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REMOVAL OF SANCTIONS WON'T HAVE DRAMATIC IMPACT ON ARMENIA-IRAN TIES
Thursday 16 April 2015
Photo: Photolure
Sevak Sarukhanyan
Banks.am's interview with Sevak Sarukhanyan, visiting Fulbright Fellow
at Georgetown University
- What particular impact might the lift or loosening of Western
sanctions on Iran have on Armenian-Iranian trade-economic ties? To
put it simply, what was impossible to do under the exposed sanctions?
- Positive expectations from the loosening or removal of sanctions
on Iran are exaggerated, while they won't have any qualitative impact
on Armenian-Iranian relations.
The reason is that the sanctions affected 4 main sectors of Iranian
economy - oil, insurance, technologies (including arms) and financial
transactions. The economic cooperation between Armenia and Iran
did not involve any of these sectors, with the exception of the
financial sector. We did not import oil or oil products from Iran. The
insurance industry first of all involved the Iranian oil fleet. As to
technological cooperation, Armenia exported virtually nothing to Iran,
all the more arms.
The only sector of the Armenian economy, which might benefit from
the removal of sanctions, is cattle-breeding. The volumes of export
of mutton from Armenia to Iran have dramatically declined precisely
because of the sanctions: they first resulted in the depreciation of
the Iranian rial as a result of which mutton faced 40% fall in price
(in dollar equivalent) in the Iranian market.
It was then followed by the deficit of currency in which Iranians
were paying for imports from Armenia and other countries, and it
also had adverse impact on the export of meat to Iran. As soon as
the currency crisis is over in Iran and it will be over after the
sanctions are lifted, this sector will regain its positions.
- To what extent did sanctions affect the banking sectors of Armenia
and Iran?
- They did not have any major impact, although they could. After the
package of financial sanctions was imposed on the Islamic Republic
of Iran, Iranian banks and financial groups attempted to enter
regional financial markets in order to evade sanctions. In 2012,
there was information leakage by several anonymous sources from the
UN and World Bank according to which the Iranian party was displaying
interest in acquiring shares in two Armenian banks to ensure foreign
market entry through them.
However, these attempts were suppressed, and it was quite expected
considering the Armenian financial sector's dependence on international
financial institutions.
In the meantime, Iran managed to carry out its plans in other
countries, first of all in Iraq and Turkey, which became the main
"hubs" of the currency influx to Iran as well as of illegal sales of
oil and gold. To date, the scandal over Turkish-Iranian businessman
Rıza Sarraf who, circumventing the sanctions, laundered around USD
50 billion for Iran through Turkish financial institutions has not
abated. However, Sarraf was acting together with Erdogan's government,
which granted him even more freedom of action.
In view of the small scale of financial markets in Armenia as well
as the absence of significant political resources to support such
activities, the prospect of transforming the country into a zone of
laundering illegal Iranian money was impossible.
- There were opinions that the implementation of major infrastructure
projects, including the construction of joint HPP on the Araks was
also, in fact, delayed because of the sanctions. Are these opinions
justified?
-They are both justified and unjustified. It is clear that Iran needs
free capital for the construction of the HPP but the country lacks
them because of the deep macroeconomic crisis. However, it does not
mean Iran will invest in the project as soon as it has the resources.
So to speak, in terms of finances, once the sanctions are lifted Iran
will have a chance to invest in the project, but the practical prospect
depends on a whole series of circumstances, above all political.
The question how interested Iran will be in this project after the
sanctions are removed and after it returns to global economy remains
open, especially provided that Tehran has started reviewing its power
industry policy - previously new capacities were planned to ensure
higher consumption volumes, while presently the policy of introducing
energy efficiency technologies in current capacities has become a
key element of the energy policy.
- In a recent interview with Mediamax, Georgian Minister of Energy
Kakha Kaladze said that the southern route of the transit corridor
is "very interesting and prospective provided the establishment of
relevant legal environment." Do you think Armenia, Georgia and Iran
will be able to engage in this and other trilateral projects after
the sanctions are removed?
- Of course, they can. But it requires the settlement of not only
legal, but also a number of practical issues, which are not directly
related to the absence of the contractual base - it refers to the
construction of new overhead transmission lines between Armenia and
Iran, which is being delayed although Armenia has abiding interest (or
should have abiding interest) in the implementation of this project.
