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Could Armenia Be One of the Biggest Beneficiaries of the Iran Nuclear Deal?

Posted on the 31 August 2015 by Center For International Private Enterprise @CIPEglobal
Iran-Armenia border crossing. (Photo: Press TV)

Iran-Armenia border crossing. (Photo: Press TV)

By Ann Mette Sander Nielsen

The much-analyzed nuclear deal with Iran to lift international sanctions is, if approved, expected to have a substantial impact on the Iranian economy by enabling the country to increase its oil and gas exports and by creating new possibilities for foreign direct investment (FDI). Many observers hope that the deal will allow for increased interaction with multinational companies and could help build more constructive relations between Iran and the international community.

However, one aspect of the story has not been widely covered: how the nuclear deal could have a massive economic and social impact on the region at large, including Central Asia and South Caucasus. One country which could make considerable gains from the nuclear deal is Armenia, which shares a border with Iran.

It is possible that Armenia could be the country to benefit the most from a more internationally integrated Iran? A range of deep-rooted and protracted conflicts have kept Armenia isolated from two of its four neighbors – Azerbaijan and Turkey. Consequently, Armenia has maintained a strong relationship with Iran since the fall of the Soviet Union in 1991, and could gain from a stronger Iran on the world stage.

Indeed, despite their obvious differences, the two countries share certain cultural ties. There is a relatively large Christian Armenian minority in Iran, which enjoys official recognition, and Armenians living in Iran have their own semi-independent media, football, basketball, and swimming teams and private “Ararat” clubs where Islamic law does not apply.

The two countries have established close ties and cooperate in the fields of energy, sport, environmental protection, health care, agriculture, education, science, and culture. Yet in 2014, trade between Armenia and Iran accounted for a mere $290 million, less than five percent of Armenia’s overall foreign trade.

Looking down the line, that figure could grow, as an expanding Iranian economy following the lift of sanctions could have a spillover effect on Armenia. FDI will make Iranian businesses and goods more competitive, which might allow products of higher quality to enter the Armenian market. Armenia currently also uses Iran as a gateway for trade with other Middle Eastern countries and China; a growing Iranian economy could also bolster prospects for such trade.

The Iranian nuclear deal also represents a breakthrough for infrastructure projects in the region. Once the Iranian economy has improved, old infrastructure projects which were stalled due to a lack of capital may eventually materialize. The Armenian and Iranian governments have previously planned joint infrastructure projects, such as the Meghri Hydroelectric Dam located in Syunik in Armenia, the construction of a $350 million hydroelectric plant on the Arax River, and the Southern Armenia Railway which will connect the two nations by rail.

The Southern Armenia Railway line would run from the Iranian border into Armenia and, possibly, into Georgia and its Black Sea ports. The project is one of the biggest priorities of the Armenian government, since it would allow for Armenia to circumvent the economic blockades which Armenia has endured since 1994, allowing for economic growth in a country where one third of the population lives below the poverty level.

From the Iranian perspective, the close relationship with Armenia could also allow for the small South Caucasian country, which recently became a member of the Eurasian Economic Union (EEU), to become a transit state for Iranian businesses to reach the more than 180 million consumers in Russia and the other EEU countries. Additionally, cooperation between Armenia and Iran in on energy could enable the supply of Iranian gas to the European Union through Georgia and the Black Sea.

It is also possible that increasing ties between Armenia and Iran could have a spillover effect in the area of civil society and human rights. Although Freedom House ranks Armenia as a semi-authoritarian state, Armenian civil society operates in a much more favorable environment than in Iran and is able to use social media to spread awareness about pressing social issues.

When thousands of Armenians took to the street this summer to speak out against electricity price hikes, the protests signaled that civil society is still able to make demands from its government. In Iran, of course, human rights groups and reformists still face stiff obstacles, so one area to watch going forward will be whether there are signs of increased contact between Iranian civil society groups and their northern neighbors.

Ann Mette Sander Nielsan is a Eurasia Intern at CIPE.

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