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Samvel Martirosyan 2/24/05

Despite Moscow’s strong interest in Armenia’s energy sector, officials in Yerevan worry that the Kremlin is considering a policy realignment that would enhance Azerbaijan’s stature at the expense of the Russian-Armenian special strategic relationship.

The main source of Yerevan’s concern is a planned railway project that would connect Iran to Russia via Azerbaijan. Armenian officials fear that the railway, if built according to current plans, would deepen Armenia’s regional economic isolation. The proposed Kazvin (Iran) – Astara (Azerbaijan) line would skirt Armenian territory, denying Armenia an opportunity to expand trade with Russia. Given the existing economic blockade maintained by Turkey and Azerbaijan, Armenia can ill afford to be left on the sidelines of such a project, officials in Yerevan say. [For background see the Eurasia Insight archive].

Since the 1991 Soviet collapse, Armenia has maintained a close strategic relationship with Russia, in part to offset the geopolitical disadvantage of having hostile neighbors on its eastern and western flanks. In recent years, the special relationship has shown signs of fraying. Russia-Azerbaijani relations have thawed, while Yerevan has expanded contacts with both Iran and the United States. [For additional information see the Eurasia Insight archive].

Armenian officials took note of Russian Foreign Minister Sergei Lavrov’s February 2 trip to Azerbaijan. Lavrov’s comment in Baku that “there are no unresolved problems” between the Russian and Azerbaijani governments heightened concerned in Yerevan about Moscow’s potentially shifting loyalties in the South Caucasus.

Lavrov’s February 16-17 visit to Armenia did little to assuage Yerevan’s concerns. During talks with Lavrov, Armenian Prime Minister Andranik Markarian voiced concern about the railway project, according to official sources. In response, Lavrov merely indicated he would relay the Armenian government’s views to Russian Transport Minister Igor Levitin and Russian Railways President Gennady Fadeyev.

Markarian and Lavrov also reportedly discussed the possibility of reopening the Abkhaz section of Georgia’s railway system, a link that would reestablish Armenia’s railway ties with Russia. Officials provided no details on the substance of those discussions.

Problems between Yerevan and Moscow are not limited to rail-related topics. For the past two years, five Armenian companies, handed over to Russia as compensation for $100 million in unpaid Armenian debt to Moscow, have stood idle. In his meeting with Markarian, Lavrov assured the prime minister that Russia is doing everything possible to reopen the companies, but neither Moscow nor Yerevan has announced a concrete plan for getting the firms up and running again. Golos Armenii (Voice of Armenia), a Yerevan-based Russian-language newspaper, has described the fate of these companies as the most sensitive issue in relations between Russia and Armenia.

Armenian media outlets also looked askance at Lavrov’s actions on his recent visit to Azerbaijan, when the foreign minister visited Baku’s Martyr’s Avenue, a memorial to the 130 people killed during the Soviet Army’s 1990 crackdown on anti-Armenian pogroms in the Azerbaijani capital. Meanwhile, as Armenia commemorates 2005 as a Year of Russia, Russia has declared 2005 a Year of Azerbaijan.

Moscow’s recent behavior has left some Armenian political leaders feeling confused. “Honestly speaking, Armenia sometimes does not understand some of Russia’s steps, especially those concerning relations with Azerbaijan and Turkey,” Giro Manoyan, international secretary of the Armenian Revolutionary Federation, a member of Armenia’s ruling coalition, said in a recent interview with the Caucasus Journalists Network.

Amid the uncertainty surrounding the Armenian-Russian special relationship, Armenia’s energy sector is one strategic area in which Russia, sensitive to growing Western influence in the South Caucasus, maintains a strong interest. Accordingly, Lavrov probed economic cooperation possibilities with Markarian.

The Russian energy company United Energy Systems (UES) is reportedly considering the purchase of Armenia’s electricity distribution network, according to the Armenian news agency ARKA. UES already holds three power stations in Armenia – Sevan-Hrazdan hydropower plant, the Hrazdan thermal power station and the Armenian Nuclear Electric Plant – facilities that generate some 75-80 percent of the country’s electricity. With the purchase of UK holding company Midland Resources’ 80 percent stake in the distribution network, UES would hold control over almost the entire Armenian electrical power grid.

Russian energy giant GazProm, has been similarly active. The Iranian-Armenian gas pipeline, scheduled to be operational before 2007, could provide stiff competition for gas in European markets from GazProm’s own Blue Stream gas pipeline project with Turkey, according to GazProm Deputy Chief Executive Officer Alexander Ryazanov. “If we do not take part in the construction of [the] Iran – Armenia gas pipeline, no one knows where that gas will go,” the news site PanArmenian Network reported Ryazanov as saying at a recent session of the Federation Council, the Russian parliament’s upper chamber.

During his trip to Armenia, Lavrov confirmed Russia’s interest in joining a pipeline construction consortium. “We received an offer, inviting our corresponding structures to take part in this project,” Lavrov said, repeating past assurances that the pipeline meets with Russia’s approval. “This offer is presently under consideration and I am convinced we will be able to give an answer in the nearest future.”

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