Without overhead transmission lines, no development of
Armenian-Georgian cooperation in the power industry sector can create
a trilateral transit, as the possibilities of exchange between the
systems of Armenia and Iran are set in almost full motion and cannot
withstand any additional and considerable burden.
I would like to particularly note that after the exploitation of
Iran-Armenia gas pipeline energy cooperation between Armenia and Iran
did not undergo any new developments, which in my opinion, is not good
at all. We should take advantage as long as Iran is closed and as long
as Iran is politically interested in reinforcing ties with regional
neighbor states through even economically non-beneficial projects.
After all, as soon as Iranian gas enters European market and Iran
starts playing a "big game" on the international energy scene, it will
no longer show any interest in projects such as overhead transmission
lines in Armenia or joint HPP.
- Will the removal of sanctions create new prospects for Iran-Armenia
gas pipeline or is this issue fully in the field of Armenian-Russian
agreements in the energy sector?
- I don't think so since in technical terms, as long as the
gas pipeline from Russia operates Armenia does not need higher
volumes of import of Iranian gas. There are many talks on that we
can purchase Iranian gas at lower prices than the Russian gas, but
these are theoretical arguments not supported by practice. Iran has
never sold cheap gas to anyone. Even Turkey, which is a strategically
important country for the future of the Iranian transit, spends months
negotiating over 10% gas discount.
I believe the maximum use of Armenia-Iran gas pipeline is beneficial
for "Gazprom" itself inasmuch as the Russian gas sold at USD 189
to Armenia (let alone the astronomical 10% gas left to Georgia for
transit) can be sold at way higher prices in foreign markets.
So, if there is a real prospect for lower gas prices, the Iranian gas
might come to replace the Russian on the initiative of Russia itself.
If it does not happen, it means one thing - there is no such prospect.
Meanwhile, for objective reasons, Armenia might need additional
volumes of gas from Iran after Metsamor Nuclear Power Plant is closed.
If electric power needs are covered by constructing new Thermal Power
Plants after the NPP is closed, then the pipeline from Russia to
Armenia might not be able to address increased supply volumes. The
gas pipeline, particularly its Georgian part, is in a bad and here
and then, in a deplorable state; Georgia makes minimal investments
in its modernization and security and it can make the increase of
Iran-Armenia gas pipeline capacity non-alternative, including to the
Russian owner of the Armenian gas transportation system.
- Some pessimistic scenarios were also voiced in Yerevan after the
meeting in Lausanne. In particular, the removal of sanctions was
said to result in a dramatic increase in the volumes of Iranian oil
supplies and as a consequence, in even a greater decrease in global
oil prices and new weakening of the Russian economy, while Russia is
Armenia's main economic partner. What can you say on this?
-Oil is a commodity the price of which is determined not only based
on the volumes of production and consumption or on speculations,
but also on stir. The removal of sanctions will create a stir in the
market and the prices will drop, however, it will be temporary. And
there are several reasons for it.
First, nobody knows for certain how much gas Iran has actually exported
in the period of sanctions. The data provided by the Ministry of
Petroleum of Iran are one thing, and the reality is another. Given the
virtual absence of border between Iran and Iraq as well as the border
of oil-bearing Iranian Khuzestan with Iraq, Iran used to supply to
foreign market substantial volumes of Iranian oil as Iraqi. After the
sanctions are lifted it will continue to enter the foreign market but
as Iranian oil, which will not change anything in respect to volumes.
Second, Iranian oil-wells are often in a terrible state and cannot
secure dramatic increase in oil extraction. Around 80% of Iranian
wells were drilled before the Iranian (Islamic) Revolution. Over
the past years, no significant capital investments were made for
their preservation and safety. Iran's current task is not to take
over the international oil market but to retain its position in it,
and it is impossible without substantial financial and technological
investments. In this regard, Iran needs five to ten years to fully
return to the global market and according to various estimates,
it will require investments to the tune of USD 50-150 billion.
