Rosbalt, 01/03/2004, 13:03

Will Gas Be a 'Lethal Weapon' in the South Caucasus?

Samvel Martirosyan

Gazprom's projects in the South Caucasus look different in the light of its decision to cut off exports of gas to Belarus. Already there is talk in Armenia that the Iran-Armenia gas pipeline project may be resurrected. Over the last month, both Moscow and Tehran have spoken of their willingness to take part in such a project. Meanwhile, Gazprom is gradually becoming the leading player in the South Caucasus:

Gazprom's Victory Parade in Armenia

A year ago Itera had a virtual monopoly on gas supplies to Armenia, but by the end of 2003 Gazprom controlled at least half the Armenian market and, as of January 2004, Itera was almost completely out of the market. At the end of last year there were also rumors that the project to build a pipeline from Iran to Armenia, popular in the 1990s but unrealized, might be resurrected.

Armenian Prime Minister Andranik Magarian said at the end of 2003 that Armenia was already in negotiations with Moscow and Gazprom about starting work on the pipeline. Confirmation of this came in January, when Iranian Ambassador to Armenia Mohammed Farhad Koleini announced that Tehran intended to renew consideration of the project.

On January 30 Russian Deputy Premier and Co-Chairman of the Armenian-Russian Committee for Bilateral Trade Boris Alyoshin announced that Russia intends to help build the Iran-Armenia pipeline. He explained that the project is of commercial interest to Russia and that the Russian company could operate the pipeline on Armenian territory. He said the energy ministries of Russia and Armenia, together with ArmRosgazprom, which runs all gas transportation networks in Armenia (45% stakes owned by Gazprom and Armenia and 10% by Itera), have been asked to prepare a construction plan.

About the same time, Rokneddin Javadi, director of Iran's gas exporting company, announced that his company intends to start delivering gas to Armenia soon. He said an agreement was near completion. One billion cubic meters of gas a year would be supplied to Armenia beginning in 2006, he said.

The director of ArmRosgazprom, Karen Karapetian, has called 2004 a critical year for the gas pipeline project and said his company intends to help build the pipeline. The situation was further clarified recently by Armenian Energy Minister Armen Movsisyan, who said a deal had basically been struck and that the agreement would be signed within two months during a visit by the Iranian minister for oil and gas to Erevan.

Economics or Politics?

In economic terms, the Iran-Armenia pipeline is not of the utmost importance for any of the countries. The project has been valued at around USD 70-90 million. Iran will not be supplying its own gas but using the Turkmen gas that it already exports to Armenia, using a more roundabout route. According to Karapetian, although the export route for Turkmen gas to Armenia will be shortened, prices will probably remain unchanged. Prices are already the lowest anywhere in the Commonwealth of Independent States.

Karapetian has said the pipeline will give Armenia greater security in energy since the country now must rely on a single pipeline that runs through Georgia and Chechnya, hardly the most stable of regions. Chechengazprom, which is not under Gazprom control, frequently claims it intends to block the pipeline to the South Caucasus and there are often accidents in Georgia that threaten the whole energy sector of Armenia.

So the talk about energy security is wholly justified. Yet Armenia is unable now to use the amount of gas it already gets. The current contracts between ArmRosgazprom and Gazprom stipulate deliveries of up to 1.5 billion cubic meters of gas via Georgia in 2004, with the amount increasing to 1.9 billion by 2007. But gas consumption in Armenia has been steadily falling in recent years and only amounted to 1.199 billion cubic meters in 2003. ArmRosgazprom is already about USD 17 million in debt and one of the reasons for this is the falling demand for gas in Armenia.

If 1.9 billion cubic meters of gas were delivered to Armenia via Georgia in 2007and another million cubic meters delivered via Iran, Armenia would have almost three times more gas than it is presently able to consume. It is unlikely that over the next three years Armenia will experience such a boom in production as to warrant this sharp increase in gas supply despite the unprecedented industrial growth that was recorded in 2003 (which, incidentally, did not lead to any significant increase in the demand for gas).

Gazprom Is Moscow's tool for dictating regional politics

The reasoning behind Gazprom's moves can be found in the regional political context. The difficult political situation in the South Caucasus and especially in Georgia, which is gradually coming more and more under the influence of the US, means that gas is becoming a powerful tool for putting pressure on Tbilisi, which is dependent on Russia and Armenia for its energy supply. The new gas pipeline will allow Gazprom to bring gas to Armenia while bypassing Georgia.

At present, Russia lacks any real means of putting pressure on Tbilisi in the energy sector, since any attempt to stop gas supplies to Georgia inevitably affects Armenia as well, Russia's only ally in the South Caucasus. If the pipeline from Iran is built, Armenia will no longer depend on the northern pipeline to such an extent and Moscow would be able to exert greater influence over Georgia. Then there would be no repetition of the situation in Belarus, where Baltic and European buyers of Russian gas, not to mention the Kaliningrad Region, had to suffer along with Belarus, when gas was cut off, and enforce restrictions on fuel consumption.

A similar process is going on in Azerbaijan, where, as of January 1, 2004, Gazprom became the leading supplier of gas. At the end of December, Director of Gazexport (a subsidiary of Gazprom) Alexander Medvedev signed a five-year contract for Russian gas with Natik Aliyev, president of the Azerbaijani State Oil Company. Itera, which previously had a monopoly on gas exports to Azerbaijan, was forced to relinquish its position.

The contract with Azerbaijan came into effect on January 1, 2004, and terminates December 31, 2008. According to the agreement, up to 4 billion cubic metres of gas a year will be supplied to Azerbaijan. Sabit Bagirov, a former president of the Azerbaijani oil company, said this could eventually make Azerbaijan completely dependent on Russian gas.

In this way, the Iran-Armenia pipeline could allow Russia to ostracize Georgia, isolate the countries of the South Caucasus from each other and provide Russia with more options in its gas policy (and its policy in general) in this region.

Samvel Martirosyan, Rosbalt, Erevan.

Translated by Nick Chesters.

http://www.rosbaltnews.com/2004/03/17/65875.html