Economy, energy and environment
Poor in strategic resources and a victim of the Turkish and Azerbaijani economic blockade, the Armenian economy has developed on a limited production base – linked to the construction and service sectors. Nonetheless, the economic reforms introduced in agreement with the International Monetary Fund in the second half of the 1990s and a massive influx of technical and financial assistance have enabled strong economic growth since the beginning of the new century. Between 2002 and 2007, GDP grew at an average annual rate of 13%, subject to the effects of the crisis and collapsing, after a slight decline already in 2008, by around 14 percentage points in 2009. The vulnerability shown by the Armenian economy compared to the international crisis it is partly linked to the weight of remittances, which collapsed by around 25% in 2009. The Armenian economy has also suffered from the effects of the crisis in Russia, the country’s main trading partner. In 2015, GDP grew by 2.5%, driven by the industrial and mining sector. The recovery of remittance flows from abroad, which in 2013 exceeded the levels prior to the crisis (more than two billion dollars, almost 20% of GDP), also contributed to supporting growth.
According to indexdotcom, energy production is based on the hydroelectric sector and on nuclear power. Yerevan inherited from the USSR the Metsamor nuclear power plant, which supplies about 40% of the electricity consumed by the country. Despite US, European and Turkish pressure to close an obsolete plant and design a new one (in collaboration and with Russian capital), the Armenian authorities have ruled out the possibility of decommissioning the plant by 2016. Free of hydrocarbon reserves, Armenia imports around 75% of its energy needs, mainly from Russia. The tensions with Azerbaijan and Turkey have in fact excluded the country from the energy routes between the Caspian and Western markets. The high dependence on Moscow has resulted in the gradual sale of the country’s energy and railway infrastructure network to Russian companies. The dependence on the Georgian supply hub also contributes to jeopardizing national energy security. The consequent vulnerability with respect to the trend of Russian-Georgian relations led Yerevan to deepen energy cooperation with Iran. Since 2009, Armenia has begun to import increasing quantities of gas from Iran – repaid by exports of electricity – and, since 2012, also of petroleum products.
Defense and security
Since the attainment of independence and in close connection with the conflict in Nagorno Karabach, Armenian defense policies have been based on the alliance with Russia. On the other hand, the huge financial resources that Azerbaijan has been able to devote to military spending, strengthened by the proceeds from the energy sector, have strongly unbalanced the military potential of the two countries. Armenian-Russian military cooperation takes place both on a bilateral and multilateral level. Armenia, in fact, hosts a Russian military base in Gyumri – the most important in the area with its 3000 men in service – following a 1995 25-year agreement renewed, in 2010, until 2044. Furthermore, according to a memorandum of strategic-military cooperation signed in 2013, Moscow will implement its military presence in the country in exchange for technical assistance and arms sales to Yerevan. The country has been a signatory of the Collective Security Treaty of the Community of Independent States (CIS) since May 1992, supporting its institutionalization in an international organization, the CSTO, in 2002 and subsequent attempts to expand its prerogatives.
In an attempt to implement a ‘principle of complementarity’ in defense policies that would allow Armenia to pursue a more balanced course of international security cooperation, starting in 2005 Yerevan has strengthened its interaction with NATO, mainly collaborating in the reform of the defense and security sector through the subscription of two-year Individual Partnership Action Plans (2005, 2008 and 2011). Since 2004, Armenia has contributed to the KFOR mission in Kosovo and since 2010 to the ISAF onesand Resolute Support in Afghanistan. Following the conclusion of military operations in Iraq and up to the end of 2008, Armenia also contributed to the stabilization mission of the country, with military contingents operating under Polish command.
Armenia and the Eurasian Economic Union
After the 1990s and with the implosion of the Soviet Union, the European Union (Eu) tried to expand its influence by penetrating the post-Soviet space. Thanks to the Eastern Partnership (EAP) policy, Brussels has established friendly and stable relations with Armenia, Azerbaijan, Georgia, Moldova, Ukraine and Belarus. Among these states, Armenia and Ukraine still play a leading role in the geopolitical tug-of-war between the EU and Russia, given the interest shown by Brussels in wanting to link Yerevan to the common European space. However, also for issues dictated by political opportunity, Yerevan has increasingly connected with the regional organizations of which Russia is promoting, giving up, at least for the moment, the European perspective. This is the context for Yerevan’s entry into the Eurasian Economic Union (Eeu), together with Russia, Kazakhstan, Kyrgyzstan and Belarus. On the one hand, the difficult relations with Turkish and Azerbaijani neighbors, and on the other the Nagornian tensions and issues related to energy dependence, pushed Armenia towards greater integration with Russian regional mechanisms.