Iran’s Armenian Connection

On March 20, Armenian defense minister Seyran Ohanyan visited Washington, D.C. Talks focused on U.S. defense assistance to the small republic, and regional issues were also discussed, but there is no evidence that Ohanyan’s U.S. counterpart, Leon Panetta, raised the question of Armenia’s excessive coziness with Iran. But he should have.

As the United States, the European Union, and western allies expand efforts to squeeze Iran through crippling sanctions, Tehran is working to create loopholes to mitigate the impact. Often, the Iranians have used third countries for this purpose. From the United Arab Emirates (UAE) to Germany, Iran established networks of businesses and front companies designed to assist and finance the regime’s illicit procurement activities. But the UAE and Germany, alongside other erstwhile partners of Iran, have since joined the sanctions’ effort, pushing Iran out of their financial systems and scaling down on trade.

Accordingly, Iran has sought to expand its activities in countries where a combination of geostrategic and domestic factors make Iran’s presence acceptable to local authorities, while staying under the radar of Iran’s enemies. Armenia is fast becoming a new transit point for the Islamic Republic’s activities and one that may prove critical in the regime’s efforts to fend off sanctions as it marches toward a nuclear weapons program.

Armenia lends itself well to Iranian circumvention of sanctions: for instance, it ranks 129 of 183 countries surveyed by the 2011 Global Corruption Index. Yerevan’s extensive trade relations with Russia make it a convenient transit point for merchandise that can benefit from a lax approach to export controls by customs and border authorities.

Besides, Armenia is next door to Iran and due to the awkward combination of its geography and its history, it does not have much trade with its other neighbors.

Armenia shares borders with Azerbaijan, Georgia, and Turkey. The border with Turkey is closed, on account of Turkey’s unwillingness to recognize the Armenian genocide. The one with Azerbaijan border is closed because of the ongoing conflict with Armenia over disputed Nagorno-Karabakh. And the border with Georgia is difficult to traverse given the adverse geography and weather conditions. Moreover, since Georgia was invaded in 2008 by Russia, a key Armenian trade partner, there are political reasons for the Armenians and Georgians alike to seek alternative trade routes.

As the Yerevan-based think tank Civilitas Foundation put it in a recent report, “Armenia’s only reliable access to the world was through Iran.”

For Armenia, Iran’s presence is a boost to its small economy. According to the head of the Armenia-Iran Chamber of Commerce, Levon Aharonian, in 2010 bilateral trade was at $310 million, up 50 percent from the previous year. Much of it, he said, moved across the border with the estimated 45,000 truck deliveries per year from Iran to Armenia. In 2010, there were 818 companies with Iranian capital inside Armenia, according to Armenian Development Agency's deputy director, Valery Shabanov. Russia, Armenia’s biggest trading partner, had 1,000.

A 2009 leaked cable from the U.S. embassy in Yerevan, Armenia, illustrates the danger of giving Iran room to operate in a business environment. In 2003, Armenia purchased 1,000 RPG-22s and 600 PKM machine guns from a Bulgarian firm. The Armenian intermediary was an Iranian front that diverted some of the weapons to Iraqi insurgents who used them to kill U.S. troops. The 2009 cable shows American diplomats angry with Armenian president Serzh Sargsian, who in 2003 had been the minister of defense responsible for signing the deal, and reports Armenian willingness to mend fences and ensure Armenia is not used for future transhipment of weapons to Iran. There is no public record of what followed, however.

Far from being an exception, the extent to which Iran’s IRGC may have penetrated Armenia’s economy suggests that this is actually a pattern.

Take for example a planned pipeline between Tabriz and Yeraskh, which Gayane Abrahamian, writing in eurasianet.org last January, described as “The centerpiece of Armenian-Iranian cooperation.” According to Abrahamian, Armenia lacks the funds to pay for the project but Armenian “Energy Minister Movsisian maintains that international wariness toward Iran is unlikely to frustrate Armenia’s plans to use private investors to finance its own $100-million share of the oil pipeline project.”

The Iranian company involved in the deal is the National Iran Oil Refineries and Development Company. It is a subsidiary Iran’s National Oil Company, which has a history of contracting projects out to the Iranian Revolutionary Guards Corps. For example, the IRGC’s construction branch, Khatam al-Anbiya (KAA), is involved in the 850-kilometer pipeline project linking the Persian Gulf to the Caspian Sea.

There are other reasons for concern. As Hayk Gevorgyan wrote last year in the Armenian Times, “The future Iran-Armenia oil pipeline will serve the interests of Armenia's shadow economy, as according to Iranian reports, 440,000 tons of oil will be pumped from Iran to Armenia annually, whereas Armenia's annual demand for oil and diesel fuel is 250,000 tons only.” As Gevorgyan concludes, “the amount of oil products to be imported via the pipeline exceeds the amount officially consumed in Armenia.” So what happens to the surplus? Presumably, it will be siphoned off for smuggling, a significant source of profit for the IRGC.

The already existing gas pipeline linking Iran to Armenia lacked funding for the Armenian side, until the Iranians kicked in some cash. According to a 2004 leaked cable from the U.S. embassy in Yerevan, “The Iranian Bank for Export and Development has agreed to finance a $30 million segment of the pipeline from the border of Iran to Kajaran, Armenia, 41 kilometers north.  The Armenian Ministry of Energy will pay back the loan over 7 years at 5 percent annual interest.”

The Iranian Bank for Export and Development, an IRGC affiliate sanctioned by the U.S. Russia’s Gazprom, invested an additional $200 million to help complete the project, but the Iranian-funded part was contracted to a consortium of Iranian companies known as SUNIR, whose stockholders include at least three Iranian entities that were either blacklisted or sanctioned for proliferation concerns: Mahab Ghodss Consulting Engineering Co, Mehrabad Industrial Co, and Fulmen Co.

This is neither an exception nor a coincidence. Many of the current Iranian projects in Armenia have been promoted under deals signed by the two countries’ ministers of energy. Iran’s, Majid Namjoo, is an IRGC veteran and awards contracts to IRGC-linked companies For instance, the lead company on the Meghri Dam project on the Aras River, demarcating the border between the two countries, is Farab Co., chaired by Rasoul Zargarpour. He is an IRGC veteran who was former deputy minister of the ministry of construction jihad, the IRGC-affiliated institution in charge of engineering projects.

Armenia may continue to plead innocence for its budding relation with Iran. But if the White House hopes that sanctions will halt Iran’s march to a nuclear bomb, U.S. policymakers should not be as lenient with Yerevan as they have been in the past.

Emanuele Ottolenghi is a senior fellow at the Foundation for Defense of Democracies and author of The Pasdaran: Inside Iran’s Islamic Revolutionary Guards.