ARMENIA'S POTENTIAL REACTION TO USUN SANCTIONS

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 001701 SIPDIS SIPDIS E.O. 12958: DECL: 12/08/2016 TAGS: ETRD ECON EINV ENRG PINR UNSC AM SUBJECT: ARMENIA'S POTENTIAL REACTION TO USUN SANCTIONS AGAINST IRAN (C-RE6-01152) REF: A. STATE 192099 ¶B. YEREVAN 900 ¶C. YEREVAN 1647 ¶D. 05 YEREVAN 2118 Classified By: EconOff E. Pelletreau for reasons 1.4 (b,d). -------------- SUMMARY -------------- ¶1. (C) Armenian trade with Iran remains relatively modest, accounting for four percent of overall trade. Much of this trade, however, is in key industries such as oil, energy and construction materials. In the event of UNSC sanctions against Iran, it likely that both Armenian industries and the Armenian government will seek to continue trade with Iran, whether openly or otherwise. Given Armenia's closed borders with Azerbaijan and Turkey and current tensions between Georgia and Russia, the GOAM continues to view Iran as a critical trading partner and back-up route to the outside world. END SUMMARY. -------------- KOCHARIAN SPEAKS OUT AGAINST SANCTIONS -------------- ¶2. (U) On November 25, Armenian President Robert Kocharian spoke out against sanctioning Iran. He said "I think that from a legal standpoint Iran has not acted beyond its international commitment framework. So even if sanctions are introduced, they would likely take the form of specific restrictions. I hope they would not pose a threat to Armenian-Iranian relations." He added that "sanctions have never brought solutions to any problem anywhere. On the contrary, sanctions lead to a country's isolation and cause more serious consequences." -------------- CLOSE TIES ON ENERGY ISSUES -------------- ¶3. (C) Armenia's energy ties with Iran are well established and growing. Armenia has a long-standing energy swap agreement with Iran. In the spring and summer months, when Armenian electricity production is high due to increased hydro power, and demand is low, Armenia sends electricity to Iran to help meet increased demand primarily for air conditioning. In the winter, when demand for electricity in Iran declines, Armenia imports electricity to help meet wintertime heating needs. A new Iran-Armenia gas pipeline is scheduled to become operational in late December (ref B). In early 2007, Armenia and Iran are scheduled to begin construction of linked hydro power plants on either side of the Arax river each with a capacity of 140 MW (septel). -------------- - LIMITED TRADE, BUT A LINK TO THE OUTSIDE WORLD -------------- - ¶4. (C) Armenian-Iranian trade in other sectors is less well developed, but still important. Armenia exports some oil products, stone and lime to Iran. Armenia imports Iranian construction materials, agricultural products and oil products and fuel. In early December, Iran's Agricultural Minister Mohammed-Reza Eskandari met Armenia's Prime Minister and Agricultural Minister in Yerevan to sign a number of agreements to promote bilateral cooperation in the agricultural sector. While total trade in all sectors in 2005 was less than USD 115 million, approximately four percent of overall Armenian trade, the GOAM and the Armenian public view Iran as an important link to the outside world. -------------- COMMENT -------------- ¶5. (C) It is difficult to predict how the GOAM and Armenian traders would react in the event of UNSC sanctions being imposed against Iran. Many of the small traders in the agriculture and construction industry will likely seeks ways to continue trade with Iran despite sanctions. While the GOAM has not said that it would not honor UNSC sanctions, given the critical energy links between the two counties and Armenia's geo-political situation, to do so would be YEREVAN 00001701 002 OF 002 extremely difficult. Moreover, Armenians well remember their dark days of the early 1990s, when Iran was Armenia's sole lifeline to the wider world, as Azerbaijan, Turkey, and strife-torn Georgia were all closed to Armenian trade. With Armenia's Turkey and Azerbaijan borders still sealed and current tensions between Russia and Georgia, Armenians view an open border with Iran as a strategic necessity. GODFREY