Institute for War and Peace Reporting | Giving Voice, Driving Change

Shifting Energy Politics in the Caucasus

Tehran’s re-entry into the gas market is changing the status quo.
By Arshaluis Mghdesyan
  • Gazprom office building in Yerevan. (Photo: Photolure)
    Gazprom office building in Yerevan. (Photo: Photolure)

The lifting of international sanctions against Iran has introduced movement into the region’s energy politics.

Recent months have seen a series of talks between senior officials from Iran, Russia and the three Caucasus republics regarding the import, export, and transportation of gas.

Iran has the necessary infrastructure to deliver Russian gas to world markets under a swap agreement, according to Hamid Reza Araqi, Iran´s deputy minister of oil and managing director of the National Iranian Gas Company (NIGC).

“Tehran is ready to receive up to 300 million cubic metres of gas from Russia and simultaneously send the equivalent amount of natural gas to end users from its export terminals in the south,“ Araqi told Iran's state news agency IRNA.

Last December, representatives of Armenia, Georgia, Russia and Iran met in Yerevan.  At the time, Armenia´s deputy minister of energy and natural resources Areg Galstayan only said that talks were being held about the supply of large volumes through a swap agreement.

The implementation of such deliveries between Russia and Iran through the South Caucasus, combined with Georgia´s desire to buy gas both from Russia and Iran, could change the region´s energy landscape as well as its geopolitics.    

It is clear that Iran wants to become more active in the Caucasus gas market, while Armenia, Azerbaijan and Georgia are also all seeking to expand ties with the Islamic Republic in this sector.  In addition, Russia and Iran have pledged to co-operate on future joint energy projects, despite their geopolitical rivalries.

However, it is too early to tell how big a niche Iran will be able to carve out for itself in the South Caucasus market, or whether Russia – thus far dominating the regional market - will be genuinely open to cooperation.


Since 2007, Iran has had a swap arrangement under which it has exported small volumes of natural gas to Armenia in exchange for imported electricity.  According to the State Commission on Regulating Public Services, Iran supplies around 390 million cubic metres of gas per year to Armenia.

Iran has also had a gas swap arrangement with Azerbaijan since 2005.

The Armenian-Iranian gas pipeline has an annual maximum throughput capacity of two billion cubic metres.

Two days before sanctions were lifted on January 16, Georgia and Iran announced a preliminary agreement on the export of Iranian gas to Georgia via Armenia.  The planned delivery would not exceed 500 million cubic metres, said Alireza Kameli, managing director of the National Iranian Gas Exports Company (NIGEC), according to the website of Iran´s oil ministry. Details about the pricing and terms of the contract have not yet been made public.

For Armenia, which has been subject to an economic blockade by Azerbaijan and Turkey since the early 1990s, becoming a gas transit country would help break the country´s isolation.

Any Georgian-Iranian gas deal could ultimately be thwarted by Russia.  The Armenian-Iranian gas pipeline to be used for the swap deliveries is owned by Gazprom Armenia, a subsidiary of the Russian gas giant Gazprom which was the largest taxpayer in Armenia in 2014 and 2015. 

But Russia and Iran are working on their own ties. A contract on energy cooperation signed by Russian President Vladimir Putin during a visit to Tehran in late November could promote further joint gas projects. 

For example, the Russian company Stroitransgaz is planning to sign a two billion dollar agreement in the near future on building two gas pipelines in Iran. This would receive funding from Vnesheconombank, the bank´s chairman, Vladimir Dmitriyev, who accompanied Putin to Tehran, told journalists.

According to Russia’s minister of energy Aleksandr Novak, Russia and Iran have discussed the possibility of their own gas swap operation. 

Gazprom would deliver gas to the north of the country through Armenia or Azerbaijan, and in return receive gas from fields in southern Iran.

“The swap was discussed as a proposal.  The details still need to be worked out,” he noted.

So far there has been no decision on the route for gas swap deliveries between Iran and Russia or the delivery of Iranian gas to Georgia.  Either Armenia or Azerbaijan could become a gas transit country, which would bring considerable economic dividends and increase the country’s political standing in the region.   

Iran expert Sevak Sarukhanyan, executive director of the Armenian Centre for Society Research, said he did not foresee any tectonic shifts in the South Caucasus energy market.

“Energy cooperation between Iran and Russia cannot reach such a scale that it would have a great impact on the energy market and the geopolitical situation in the region,” he said.  Despite all political statements, the two sides were returning to their pre-sanctions previous level of cooperation, Sarukhanyan added.

