The visit of Armenian Prime Minister Tigran Sargsyan to Iran on October 25-26 underlined the peculiarities of bilateral relations between these two countries. Armenia needs to entertain good relations with its southern neighbor, first of all because Iran provides Armenia, under embargo by Azerbaijan and Turkey, with alternative access to the outer world, along with its principal access through Georgia.

Armenia is seeking to activate the existing transport corridors by constructing a railroad connecting Armenia and Iran, which will bypass the existing and closed railroad through Azerbaijan’s Nakhichevan exclave. If constructed, this railroad would become an unprecedented route connecting the Gulf region and the South Caucasus. Conversely, Iran needs Armenia as a stabilizing factor on its northern border and Iran’s neutral position on the Nagorno-Karabakh conflict is a valuable asset for Armenia. In particular, Armenia’s decision not to  join the UN’s economic sanctions against Iran has contributed to improving ties between the two countries.

Armenian Foreign Minister Edward Nalbandian confirmed this in a special statement on October 21, just before the visit: “We do not believe that the use of force or sanctions can be helpful in finding solutions. We hope that agreements and solutions on the nuclear program of Iran can be found through negotiations, with combined efforts of Iran and the international community”. For all these reasons, Sargsyan and his delegation, including eight ministers, were welcomed in Tehran, where Sargsyan had meetings with President Mahmud Ahmedinejad and Vice President Mohammadreza Rahimi.

Iran could also potentially serve as an important market for Armenian exports, which have suffered from the trade embargo by Azerbaijan and Turkey. Trade between the two countries is currently highly imbalanced, with Iranian imports from Armenia constituting less than 15 percent Iran’s exports to Armenia. This is mainly due to tariff and non-tariff trade barriers applied by Iran. The Armenian Prime Minister said during the visit that the trade potential between the two countries is estimated to US$ 1 billion a year. The actual turnover for 2009 was US$ 154 million, according to the Armenian Statistical Commission. For that reason, a major goal of Armenia has been to reach a free trade agreement with Iran, which if signed would be a rather unique arrangement between a World Trade Organization member (Armenia) and a non-WTO country (Iran).

The two countries have negotiated this agreement over at least four years and would potentially remove many of the trade barriers for Armenia which exist both at the state and the province levels in Iran. However, no such agreement was signed during Sargsyan’s visit, which can be seen as a serious failure on Armenia’s part. This failure was reportedly caused by the fact that the Iranian side “was not prepared legally,” in the words of the Armenian officials. Instead, the Armenian delegation repeatedly stressed that major joint infrastructural projects between the two countries are underway. According to the Armenian side, there are currently four such projects. Two of these, a hydropower station on the Araks border river (near the town of Meghri) and a third high-voltage line for exporting electricity to Iran were officially inaugurated in Armenia, with the participation of the visiting Energy minister of Iran Majid Namju, shortly before Sargsyan’s visit. Two other joint projects are the construction of an oil-product pipeline and a terminal for these products, the construction of which will reportedly start this year, and the new interstate railroad. In addition, the creation of an industrial zone in the southern Armenian province of Syunik was discussed and given the green light during the talks. This zone is expected to contain Armenian-Iranian joint ventures for processing agriculture products, for which Armenia hopes to attract private investors.

Thus, Sargsyan’s visit to Iran demonstrated the complex relationship between the two countries. The interests of 70 million population Iran and 3 million Armenia partly overlap and in most cases depend on the behavior of the largest partner, Iran. Armenia does its best to implement the joint projects and generally downplays the Iranian nuclear program. Iran supports these projects, and has provided large loans to Armenia to fulfill them, as it did in the case of the hydropower station in Meghri. At the same time, Armenia has few means to influence the political processes in Iran, including its protectionist trade policy and the resistance of its bureaucracy. These two factors seem to have contributed to the failure of the free trade agreement. Nevertheless, the countries cooperate closely in a wide range of spheres as seen by the large size of the delegations during the Armenian Prime Minister’s visit.