Is Armenia Blockaded?

creating economic links as a stimulus to political normalisation is one of the few ways out of the current impasse

By Haroutiun Khachatrian in Yerevan

Over the past two years Armenia has experienced economic growth and now that the Medzamor nuclear power station has restarted its electricity supply is better than Russia’s. So how serious is the blockade of Armenia? Well, all rail and road links connecting Armenia with Turkey and Azerbaijan are still blocked and the gas pipeline from Kazakh in Azerbaijan to Idjevan in Armenia, by which Armenia receives Turkmenistan’s gas, is not yet open.

It was relatively easy for Armenia to circumvent the blockade on communications through Azerbaijan. In 1990/1 Azerbaijan blockaded the railway from Baku to Nakhichevan and on to Yerevan, along which Armenia sent and received 85 per cent of its goods. It also cut what was then the only gas pipeline (Kazakh to Idjevan) through which it received 16 million cubic metres of gas per day.

Armenia was able to reroute most of its freight, which came almost exclusively from Russia, via Georgia. In addition, at the beginning of 1991 a new gas pipeline through the Caucasus range came into use, allowing Armenia’s gas supply to bypass Azerbaijan, again via Georgia. Although this pipeline has a capacity of no more than 7 million cubic metres per day, during the harsh 1991/2 winter the Armenian government was able to compensate to a certain extent by increasing the purchase of fuel oil.

By 1992 Georgia became practically the only corridor for bringing goods into Armenia, since as a newly-independent state, it had hardly begun to trade with its neighbours Iran and Turkey. So August 14, 1992—the day the Georgian-Abkhaz war broke out, followed by the civil war in Georgia—is comparable for its impact on the Armenia economy to December 7, 1988—the day of the devastating earthquake in Spitak.

This was less because of the closure of the railway along the Abkhaz coast, than because the small amount of freight which managed to make it through Georgia (some of it through the ports of Batumi and Poti) was subject to theft, while the gas pipeline was blown up many times. Without deliveries of a small amount of grain through Turkey in the winter of 1992 -3, there would have been starvation in Armenia. Then in April 1993 the Turkish-Armenian border was closed after the Karabakh army seized the Kelbajar region of Azerbaijan.

The three subsequent bitter winters, during which the fighting in Karabakh was at a peak brought not only huge human losses, but also a decline of more than a half in the economy. Many branches of industry were ruined. As a result, by the time a fairly stable railway link from Armenia to Russia was secured in 1994-5—via the ports of Novorossisk, Batumi and Poti—the country’s previous demand for goods had fallen back sharply. Producers of chemicals, electrical generators and transformers had lost their markets because western products had penetrated into the former Soviet Union, while the economies of the new republics had collapsed. Particularly affected was the military/industrial complex, which had been one of the main consumers of Armenian industrial goods.

Just as important for Armenia was the opening of a new transport corridor—to Iran. Although so far this is only by road, it already carries a considerable part of Armenia’s trade.

So the Azerbaijani blockade is no longer as important for today’s Armenia as it was. Even it were possible to lift it, this would be unlikely to have a speedy impact on the Armenian economy. For example , the resumption of work on the Kazakh-Idjevan pipeline would be practically useless: Armenia simply cannot afford to pay for more than the present 5 million or so cubic metres of gas per day. Interestingly, many experts reckon that the marked improvement in the supply of energy in Armenia is not so much thanks to the reopening of the Medzamor nuclear power station as to improvements in the distribution system.

Azerbaijan’s blockade of Armenia—imposed with the aim of forcing Armenia to make concessions in the Karabakh conflict—has in fact almost had the opposite effect. It has forced economic change in Armenia, depriving Azerbaijan of most of its economic and geographic leverage.

However, it would be difficult to say that lifting the blockade would make no difference at all. Above all, the opening up of communications would have a positive psychological impact on potential foreign investors. Armenia needs investment more than Azerbaijan, so clearly, Armenia would benefit.

Even without the opening of direct trade with Azerbaijan (indirect trade is already going on via Georgia) and the possibility of routing Azerbaijan’s oil export pipeline through Armenia, two further steps would benefit Armenia. The reopening of the borders with Turkey would lead to an explosive growth of direct cross-border trade which at present is conducted indirectly—via Iran or Georgia. Opening the border with the Azerbaijani enclave of Nakhichevan would sharply increase the transit of goods from Russia to Iran, as the only railway linking Iran and the former Soviet Union passes through the junction at Djulfa in Nakhichevan on its way through Armenia and Georgia to Russia.

Both these steps would be of no less economic benefit to Armenia’s partners, Turkey and Azerbaijan. This is true above all of Turkey, for which the importance lies not so much in the Armenian market itself as in the possibility of expanding its economic influence directly to the east. At present this is severely hampered by the lack of transport links through Armenia. However, both Turkey and Azerbaijan refuse to open their borders, making this conditional on concessions over Karabakh, thereby sacrificing economic interests to internal politics.

Both the acute current need and its strategic economic interests dictate that Armenia must strive towards as free a border regime as possible. It has established one of the most liberal systems in the world for the transit of goods across its borders and is therefore the first candidate among the former Soviet republics for membership of the World Trade Organisation (WTO). One instance of this is that Armenia has refused to join the customs union with Russia, causing Moscow’s dissatisfaction with what Russia regards as its strategic partner in the Transcaucasus. The union would establish a whole range of customs restrictions that are not in Armenia’s interests, in particular from the point of view of its membership of the WTO. Armenia likewise welcomed Turkey’s recent proposal to create a free economic zone as part of the Black Sea Cooperation Council.

But the obstacle to such open borders—the unresolved Karabakh conflict—leaves Armenia little room for manoeuvre. Its policy, reflecting the policy of the Karabakh Armenians, is based on the supposition that Azerbaijan’s ultimate goal in Karabakh is the removal of its Armenian population. Azerbaijan’s actions simply strengthen this suspicion. Thus one year after the May 1994 cease-fire, the most appropriate time to dispel such mutual suspicions, Azerbaijan adopted a new constitution, according to which even the limited autonomy the Armenians of Karabakh had in the Soviet period was liquidated.

Baku, unlike Russia with Chechnya, refuses to postpone defining the status of Nagorno-Karabakh, while maintaining as a pre-requisite for all future negotiations the direct subordination of the Karabakh Armenians to Azerbaijan. It is therefore doubtful that Armenia can step back from its position in the current situation, especially given that the economic dividend from such a step is not guaranteed.

In view of the current situation, Armenia has proposed more than once that the development of economic relations before (and not after) the final resolution of the conflict could help create the atmosphere of trust necessary for mutual compromise. It is in this connection that Armenia calls for the route of the oil pipeline not to be linked to the resolution of the Karabakh conflict.

This call is unlikely to meet with the agreement of the oil companies, let alone of Azerbaijan. But the principle of creating economic links as a stimulus to political normalisation is one of few ways out of the current impasse.

Haroutiun Khachatrian is deputy director of the Noyan Tapan news agency in Yerevan.