Armenia’s Energy Security Faces Frosty Relations with Russia
Lacking fossil fuels, Armenia leans on Russian gas and oil for most of its needs.
Armenia’s strained relations with Russia, its traditional strategic ally, may have an impact beyond political and security alliance, affecting the country’s energy security as Moscow supplies most of Yerevan’s gas needs.
Armenia is officially considered a self-sufficient country in terms of its volume of electricity, generating up to 98 per cent of its needs in-country. Experts, however, warn that the reality is more complex.
“Our self-sufficiency depends on the countries from which we import the gas and the uranium that operate our thermal and nuclear power plants. And when our government officials speak about our self-sufficiency, why do they forget to say how we maintain it?” energy expert Armen Manvelyan told IWPR, noting that in fact over 70 per cent of Armenia’s electricity depended on Russia.
According to Armenia’s statistical committee, in 2021 thermal power produced 42.9 per cent of the country’s electricity, while 25.4 per cent was provided by nuclear plants with uranium imported from Russia. Internal resources produce about 31.6 per cent of Armenia’s electricity: 27.9 per cent from hydropower and 3.7 percent from solar power plants.
In addition, Armenia imports natural gas and oil for most of its energy needs, predominantly from Russia. According to data from the Ministry of Territorial Administration, Russia supplies 87.5 per cent of Armenia’s gas needs via pipeline through Georgia, while Iran covers 12.5 per cent through a barter agreement under which it exports electricity in exchange.
Armenia also trades electricity with Georgia, though volumes are low since the countries’ networks are not synchronised. Energy interconnections with Azerbaijan and Turkey are inactive for political reasons.
In an interview on November 15, Iran's newly appointed ambassador to Armenia, Mehdi Sobhani, hinted that Tehran might help Yerevan reduce its energy dependence on Russia. Since 2009 Armenia has provided Iran with electricity in return for natural gas supplies; the arrangement was due to end in 2026, but in August the two countries agreed to extend and expand it until at least 2030. Russia, however, could turn the tap off as gas giant Gazprom owns the pipeline bringing the gas from Iran to Armenia.
According to the Statistical Committee of Armenia, in 2021 natural gas accounted for 76.2 per cent of imported energy resources and oil products for 21.9 per cent.
Armen Manvelyan, an energy expert, noted that amid the strained relations with Russia in the wake of the situation in Nagorny Karabakh, this dependency was problematic.
“Armenia is not in the best energy situation right now,” he continued. “Yes, the nuclear power plant is working, thermal power plants are working, but their activities depend on the energy resources supplied from Russia. And if their prices increase, Armenia may face serious problems.”
While a spike in prices is not imminent, the widening rift between Yerevan and Moscow meant that it cannot be ruled out.
“Until now, the existing favourable tariffs were determined by the quality of political relations between the two countries,” Manvelyan said. “If you have good political relations, you get a good price. When you start to spoil your political relations, the situation may become dicey and prices may increase.”
Other experts are more optimistic.
“I think that the problems associated with the dependence on Russian gas are not as acute and existing issues can be mitigated by diversifying the country’s energy system, for example developing further nuclear and solar energy,” Avetisyan told IWPR, adding that supplies from Russia and Iran were mutually beneficial.
“In the case of Iran, this is done within the Gas for Electricity scheme, while in case of Russia, we buy the gas, we do not receive it as a gift.”
Manvelyan noted that rates were certainly lower for Yerevan.
“Armenia pays Russian gas at a low price, 175 dollars per 1,000 cubic metre while Azerbaijan sells gas to its ally Turkey at 290 dollars,” he said, adding that Armenia was short of options in terms of friendly neighbours and should hence “make every effort to ensure good relations with Russia”.
“An increase in gas prices will trigger a chain reaction across the country’s economy as prices of our goods will increase, affecting our export opportunities because our products will become uncompetitive,” he concluded.
OPENING THE ENERGY MARKET
To increase its self-sufficiency, the Armenian government has embarked on a path to liberalise the energy market as a way to boost its electricity export capacity and diversify sources.
“We support the government of Armenia in implementing reforms in the energy sector. We are working with the Armenian government in three main areas - liberalisation of the electricity market, diversification of energy supplies and development of interstate trade with Georgia,” said Abgar Budagyan, chief of party at Tetra Tech, which implements USAID’s energy programme in Armenia.
For Prime MInister Nikol Pashinyan, the gradual liberalisation of the electricity market which started in 2022 has opened up new opportunities and created favourable conditions for interstate trade.
“We are developing production capacities, carrying out large-scale reconstruction of substations and power lines, and building Armenia-Iran and Armenia-Georgia high-voltage lines, which contribute to the formation of the North-South Electricity Corridor and create new opportunities for increasing exports, imports, transit or seasonal power exchange. Thus, Armenia can become a kind of regional electricity hub,” he said in June.
The open market means that consumers can choose an electricity supplier, depending on the offered tariffs. It also means that the Electric Networks of Armenia (ENA) no longer has the monopoly over the electricity supply, although new suppliers still have to use ENA’s distribution network, meaning that the company remains the only guaranteed distributor.
“Since the introduction of the new market model, the Commission approved the licence for 14 suppliers and seven wholesalers are already operating,” Sergey Aghinyan, a member of the Public Services Regulatory Commission, told IWPR.
According to official statistics, in the first six months of 2023, 13.1 per cent of consumers chose new electricity suppliers, up from 5.3 per cent in the whole of 2022. The government forecast the share to reach 23 per cent in 2024.
Experts and officials noted that the reform contributed to the development of interstate imports and exports.
“In 2022, Armenia exported 365 million kWh to Georgia; in 2012-2021 the amount remained constant at 242 million. This happened mainly because of market liberalisation,” Vardanyan said. Iran remained the main recipient of Armenia’s electricity, with 1178.3 million kWh of electricity supplied in 2022.
But experts remain divided over the benefits of liberalisation. Avetisyan’s assessment one year on is positive as it is “an important process that provides opportunities for free competition for existing market players not only within the country, but also abroad”.
Manvelyan maintained that authorities should have strengthened state control rather than open the market.
“Energy is one of the few industries that should be very seriously controlled by the state, it is the only one in the position to build large systems and high-voltage networks," he said. "If Armenia were a large country, we could also talk about the private sector, but this is not the case of our country.”
This publication was prepared under the "Amplify, Verify, Engage (AVE) Project" implemented with the financial support of the Ministry of Foreign Affairs, Norway.