Ara Tadevosyan and Khoren Ormanyan talked to Sevak Sarukhanyan
http://www.banks.am/en/news/interviews/10719/?utm_source=mediamax.am&utm_medium=widget_mediamax &utm_campaign=partnership
Thursday 16 April 2015
Photo: Photolure
Sevak Sarukhanyan
Banks.am's interview with Sevak Sarukhanyan, visiting Fulbright Fellow
at Georgetown University
- What particular impact might the lift or loosening of Western
sanctions on Iran have on Armenian-Iranian trade-economic ties? To
put it simply, what was impossible to do under the exposed sanctions?
- Positive expectations from the loosening or removal of sanctions
on Iran are exaggerated, while they won't have any qualitative impact
on Armenian-Iranian relations.
The reason is that the sanctions affected 4 main sectors of Iranian
economy - oil, insurance, technologies (including arms) and financial
transactions. The economic cooperation between Armenia and Iran
did not involve any of these sectors, with the exception of the
financial sector. We did not import oil or oil products from Iran. The
insurance industry first of all involved the Iranian oil fleet. As to
technological cooperation, Armenia exported virtually nothing to Iran,
all the more arms.
The only sector of the Armenian economy, which might benefit from
the removal of sanctions, is cattle-breeding. The volumes of export
of mutton from Armenia to Iran have dramatically declined precisely
because of the sanctions: they first resulted in the depreciation of
the Iranian rial as a result of which mutton faced 40% fall in price
(in dollar equivalent) in the Iranian market.
It was then followed by the deficit of currency in which Iranians
were paying for imports from Armenia and other countries, and it
also had adverse impact on the export of meat to Iran. As soon as
the currency crisis is over in Iran and it will be over after the
sanctions are lifted, this sector will regain its positions.
- To what extent did sanctions affect the banking sectors of Armenia
and Iran?
- They did not have any major impact, although they could. After the
package of financial sanctions was imposed on the Islamic Republic
of Iran, Iranian banks and financial groups attempted to enter
regional financial markets in order to evade sanctions. In 2012,
there was information leakage by several anonymous sources from the
UN and World Bank according to which the Iranian party was displaying
interest in acquiring shares in two Armenian banks to ensure foreign
market entry through them.
However, these attempts were suppressed, and it was quite expected
considering the Armenian financial sector's dependence on international
financial institutions.
In the meantime, Iran managed to carry out its plans in other
countries, first of all in Iraq and Turkey, which became the main
"hubs" of the currency influx to Iran as well as of illegal sales of
oil and gold. To date, the scandal over Turkish-Iranian businessman
Rıza Sarraf who, circumventing the sanctions, laundered around USD
50 billion for Iran through Turkish financial institutions has not
abated. However, Sarraf was acting together with Erdogan's government,
which granted him even more freedom of action.
In view of the small scale of financial markets in Armenia as well
as the absence of significant political resources to support such
activities, the prospect of transforming the country into a zone of
laundering illegal Iranian money was impossible.
- There were opinions that the implementation of major infrastructure
projects, including the construction of joint HPP on the Araks was
also, in fact, delayed because of the sanctions. Are these opinions
justified?
-They are both justified and unjustified. It is clear that Iran needs
free capital for the construction of the HPP but the country lacks
them because of the deep macroeconomic crisis. However, it does not
mean Iran will invest in the project as soon as it has the resources.
So to speak, in terms of finances, once the sanctions are lifted Iran
will have a chance to invest in the project, but the practical prospect
depends on a whole series of circumstances, above all political.
The question how interested Iran will be in this project after the
sanctions are removed and after it returns to global economy remains
open, especially provided that Tehran has started reviewing its power
industry policy - previously new capacities were planned to ensure
higher consumption volumes, while presently the policy of introducing
energy efficiency technologies in current capacities has become a
key element of the energy policy.
- In a recent interview with Mediamax, Georgian Minister of Energy
Kakha Kaladze said that the southern route of the transit corridor
is "very interesting and prospective provided the establishment of
relevant legal environment." Do you think Armenia, Georgia and Iran
will be able to engage in this and other trilateral projects after
the sanctions are removed?
- Of course, they can. But it requires the settlement of not only
legal, but also a number of practical issues, which are not directly
related to the absence of the contractual base - it refers to the
construction of new overhead transmission lines between Armenia and
Iran, which is being delayed although Armenia has abiding interest (or
should have abiding interest) in the implementation of this project.
