TOPIC OF THE WEEK: Gas, roses and peppers—Armenia's dilemma
"If peppers are spoiling, I'll pay for those peppers. If roses are spoiling, I'll pay for them, too." Pashinyan's agriculture-related tirade become one of the more widely discussed soundbites of the final week of the campaign. That emotionally-charged outburst was tied to the recent restrictions by Russia on a number of Armenian exports. Now that the passions from the highly charged election may have diminished a bit, and in waiting for final results to be announced this Sunday with significant implications about the ability of Civil Contract to command a constrained Constitutional majority, I have decided to put a sort of price tag on the issues that loomed large in the concluding episodes of the campaign. These refer to gas, and, of course, to the now famous roses and peppers.
These irritants are unlikely to disappear from the bilateral agenda. Only this Wednesday, Russia's Foreign Minister said that the issue of Armenia's choice between the EU and EEU is an "urgent" one, while Armenia's Speaker argued days ago that the country will not sacrifice independence and sovereignty for roses. Different estimates of the impact of disrupting economic links have been bandied about, although without clarity about their derivation.
With respect to gas, my analytical framework rests on the assumption that, in the case of Russia shutting off supply, Armenia's best choice for sourcing natural gas would be Azerbaijan, both for logistical and geopolitical considerations. I also use Georgia as a foil for Armenia in terms of the delivery of Azeri gas. Unfortunately, neither Baku nor Tbilisi has published information on the price of deliveries, so I derive it myself from other available information. I calculate that, in 2025, Georgia paid $426 per 1000cm of natural gas, which is appreciably higher than what Russia currently charges Armenia ($177). Given Armenia's annual consumption volumes, fully transitioning to Azeri gas would cost 4% of GDP vs the 1.6% of GDP it pays now to Russia. This should be treated as an upper estimate as Russia has only claimed that it may only discontinue the provision of duty-free gas and not full deliveries.
Putting a price tag on the affected (sanctioned) agricultural exports to Russia is even more tricky due to a host of definitional and technical considerations. I estimate the direct impact to be up to 1% of GDP, yet a more significant 10% of total domestic agricultural production. The Russian sanctions can, of course, be widened to capture a much wider pool of agricultural goods, which include processed foods, spirits, fish, etc. The most underrated and barely discussed effect of restrictions may, however, be on employment. Approximately 30% of workers in Armenia are employed in the agriculture sector. If a tenth of those become affected by the current restrictions (the baseline estimate calculated above), then 3.0% of total employment might bear the brunt of the sanctions—no trivial amount.
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