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06.02.2014

AN OUTLOOK FOR IRANIAN GAS IN ARMENIA

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Sevak Sarukhanyan
Head of the Centre for the Political Studies of the Noravank Foundation

In December 2013, after the Armenian-Russian gas agreement was signed, there have been some intense discussions on importing gas from Iran to Armenia. The main discussion topics are the price of the Iranian gas and the nature of the Armenian-Russian gas agreement, which allegedly might prevent Armenia from increasing volumes of the imported gas from Iran.

The price of the Iranian gas

For discussions on the Iranian gas price, one may consider the price of gas exported from Iran to Turkey and Nakhichevan, as well as the Iranian experiences with exporting gas to Pakistan and Georgia.

Since 2001 Iran, Pakistan and India constantly negotiate over a gas pipeline construction project and the main issue in these negotiations is the gas price. Tehran refuses to set the price below international market price levels, arguing that the gas price is something like the oil price, to be calculated by a formula and not to be otherwise changed. And this is stated under circumstances, where construction and operation of the pipeline is a matter of a vital economic importance for Tehran. In addition, as in case with Iran and Armenia, Iran, India and Pakistan also have some common values (regardless of the political situation).

However, since 2001 Iran did everything to dissuade Pakistan of any false assumptions that Tehran might export gas Pakistan at prices lower than the international ones. It has to be noted though, that Iranian officials have stated on numerous occasions that cooperation between the countries should develop not only based on economic categories, but also under a priority of friendship values.

In 2012 Pakistan made the last attempt to get cheap gas from Iran: taking advantage of the international sanctions against Iran and realizing well that Tehran needs additional revenue sources, Islamabad offered a long-term gas agreement to Iran, with a price somewhat lower than the international level. However, this tactical offer was again turned down by Iran, apparently due to the consideration that sanctions will eventually come to an end, while long-term contractual obligations for energy supply would remain.

The Iran-Georgia negotiations on gas trade are another good example. Since 2004, former Georgian president Mikheil Saakashvili made several attempts to make an Iran-Georgia gas agreement. Hardly anyone remembers that pro-Western former Georgian president M. Saakashvili twice held high-level negotiations on exports of Iranian gas to Georgia with M. Ahmadinejad, who had a negative image in the West. Both times Iran expressed interest, but negotiations ended with no specific agreement due to the very reason of high price for the Iranian gas. This circumstance is often ignored in discussions taking place in Armenia, during which an opinion is expressed that had there been no pressures from Russia, Armenia could have become a transit country for the Iranian gas. It can be said in this case that Moscow is not and has never been interested in the seeing Iranian gas enter international markets, although in practical terms there also has never been a real opportunity for its transit through Armenia, since the Iranian gas had no buyers anyway. This is because of its high price and Tehran’s negative response to the idea of selling it below international levels.

The same price issue was subject to Iran-Ukraine negotiations that ended with no positive outcome, regardless of what Russia and Gazprom thought about it.

In this context it seems dubious that all of a sudden Iran would significantly lower the gas price for Armenia, thus giving a pretext to India, Georgia, Turkey, Europe and Pakistan to discuss the natural gas pricing mechanism. As for the Iranian ambassador’s remark that gas can be sold for $400 to one buyer, and for $100 to another one, it is just a classic diplomatic statement, which again, has not been confirmed in any way.

Is it possible to increase the imports of Iranian gas?

As far as this story is concerned, it does gave some objective grounds. To date Armenia and Iran have not held actual negotiations over the price. Despite this, the issue whether Armenia would be able purchase natural gas from Iran after concluding the new Armenian-Russian energy agreement has become a subject for discussions. Moreover, even some opinions are voiced that Armenia assumes obligation to buy only Russian gas.

In reality, the agreement does not imply Russian gas monopoly in domestic market of Armenia, but rather, Russian monopoly in gas transportation system. The system and market are quite different things and equating them would be the same as, for example, equating airport and airline company. Although an airport receives aircrafts flying into the country, it may not regulate who and for what purpose arrives. The same goes for the gas system: the Armenian-Russian agreement regulates cooperation in gas infrastructure, but not gas sources.

Under these circumstances increase of the Iranian gas imports to Armenia may not encounter any difficulties. In fact, if there is a buyer, then the ArmRusGazprom-owned Iran-Armenia gas main have to be used, for which either the buyer or seller would have to pay for transit, which in case of a small country like Armenia would have a negligible impact on the natural gas price.

However, it has to be realized that an increase of the Iranian gas imports to Armenia may happen only in case of significant economic development rates, especially in the quite energy-consuming industrial sector. In absence of such prospect import volumes of gas will remain low and natural gas imports from two sources will hardly be worthwhile in economic terms.


“Globus” analytical journal, #1, 2014

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