Armenia’s interest in developing trilateral cooperation. Notably, the meeting took place on the first working day of the year, illustrating Armenia’s attention towards these energy-rich states. The parties discussed energy-related issues and created a joint working group to discuss projects of common interest.

Trilateral cooperation has a history, as the three states collaborated closely in energy issues during the 1990s. Today, they can use those past experiences to capitalize on changes in the region. Turkmenistan, for instance, has recently become more open to diversifying its gas exports as Russia, previously an important export market, stopped imports of Turkmen gas in 2016. Similarly, since the June 2015 “P5+1” nuclear deal, Iran is freer to interact with neighboring states, particularly on energy issues. While Armenia has enjoyed positive relations with Iran since independence in 1991, before the nuclear deal, there was little room for energy cooperation between the countries.

As a sign of Armenia’s continuing effort to work with these two states, on March 28, 2017, Prime Minister Karapetyan paid an official visit to Turkmenistan. Energy and transport issues topped the agenda during his meetings with President Gurbanguly Berdimuhamedov and members of the Turkmen government. Earlier in the month, Armenia’s Deputy Energy Minister Hayk Harutyunyan also discussed prospective gas and electricity trade with his Turkmen counterpart Charimirat Purchekov and the chairman of state-owned “Turkmengaz.” Energy cooperation between the two countries is of mutual interest, as Armenia would benefit from importing Turkmen gas, while Turkmenistan gains from Armenia’s expertise in natural gas operated vehicles. Ultimately, while Armenia, Iran and Turkmenistan have yet to elaborate a clear-cut vision, interest in trilateral cooperation has risen.  Should this cooperation materialize into tangible energy projects, it has the potential to greatly influence regional developments in the South Caucasus.

Preparing the Background for Georgia-Armenia-Iran Cooperation

In December 2015, Russia, Georgia, Armenia, and Iran launched the “North-South electric energy corridor,” a unique initiative in the South Caucasus that will link energy transmission lines between the four countries. Such a deal was only possible after the conclusion of the Iranian nuclear deal, as Georgia’s strategic partnership with the United States precluded any meaningful engagement with Iran before the deal. In contrast to most other energy projects in the South Caucasus, this project runs in the North-South, rather than East-West, direction. In recent years, Georgia has expressed its willingness to import Iranian gas and serve as a transit between the Persian Gulf and the Black Sea. Meanwhile, Iranian and Armenian Presidents Hassan Rouhani and Serzh Sargsyan have underlined the importance of linking the Georgian and Iranian seaports through the North-South corridor. However, because Iran and Georgia can also connect their ports via Azerbaijan, Armenia must ensure that a Georgian-Armenian-Iranian energy corridor is more attractive than one through its neighbor.

These developments have influenced Armenian-Georgian relations by adding more regional context. During a June 2017 meeting with Karapetyan in Dilijan, Armenia, Georgian Minister of Finance Dimitry Kumsishvili expressed interest in the planned free industrial zone in Meghri, the southernmost city in Armenia, which borders Iran. He further declared that Georgian businessmen should capitalize on the opportunities presented by Armenian-Iranian economic cooperation.

Doing these things will require active Georgian, Armenian, and Iranian cooperation. Accordingly, during his meeting with Georgia’s Minister of Foreign Affairs Mikheil Janelidze in April 2017, Karapetyan prioritized bilateral business ties within integration unions and free economic zones. Meanwhile, the Eurasian Economic Union (EAEU) and Iran are holding negotiations on a free trade area. If successful, this deal would greatly benefit both Armenia—the only EAEU member state bordering Iran—and Georgia, the transit state between Armenia and other EAEU members.

In Russia-Georgia-Armenia-Iran quadrilateral cooperation, Armenia is the central player. The four states signed two documents establishing the electricity corridor in Yerevan in December 2015 and April 2016. They further plan to create a joint business chamber in Yerevan, which will engage both the private and state sectors of its four participants.

This quadrilateral format will be a game changer in the South Caucasus, developing cooperation in the North-South direction and enabling Russia and Iran to bolster their influence in the region. It will also increase Georgia and Armenia’s transit importance. Since 2012, under the “Georgian Dream” coalition, Georgia has improved relations with Russia and is increasingly interested in partnership with Iran. Facing blockade by Turkey and Azerbaijan, Armenia’s opportunities are limited to the North-South direction, so Armenia has no choice but to position itself within a North-South axis of cooperation in the South Caucasus.

Beyond regional considerations, these developments have brought a new impetus to Armenian-Georgian bilateral relations. For instance, during his official visit to Georgia in February 2017, Karapetyan proposed that the two countries “upgrade [their] economic cooperation to a regional level in order to come out in a larger common market, including tourism, the projected free economic zone with Iran and others.” Acknowledging that both Georgia and Armenia are small states with small markets, Karapetyan argues that the two countries have the potential to expand their business opportunities by working together and, on certain issues, even “speaking with one voice.”

Georgia and Armenia in Search of New Export Routes

As stated in its 2016 government program, the Karapetyan-led government will focus on “economic co-operation with regional partnering states for ensuring more favourable conditions for the entry of Armenian products into those countries” and on eliminating “the existing obstacles for the entry of Armenia into markets with special trade regime.” Armenia’s biggest challenge is the vulnerability of its northbound export routes. Conflicts in Georgia’s breakaway regions, Abkhazia and South Ossetia, rule out the use of railway and road connections northward and leave Armenia without an alternative route besides the road passing through the Stepantsminda-Upper Lars checkpoint on the Georgia-Russia border. Frequent congestion and disruptions on this road impede Armenian and Georgian exports.

For land-locked states, safe transit routes through neighboring states are essential for access to world markets. Karapetyan’s government has attempted to address this challenge by finding alternative routes. He discussed this issue during his visit to Tbilisi. Prior to Karapetyan’s visit, Georgia and Russia began discussions over a 2011 bilateral agreement that planned to open trade corridors in the disputed territories via Swiss mediation. While Georgia is interested—expanding Russian-Georgian trade and increasing revenues from the transit of Armenian exports would benefit the Georgian economy—the issue is connected with the political status of the breakaway regions. As a result, progress has been slow.

Karapetyan’s visit to Tbilisi sparked suspicion among Georgian opposition parties about the possible reopening of the Abkhazian railway. Former Georgian President Mikheil Saakashvili’s United National Movement and the Movement for Liberty – European Georgia criticized the Georgian-Russian talks and declared that opening the railway would be “catastrophic” and “disastrous.” Georgian Minister of Energy Kakha Kaladze and the Special Representative for Relations with Russia Zurab Abashidze were quick to calm the public, stating that the issue is not on the agenda. Nevertheless, Karapetyan enjoyed a modest victory in his quest for increased export capabilities in April 2017. As a result of trilateral negotiations with Russia and Georgia, Armenia succeeded in reducing tariffs for railway and ferry transportation via the Black Sea.

Ultimately, Armenia’s renewed regional policy, combined with Georgia’s search for new partnerships and Iran’s newfound freedom as a result of the nuclear deal, marks a new stage for the South Caucasus. While this new level of cooperation has a long way to go before realizing results, Armenia’s recent efforts have the potential to reshape the region’s geopolitical landscape.