It is often said that Armenia and Iran are natural allies, both in terms of security and economics. At the highest levels, both countries have expressed a commitment to deepening economic ties and creating favorable conditions for business collaboration. The increasingly frequent reciprocal visits by policymakers from both countries' economic sectors likely indicate a desire to take concrete actions.

On September 6, the Iranian ambassador to Armenia, discussing the potential for economic cooperation and future projects, announced that his government has allocated approximately $3 billion for collaboration with Armenia.

Statistics show that economic relations between the two countries are gaining momentum.

In recent years, trade between Armenia and Iran has surged. For example, in 2021, bilateral trade amounted to about $505 million, while in 2022, it surpassed $700 million. By 2023, Iran's exports to Armenia reached $612 million, marking a fourfold increase compared to 2017. As of the first seven months of 2024, Iran had already exported goods worth $329 million to Armenia. These exports primarily consist of natural gas, construction materials, iron, dairy products, dried and fresh fruits, and tomatoes.

Armenia’s exports to Iran in 2023 were valued at $94.5 million, a slight decline compared to $110.3 million in 2022. By mid-2024, Armenia had exported goods worth $63.1 million, mainly electricity, scrap metal, cigarettes, beef, lamb, and chocolate.

The decrease in Armenia's exports to Iran is attributed to factors such as sanctions, the lack of payment systems, and Iran's economic structure and policies. The Iranian government enforces protectionist measures, restricting the import of goods that can be produced domestically. It is almost impossible to export a product to Iran if it is manufactured locally.

On the other hand, Iran’s export growth is driven by several factors. One of the most significant is the 2019 temporary free trade agreement between the Eurasian Economic Union (EAEU) countries and Iran, which allowed 306 Iranian products to be exported to Armenia, Russia, Belarus, Kazakhstan, and Kyrgyzstan with zero tariffs. This agreement is expected to become permanent by 2024, following Armenia’s recent approval of the free trade agreement with Iran.

Though Armenia's economy is small, the Armenian government has positioned the country as Iran’s gateway to the EAEU market. Armenia is the only EAEU member state that shares a land border with Iran, and Yerevan is offering to establish joint production ventures. For example, given Iran’s lower energy costs, some production could be done in Iran, while other parts could be manufactured in Armenia, allowing the final products to enter the EAEU market.

It was recently announced that a series of EAEU-Iran events will be held in Yerevan as part of the third Eurasian Economic Forum, with the participation of representatives from the EAEU member states, Iran's government bodies, and the business community.

Large Economic Projects

Armenia and Iran have been engaged in active negotiations and meetings over the past two years. The Armenian authorities regularly announce that cooperation with Iran in the fields of trade, energy, transport, and road infrastructure holds a special place on their agenda.

However, the key component of economic cooperation between the two countries remains the "Gas for Electricity" agreement, which was extended until 2030 through a memorandum signed in 2023. “We export 1 million cubic meters of gas to Armenia daily, and this amount will double based on the new memorandum,” said Iran’s Deputy Petroleum Minister.

A significant concern is the ongoing delay in completing the Iran-Armenia 400kV power transmission line and related substation. This infrastructure should have been operational years ago, but the projected completion date has been pushed back to late 2024. The root of the problem lies in financing: originally, Iran was set to fund the construction of this power transmission line. However, new sanctions imposed on Iran in 2018 created unforeseen obstacles, resulting in prolonged delays. The importance of this power line cannot be overstated, as it forms the backbone of a crucial gas and electricity exchange program between the two nations. Once operational, it will significantly enhance energy transfer capacity, benefiting both countries.

The "Persian Gulf-Black Sea" project remains a key agenda item for both countries. Armenia and Iran place great importance on transportation via this logistics route. The Armenian side is particularly eager to support its implementation, emphasizing the significance of using its own territory.

