Armenia braces for fallout from Russian-Georgian row

Emil Danielyan 10/12/06

Russia's controversial transport blockade of Georgia is threatening to inflict considerable economic damage on Armenia, the Russian regional ally that uses Georgian territory as its main commercial conduit to the outside world. The government in Yerevan is now scrambling to minimize negative consequences of the sanctions for a large number of Armenian businesses trading with Russia.

Armenian leaders are particularly worried about a possible further escalation of the Russian-Georgian standoff sparked by the arrest in Tbilisi of four Russian army officers accused of spying. Some have urged the United States to help to defuse the tensions. [For background see the Eurasia Insight archive].

"The blockade is not affecting us yet," Prime Minister Andranik Markarian told the Armenian parliament on October 4. "Hopefully the situation in Georgia will not become more complicated."

Markarian insisted that Armenian companies are still able to deliver cargos to and from Russia via Georgian Black Sea ports, despite Moscow's October 2 decision to sever all land, sea, air and postal links with Georgia. Local cargo shipment firms confirm this. Nevertheless, some Armenian exporters have already reported serious problems with shipment of their goods to the Russian market.

The issue was reportedly high on the agenda of an October 9 meeting in Moscow of a Russian-Armenian inter-governmental commission on economic cooperation. Its Armenian co-chairman, Defense Minister Serge Sarkisian, said afterwards that Russian-Armenian commercial exchanges will continue unabated, but did not give details. His Russian counterpart, Transport Minister Igor Levitin, was reported to have announced that Moscow will maintain and even broaden a rail ferry service between the Georgian port of Poti and Russia's Port Kavkaz for that purpose.

Georgian firms will presumably be barred from using the link. Whether the Georgian government will allow its operation under such a condition remains to be seen. Armenia has the option of re-routing its Russian exports through Ukraine, whose Black Sea port of Ilyichevsk already handles most of the landlocked country's ferry traffic. But that will clearly raise the already high transportation costs incurred by Armenian exporters.

Official statistics show that the volume of Russian-Armenian trade is quite modest in both relative and absolute terms, totaling $364 million. That figure constituted less than 15 percent of Armenia's overall external trade last year. The European Union, by contrast, accounted for nearly 40 percent of its commercial exchange.

Even so, Russia remains the principal market for Armenian agricultural products, processed foods and liquor. These sectors generate income for tens of thousands of local farmers. Their exports were already hurt by Russia's equally controversial decision in June to "temporarily" close its sole functioning border crossing with Georgia, ostensibly due to infrastructure repairs on the Russian side of the mountainous frontier. The move was widely construed as part of a series of Russian punitive measures against the pro-Western administration of Georgian President Mikhail Saakashvili. [For background see the Eurasia Insight archive].

The Kremlin has since kept the Upper Lars crossing closed despite protests from Yerevan where a growing number of politicians and commentators feel that Russia ignores Armenia's interests in its increasingly aggressive policy towards Georgia. The latest Russian sanctions against Tbilisi are bound to reinforce this perception. "They are punishing the Georgians, but it is we who will suffer," the Yerevan daily Aravot editorialized on October 3.

"For Armenia, this is yet another indication that Russia simply does not notice Armenia in its policy towards Georgia," said Aleksandr Iskandarian, a political analyst who heads the Yerevan-based Caucasus Media Institute. "It's not that Russia is hostile to Armenia. It just doesn't think about Armenia. Armenia is no Kazakhstan, Ukraine or Belarus."

Despite calls by pro-Western opposition leaders for a public condemnation of the Russian blockade, the Armenian government is anxious to avoid taking sides in the dispute. As Gagik Minasian, chairman of the parliamentary Committee on Finance and Economy, put it: "We don't want to rock the boat. We will just follow the situation and try to help our two friendly countries sort out their problems."

Yerevan's biggest worry is a further upsurge in Russian-Georgian tension. Prime Minister Markarian conveyed these concerns to the visiting US Deputy Assistant Secretary of State Matthew Bryza on October 4, urging Washington to "take steps" to pull Moscow and Tbilisi back from the brink. "I told him that if the problem escalates and if certain processes unfold, Armenia will look like an island and our security will be in danger," the Armenian premier said.

One possible consequence of such an escalation is the disruption of Russian natural gas supplies to Georgia and Armenia through a Soviet-era pipeline running across the Caucasus Mountains. A section of that pipeline was blown up in the Russian republic of North Ossetia last January, provoking a severe energy crisis in Georgia. [For background see the Eurasia Insight archive]. Armenia barely avoided crippling power shortages at the time by tapping gas from a massive underground storage facility near Yerevan, and using electricity generated at its Metsamor nuclear power station.

Hayots Ashkhar, a newspaper close to Defense Minister Sarkisian, noted on October 6 that the Russian-Georgian row is raising the possibility of another "accident" at the pipeline and urged the government to hedge its bets. "The prospect of continued Russian-Georgian tensions is making it imperative for Armenia to accelerate work on the gas pipeline from Iran as much as possible," it wrote. The first Armenian section of the pipeline is scheduled to come on stream early next year.

The price of Russian gas is another major lever at Moscow's disposal, with the then state-run Gazprom monopoly having already doubled it for both South Caucasus states late last year. News reports quoted last week the head of Georgia's largest importer, Geno Malazonia, as saying that the Russians have signaled their intention to charge Tbilisi between $170 and $250 per thousand cubic meters of gas starting from 2007, up drastically from the current price of $110.

Under a controversial deal cut in April 2006, Armenia will pay Gazprom much less until January 2009 in return for handing over a major thermal power plant to Russia.

Editor's Note: Emil Danielyan is a Yerevan-based journalist and political analyst.

Posted October 12, 2006 © Eurasianet