How US Sanctions on Iran Severely Affects Armenia and Its Economy?

Iran-Armenia economic relations are bound to get deeply affected by US sanctions on the Islamic Republic and leave a massive dent on Iran’s economy. Not only on Iran’s economy but key allies of Tehran including Armenia may also get severely hit by the US sanctions. EurAsian Times analyses the impact of US sanctions on Iran-Armenia economic relations.

Following the United States national security adviser John Bolton’s visit to Armenia, Armenian officials have expressed their worry about the negative political and economic consequences of intensifying the US sanctions against Iran.

After all, the sanctions are quite extensive, including over 700 companies and individuals. Restrictive measures also apply to third-country companies that maintain contacts with Iranian legal entities on the sanctions list, such as the Central Bank of Iran, Mellat Bank, the Iranian Oil Company and the Naftiran Intertrade Company. Such restrictive measures cannot but bother neighboring Armenia cooperating with Iran in the sphere of trade and energy.

The Transcaucasian Republic has fairly, close relations with Iranian financial and energy structures. Since 1995, a branch of the Iranian Mellat Bank has been operating in Armenia (US sanctions are also imposed on it). Yerevan cooperates with Iran in the field of energy, including on a barter basis – Iranian gas in exchange for Armenian electricity, and a Free Economic Zone is created at the border of the two countries. Furthermore, the growing confrontation between the US and Iran is also troubling the Armenian side in terms of security. After all, this is one of the two corridors linking Armenia, blocked from the west (Turkey) and the east (Azerbaijan) due to the Karabakh conflict, with the outside world.

“Judging by the level of interaction and geopolitical importance of Iran for Armenia, it is clear that the Armenian side is extremely interested in a stable and developing Iran. These sanctions create difficulties and risks in terms of expanding the Armenian – Iranian cooperation. For example, for investors who want to invest in Armenian – Iranian projects, new risks are created. The states should compensate them to reduce the negative impact of the sanctions, “warn the experts.

The Foreign Ministry and the Central Bank of Armenia are extremely cautious in their statements about the United States anti-Iranian sanctions. “We clearly present our concerns and for Armenia, traditional good-neighborly relations with Iran are of vital importance. A comprehensive expert analysis of the consequences of sanctions against Iran for Armenia is being carried out now, “the Foreign Ministry spokesman said.

The Central Bank of Armenia stated that it applies a comprehensive system of preventive measures in the financial system of the country and is aware of the full restoration of the sanctions imposed by the US against Iran on August 6 and November 5. “When planning their current activities, the CB and commercial banks of Armenia take into account possible consequences arising from this (sanctions),” said the expert.

What will be the level of the negative impact of the anti-Iran sanctions on Armenia or Armenian-Iranian relations is difficult to say. According to experts, this issue always comes up public discussions, when the US either weakens or tightens the anti-Iranian vector of its foreign policy.“In both cases, the press either generates high expectations or ‘draws’ unreasonable apocalyptic scenarios,” the expert noted

It is enough to recall the jubilant reaction of the majority of experts and media in Armenia to the lifting of international sanctions with Iran after the conclusion of the nuclear deal in 2015.

Now, when Trump squeezes the ring around Iran, there are even rumours of a military conflict. But one thing is very clear that Iran will not give up its regional ambitions at any cost.

The same applies to the Armenian-Iranian relations. Three years ago, when the sanctions wall around Iran collapsed, experts predicted Armenia to play a vital role to assist the  Western and Eurasian investments in the Islamic Republic. A well-known Russian philanthropist and businessman of Armenian origin Ruben Vardanyan said that in the new conditions Armenia could become ‘Hong Kong’ for Iran.

But nothing as such happened. Joint projects such as the construction of the Armenian-Iranian railway and the oil refinery on the border with Iran were relegated to the background. The logic is simple. “After the lifting of sanctions, Iran can easily acquire these technologies and build refineries in their own country. Why should Iran build an oil refinery in Armenia if it can build such a plant in its own land? ”the expert said

In this regard, as noted by the Armenian authorities, one should not expect sharp fluctuations in the volumes of the Armenian-Iranian trade due to US sanctions. “In the last 10 years, when sanctions were imposed twice, and once they were cancelled, trade between Iran and Armenia fluctuated at the level of $ 230 million – $ 310 million a year.

The adviser to the President of the United States, John Bolton, clearly stated this to the Armenian authorities during his visit to Yerevan. The only thing that worries the United States is that Armenia does not become a portal for ‘gray schemes’ and financial operations of Tehran with the third countries.

According to experts, the ongoing joint Armenian-Iranian projects will be completed. “The construction of the third high-voltage transmission line with Iran will continue, the project to create a free trade zone at the border will also be implemented. Only the flow of tourists from Iran this year has slightly decreased, which, however, is due to the internal regulations of this country.

Economists find that the small volumes of the Armenian-Iranian trade as a whole are not because of the sanctions, but due to the specific structure of the Iranian economy. “Iran is pursuing a very tough protectionist economic policy. There are draconian import measures in place aimed at creating unequal conditions of competition with local producers at the expense of importers. Iran does not seek to import consumer goods, Tehran is more keen to get access to the latest technology, modernize the country and increase its competitiveness,” the expert stated.

From this point of view, the ‘gate’ for Armenia to the Iranian market can open up the recently concluded agreement on a free trade zone between the EEU and Iran. “Currently, the level of effectiveness of this agreement leaves much to be desired.

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