Azerbaijan And Russia-Armenia Gas Crises

The ongoing debate in Armenia over the increasing price of natural gas sold by Russia has had an enormous impact on ordinary Armenians, among whom dissatisfaction is growing.



A further complication in this ongoing debate arose when the president of the Azerbaijan State Oil Company (SOCAR) declared in an exclusive interview with local ANSTV on June 7 that Azerbaijan will be able to supply Armenia with gas. Following this statement, another avenue of discussion was opened, among the political experts and politicians in Baku seeking to explain this statement, and the terms under which Azerbaijan is prepared to help Armenia.



To understand the link between the two developments, we need to look closer at political-economic development in Armenia, and the full narrative of the Moscow-Yerevan gas crisis.



Russia's motives and Iran's role



The price of the gas that Russia sells to Armenia was an issue in bilateral discussions before the February presidential elections, but the discussion did not leak into the public sphere because Yerevan was concerned about the possible negative implications for Serzh Sargsyan's presidential campaign. Then in mid-May, once the rise had already been approved, a group of civil activists held a protest in front of the Armenian Parliament. They too were surprised at the Armenian president's to keep such an important decision under wraps.



Notably, President Sargsyan did not attend the informal summit of the Collective Security Treaty Organization (CSTO), on May 28, though the official explanation was that the meeting it clashed with Armenia's independence day celebration. One can argue that Russia's motives in this case are clear: Moscow wants to push Armenian government into action regarding joining Customs Union, as well as the so-called Eurasian Union initiative. On June 7, following Russia's decision, a big crowd protested in front of the Russian embassy in Yerevan, under the slogan "Russia is weakening Armenia."



We can anticipate that the country will face an economic depression in the coming months, due to the sudden increase from the current $180 per 1,000 cubic meters to $270; ArmRusgasprom, Armenia's domestic gas distributor, has applied to the Public Services Regulatory Commission of Armenia to increasing the domestic tariff from the current $316 to $374 per 1,000 cubic meters. The chairman of the Central Bank of Armenia, Artur Javadyan, stressed that the increase will generate a further 2-2.5 percent inflation. Considering that as of May 2013, the 12-month inflation was 5.2 percent in Armenia according to official data, socio-economic conditions are looking bleak. At the very least, it may lead to bankruptcy for small businesses.



Given these developments, then, it is perhaps not surprisingly that the Iranian ambassador has told the Armenian public that Tehran is ready to assist to Armenia in this difficult situation. In reality, however, such assistance is impossible, at least in the short term.First, Armenia currently buys gas from Iran under a "barter agreement" -- in exchange for gas, Armenia exports electricity. Armenia's existing technical capacity makes it impossible to supply more electricity, and the Armenia-Iran high-voltage electricity transmission line is not ready. Additionally, the Armenian domestic energy market is controlled by ArmRosgasprom closed Joint Stock Company, the majority of which is owned by Russian Gazprom (80 percent). The Armenian government holds 20 percent of the shares. Therefore, the decision to buy more gas from Iran cannot be made by the Armenian government alone, but rather by Russian energy giant Gazprom, and thus essentially by Moscow.



Second, the price of Iranian gas under a commercial agreement would be even more expensive than the new price of Russian gas. Armenia buys Iranian gas at $230-235 with the barter arrangement, but the commercial price could be between $335 and $370, (compared with $270 from Russia). The final obstacle is political; the Armenian government does not feel comfortable buying more gas, or becoming dependent on Iranian gas, under current international conditions. With the West applying sanctions to Iran and the generally unstable situation there, Yerevan would like to look for safer alternatives.



Gas crisis and Nagorno-Karabakh conflict



Azerbaijan's offer to supply gas to Armenia was clearly the political rather than commercial move. There are various explanations being offered; this is my take on SOCAR's statement:



The main reason was to gauge public opinion in both Azerbaijan and Armenia, where the gas crisis provoked public dissatisfaction with Russia. The majority of Azerbaijanis public were asking under what terms the government would be ready to assist Armenia; the precondition as stated by many politicians is the ending of the Armenian occupation of Nagorno-Karabakh. No one is questioning the technical side of things, i.e., whether it is actually possible to supply gas to Armenia energy expert Ilham Shaban, from the research website Caspian Barrel, explains the possibility from a technical point of view.



Second, Baku was motivated by a desire to stimulate the Nagorno-Karabakh conflict negotiations, which have stagnated. The last time the Azerbaijan and Armenian presidents met was 17 months ago, and while the two parties' foreign ministers have met to set the agenda for the presidential meetings, they are still working just to schedule the meeting. It is expected that in the coming days, during the meeting of the three co-chairs of the Minsk Group, the countries' presidents – the US, France and Russia -- will issue a joint statement about the conflict resolution process at G8 summit.



The final reason is again political: From Baku's vantage point, the increasing pressure that Moscow is putting on the region, could hurt countries that are its strategic partners, and if Azerbaijan can actually assist Armenia, there may be development on conflict resolution.



Obviously, it remains unknown whether Baku's offer will be considered by Yerevan. What is clear is that Russia's "gas is politics" principle remains as powerful as ever.



ZAUR SHIRIYEV (Cihan/Today's Zaman)