Armenia has modeled risks of possible Russian gas price increase, finance minister says

By Siranush Adamyan

Armenia’s government has assessed the economic impact of a possible increase in Russian natural gas prices, Finance Minister Vahe Hovhannisyan said in an interview broadcast by Shant TV on Thursday evening.

“Yes, there are calculations related to an increase in gas prices and related to various restrictions. Of course, we have assessed all the risks,” Hovhannisyan said.

He did not disclose the level of price increase the government modeled or its potential impact on the Armenian economy.

“We assess different risks and try to incorporate the calculations of those different risks as accurately as possible into our risk-assessment system, and to understand what consequences could arise if one scenario or another materializes,” he said.

The issue is significant because Armenia remains heavily dependent on Russia for natural gas. The country imports around 2.7-2.8 billion cubic meters of gas a year, with about 85% coming from Russia and roughly 15% from Iran.

Russia currently supplies Armenia at a border price of about $165 per 1,000 cubic meters. Adjusted for its calorific value, the effective price is around $177.

Also read: Explainer: Why Armenia wants more gas from Iran

The discussion over gas prices comes as relations between Yerevan and Moscow face growing strains and Armenia seeks to diversify its economic and energy ties. Russian officials have suggested that closer integration with the European Union could carry economic consequences for Armenia, while Moscow has also imposed restrictions on some Armenian exports.

At the same time, Yerevan has been looking to expand energy cooperation with Iran. Armenia and Iran recently agreed to seek to double the volume of natural gas and electricity exchanged under a gas-for-electricity arrangement that has operated since 2009.

Under the deal, Armenia imports Iranian gas and supplies three kilowatt-hours of electricity to Iran for every cubic meter of gas it receives. Iranian gas enters Armenia through the Iran-Armenia pipeline, which has an annual capacity of around two billion cubic meters. The Armenian section of the pipeline is owned by Gazprom Armenia, a subsidiary of Russia’s Gazprom.

Expanding Iranian supplies, however, faces infrastructure and commercial constraints. A major increase in the gas-for-electricity exchange depends on completion of a long-delayed third high-voltage electricity transmission line between Armenia and Iran. Iran also faces seasonal supply constraints, particularly during winter.

Iranian gas sold on international markets is also generally more expensive than the Russian gas supplied to Armenia, although prices can vary substantially depending on political agreements and contract terms.

Russia is therefore expected to remain Armenia’s main gas supplier for the foreseeable future. But increasing supplies from Iran could give Yerevan more room to diversify and reduce its dependence on a single source.