Without overhead transmission lines, no development of
Armenian-Georgian cooperation in the power industry sector can create
a trilateral transit, as the possibilities of exchange between the
systems of Armenia and Iran are set in almost full motion and cannot
withstand any additional and considerable burden.
I would like to particularly note that after the exploitation of
Iran-Armenia gas pipeline energy cooperation between Armenia and Iran
did not undergo any new developments, which in my opinion, is not good
at all. We should take advantage as long as Iran is closed and as long
as Iran is politically interested in reinforcing ties with regional
neighbor states through even economically non-beneficial projects.
After all, as soon as Iranian gas enters European market and Iran
starts playing a "big game" on the international energy scene, it will
no longer show any interest in projects such as overhead transmission
lines in Armenia or joint HPP.
- Will the removal of sanctions create new prospects for Iran-Armenia
gas pipeline or is this issue fully in the field of Armenian-Russian
agreements in the energy sector?
- I don't think so since in technical terms, as long as the
gas pipeline from Russia operates Armenia does not need higher
volumes of import of Iranian gas. There are many talks on that we
can purchase Iranian gas at lower prices than the Russian gas, but
these are theoretical arguments not supported by practice. Iran has
never sold cheap gas to anyone. Even Turkey, which is a strategically
important country for the future of the Iranian transit, spends months
negotiating over 10% gas discount.
I believe the maximum use of Armenia-Iran gas pipeline is beneficial
for "Gazprom" itself inasmuch as the Russian gas sold at USD 189
to Armenia (let alone the astronomical 10% gas left to Georgia for
transit) can be sold at way higher prices in foreign markets.
So, if there is a real prospect for lower gas prices, the Iranian gas
might come to replace the Russian on the initiative of Russia itself.
If it does not happen, it means one thing - there is no such prospect.
Meanwhile, for objective reasons, Armenia might need additional
volumes of gas from Iran after Metsamor Nuclear Power Plant is closed.
If electric power needs are covered by constructing new Thermal Power
Plants after the NPP is closed, then the pipeline from Russia to
Armenia might not be able to address increased supply volumes. The
gas pipeline, particularly its Georgian part, is in a bad and here
and then, in a deplorable state; Georgia makes minimal investments
in its modernization and security and it can make the increase of
Iran-Armenia gas pipeline capacity non-alternative, including to the
Russian owner of the Armenian gas transportation system.
- Some pessimistic scenarios were also voiced in Yerevan after the
meeting in Lausanne. In particular, the removal of sanctions was
said to result in a dramatic increase in the volumes of Iranian oil
supplies and as a consequence, in even a greater decrease in global
oil prices and new weakening of the Russian economy, while Russia is
Armenia's main economic partner. What can you say on this?
-Oil is a commodity the price of which is determined not only based
on the volumes of production and consumption or on speculations,
but also on stir. The removal of sanctions will create a stir in the
market and the prices will drop, however, it will be temporary. And
there are several reasons for it.
First, nobody knows for certain how much gas Iran has actually exported
in the period of sanctions. The data provided by the Ministry of
Petroleum of Iran are one thing, and the reality is another. Given the
virtual absence of border between Iran and Iraq as well as the border
of oil-bearing Iranian Khuzestan with Iraq, Iran used to supply to
foreign market substantial volumes of Iranian oil as Iraqi. After the
sanctions are lifted it will continue to enter the foreign market but
as Iranian oil, which will not change anything in respect to volumes.
Second, Iranian oil-wells are often in a terrible state and cannot
secure dramatic increase in oil extraction. Around 80% of Iranian
wells were drilled before the Iranian (Islamic) Revolution. Over
the past years, no significant capital investments were made for
their preservation and safety. Iran's current task is not to take
over the international oil market but to retain its position in it,
and it is impossible without substantial financial and technological
investments. In this regard, Iran needs five to ten years to fully
return to the global market and according to various estimates,
it will require investments to the tune of USD 50-150 billion.
Ara Tadevosyan and Khoren Ormanyan talked to Sevak Sarukhanyan
http://www.banks.am/en/news/interviews/10719/?utm_source=mediamax.am&utm_medium=widget_mediamax &utm_campaign=partnership