“Because of this, the spheres of influence are limited due to the limited scope for cooperation between Iran and Russia.  Regarding gas shipments, their volume cannot increase significantly because the Russian-Armenian pipeline laid through Georgia does not have the capacity for it,” he said.

This infrastructure is fairly outdated and its maximum throughput capacity is three billion cubic metres of gas per year.  In 2014, Gazprom Armenia, an affiliate of Russia’s Gazprom, which deals with the supply, and distribution of gas in the country, delivered just over two billion cubic metres of gas from Russia. 

That means “the current volumes of gas supplies from Russia to Armenia can be expanded at most by one billion cubic metres, which cannot have a significant impact for the region or for Iran,” according to Sarukhanyan. 

Iran and Russia had long been regional rivals, he continued. 

“They have always competed for influence in the region,” Sarukhanyan said.  “In this regard, it is difficult to imagine coordinated energy cooperation between these powers in the region.”

Aleksandr Knyazev, a Kazakhstan-based regional expert, also does not see great opportunities for the implementation of large-scale gas swap deliveries between Iran and Russia. 

In his view, shipments of gas that access the Persian Gulf may not be economically viable, since Russia would meet stiff competition in Pakistan, India and South East Asia.

In the South Caucasus, gas swaps would be easier via Azerbaijan than Armenia, Knyazev added.

“Shipments could be made either through the already existing infrastructure, since the demand in Armenia is not so great, or by laying a new pipe,” he told IWPR.


Currently, Azerbaijan is Georgia’s main gas supplier.  Its state oil company SOCAR has a monopoly over the Georgian market and accounts for more than 86 per cent of energy supplies. 

Against this background, Tbilisi is eager to diversify gas supplies to the country and thus reduce its dependence on Baku.

Georgia is also looking towards Russia as a potential energy supplier, a politically divisive option domestically.

The opposition party United National Movement, founded by former Georgian president Mikheil Saakashvili, strongly opposes a gas deal with Russia.  

From the standpoint of Georgia´s energy security, accepting gas supplies from Russia is wrong, according to David Sikharulidze, chairman of the Atlantic Council of Georgia and a former defence minister under Saakashvili.

“We must not forget that Russia has occupied 20 per cent of Georgia’s territory,” he said, in a reference to the breakaway regions of South Ossetia and Abkhazia.

“Besides, any gas shipments from Russia will bring about political pressure and corruption risk in Georgia.  After all, in the case of Russia, gas is not only an economic, but a political factor.  In this regard, negotiations with Russia´s Gazprom can have a negative effect on Georgia´s energy security,” Sikharulidze said.

Georgia’s former prime minister and founder of the ruling Georgian Dream bloc, Bidzina Ivanishvili, who continues to wield strong influence over government decision-making, told journalists last November that he backed diversification.

“All of Europe receives Russian gas and hence there is nothing criminal if Georgia buys it too,” he said, adding that Georgia has long been receiving 10 per cent of the Russian gas supplies to Armenia as payment for transit. 

“I see nothing wrong in the diversification of the market, to give our businesses the possibility to buy gas where they want to,” said Ivanishvili. 

Azerbaijan has been less than enthusiastic about the emergence of a competitor in the Georgian energy market.

“We have no obligations to the Georgian leadership, and they are free to choose: if they want to buy gas from Russia, let them buy,” SOCAR´s president Rovnag Abdullayev told Georgian media after a visit by President Ilham Aliyev to Tbilisi in early November last year.  “But will Russian gas be competitive in Georgia?  That is already another question.”

He added that, “We have around 100 petrol stations and over 20 stations that use gas in Georgia.  We can sell gas at any price. … Not one oil and gas project (in Georgia) can be economically viable without the participation of Azerbaijan.”

As for the impact on SOCAR, Abdullayev continued, “The president skillfully and diplomatically hinted to the Georgian leadership that SOCAR is the biggest tax payer in Georgia and it is not in Georgia´s interest to lose such a partner,” he said.

In any case, talks between Russia and Georgia over this issue are currently stalled.

Gazprom wants to monetise the 10 per cent share of the gas Tbilisi has been receiving as transit fees from the Russian supplies transiting its territory en route to Armenia via its territory.

Energy minister Kaladze told journalists that Tbilisi opposed monetisation as there would be no guarantee that the country could buy the same amount of gas, or that Gazprom would agree to sell them gas without a change in Georgia´s foreign policy.

“Gazprom has presented an ultimatum to move towards a financial payment,” Kaladze told The Messenger Online on January 19. “We categorically objected to this, although they directly indicated that they can import gas to Armenia directly from Iran. Such a danger really exists and its consequences will be very severe for us.”

Arshaluis Mghdesyan is an independent journalist in Armenia.

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