In this context, the full activation of the "North-South" transport corridor in Armenia is crucial. This corridor will facilitate access to the Black Sea not only for Armenia but also for India and the Persian Gulf countries. Iranian officials have repeatedly stressed the importance of this route. Mehdi Sobhani, the Iranian Ambassador to Armenia, expressed confidence that the "North-South" road would allow cargo to reach the Black Sea from Armenia two days faster than through Azerbaijan. He stated, "For Iran, Armenia is the best route to the north for accessing the Black Sea, and likewise, for Armenia, Iran is the best path to the Persian Gulf and Chabahar port."

Armenia signed the final version of the "Persian Gulf-Black Sea" International Transport Corridor protocol in April 2022, but it has yet to be ratified.

This project represents a significant step toward enhancing regional connectivity and economic cooperation. Its successful implementation could reshape trade routes and boost economic ties between the involved countries, potentially leading to increased trade volumes and economic growth in the region. The emphasis on utilizing Armenian territory also highlights the country's strategic geographical position as a key transit hub connecting Asia with Europe.

A landmark agreement was signed in October 2023 between the Armenian government and Iranian companies, marking a significant milestone in regional infrastructure development. This contract entrusts Iranian firms with the construction of a crucial 32-kilometer stretch of the "North-South" transport corridor, specifically the Kajaran-Agarak road section, directly linking Armenia to Iran. The project, valued at $212 million, represents a significant boost to Iran's export of technical and engineering services to Armenia. Construction work commenced in early 2024 and is progressing rapidly.

In the same month, the two sides also announced plans to build a new bridge over the Aras River, as the existing one, built in the late 20th century, has limited capacity.

Additionally, Iran has committed $36 million to various smaller projects in Armenia.

Armenia has also expressed interest in becoming a port operator at Iran's Chabahar port, a crucial link in transportation between Armenia, Iran, and India. Armenia is considering cooperation with India Ports Global Ltd. & Ports, one of the operators of Iran's Chabahar port. However, a decision regarding Armenia's participation will depend on obtaining technical and economic justifications for operations at Chabahar port.

Other Collaborations

In recent years, there has been a notable decline in one of the traditional areas of Armenian-Iranian relations: tourism.

For instance, in 2017, 220,000 Iranian tourists visited Armenia, but in 2023, this number dropped to 150,000, and in 2022, it was 116,000. Experts attribute this decline to the significant appreciation of the Armenian dram and the rising cost of living in recent years.

While no data is available on Armenian tourists visiting Iran, both countries have expressed their intention to strengthen ties in this area.

On August 14, 2024, a cooperation agreement was signed between Iran's Tourism and Automobile Club and the Armenian Automobile Federation. The primary goal of this agreement is to facilitate the entry of Armenian citizens into Iran with their personal vehicles and to issue them the "Carnet de Passage" (a customs document for vehicles).

Financial Cooperation

Cooperation between the financial institutions of Armenia and Iran remains limited. Iran's Mellat Bank has been operating in Armenia since 1996. In its early years, it was quite active, particularly in fostering Armenian-Iranian relations. However, due to Western restrictions, Mellat Bank's transaction volume has significantly decreased in recent years.

Although the Central Bank of Armenia has never imposed restrictions on transactions with Mellat Bank, Armenian commercial banks have ceased working with it to maintain their ability to conduct transactions with foreign partners. Mellat Bank has no correspondent accounts with banks in Armenia, and banks in Armenia do not have correspondent relationships with Iranian financial institutions.

Years ago, the Central Bank of Armenia acknowledged that international partners recognize the need to facilitate trade transactions with Iran, a role Mellat Bank once played effectively. However, Mellat Bank now ranks second-to-last in terms of assets among Armenia’s 18 banks. Despite this, the bank's profits saw a slight increase in the first half of 2024 compared to the same period in 2023. Profits rose from 2.6 billion drams in 2023 to 2.9 billion drams in the first half of 2024.

Given these circumstances, Armenian authorities have identified the creation of a barter system for goods exchange as a cruicial mechanism for deepening economic relations. Armenia's commercial attaché in Iran previously stated that active work is underway to develop such mechanisms. Just as the "gas for electricity" exchange exists today, a similar arrangement could be created for "goods for goods."

Contributed by Ani Grigoryan, the founder and editor of CivilNetCheck - a fact checking department at CivilNet online TV.