The agreement reached between Armenia and Russia in 2022 gave the Armenian side certainty over the price of natural gas through 2031. According to energy expert and former deputy minister Hakob Vardanyan, the agreement fixed the gas price at $165 per thousand cubic meters.
Vardanyan explained that this was not a separate new contract but an annex to the main gas agreement, which fixed the $165 price through 2031 inclusive.
At the same time, the Armenian side assumed a number of obligations, including those related to the tariff of the fifth power unit of the Hrazdan Thermal Power Plant, the debts of the Yerevan Thermal Power Plant and other issues.
According to the expert, the Armenian side fulfilled its obligations faster than the stipulated deadlines. The Russian side also fulfilled its main obligation by maintaining the gas price.
However, the agreement contains a provision that, in Vardanyan’s assessment, could now become crucial.
Either party can withdraw from the agreement, in which case the corresponding obligations of the other party also cease to apply.
Why $165 Has Effectively Become $177.5
The stated gas price, however, does not provide the complete picture.
According to Vardanyan, since 2023 the Russian side has begun taking the calorific value of gas into account when calculating its cost.
Previously, the “$165” figure was presented without factoring in calorific value. After its inclusion, the price actually paid by Armenia reached approximately $177.5 per thousand cubic meters.
According to the expert, calculating calorific value is an approach used in international practice, and Armenia had no significant negotiating leverage on this issue.
As a result, a certain difference emerged between the nominal $165 price and the amount actually paid.
Nevertheless, Vardanyan considers the 2022 agreement one of Armenia’s most successful negotiating outcomes in recent years. The main reason is predictability.
The Annual Stress Disappeared
Before 2022, according to the expert, the issue of gas prices returned to the agenda every year in November and December.
The uncertainty was also a problem for the economy. Businesses could not reliably calculate their expenses for the following year, while greenhouse operators, for example, could not clearly estimate their future gas costs.
“We sent a signal that the gas price had been fixed for 10 years,” Vardanyan said.
In his assessment, the $165 price was particularly advantageous for Armenia when the agreement was concluded.
At the beginning of the negotiations, gas prices on the European market were around $800, and by the time the agreement was signed they had already reached approximately $1,300. They later climbed as high as $2,800–3,000.
Against this background, he says, rejecting the opportunity in 2022 to fix the gas price for 10 years would have carried a greater risk than accepting the provision allowing either party to unilaterally withdraw from the agreement.
If Russia Withdraws From the Agreement, the Price Could Reach $275
Vardanyan considers several possible scenarios.
Under the first, the Russian side could withdraw from the existing agreement. In that case, the gas price could return to $275 per thousand cubic meters.
At the same time, Armenia would be released from some of the obligations it assumed under the agreement, including an annual payment of around $34 million related to the fifth unit of the Hrazdan Thermal Power Plant.
However, according to Vardanyan, this amount would not fully offset the increase in gas prices.
If the $34 million is converted into gas volumes, it amounts to approximately $15 per thousand cubic meters.
In other words, even after being released from this obligation, the gas price for Armenia could rise by around $110.
According to Vardanyan, such a development could mean an approximately 25% increase in gas prices for the end consumer.
Export Duty Is Another Possible Factor Behind a Price Increase
Another possible scenario involves the application of an export customs duty.
According to Vardanyan, media reports have suggested that the Russian side could withdraw from the existing agreement, which could result in export duties being applied to gas.
According to various estimates, these could amount to approximately 10–30%.
If, for example, a 10% duty were added to a gas price of $275, the price could approach $300.
What If Armenia Moves to Market Prices?
The third option is to abandon all existing arrangements and move to market-based relations.
However, this raises the central question: which market price should be used as the benchmark?
According to Vardanyan, gas prices on the European market have ranged from approximately $400 to $470 in recent months.
However, he questions the assumption that a “market price” for Armenia must necessarily mean the European price.
“When they said ‘market price’ during negotiations with the Russian side, I would ask: where is the market?” he said, emphasizing that gas prices in Asian markets can differ substantially from European prices.
According to the expert, it is particularly important to consider that the geography of Russian gas sales has also changed, with China becoming increasingly important for Russia.
The Worst-Case Scenario: A Complete Halt in Supplies
Vardanyan considers a complete halt in gas supplies to Armenia the worst-case scenario, although he assesses its probability as almost zero.
He cites Moldova as an example, where gas supplies were halted amid accumulated debts to the Russian side and other disagreements.
According to the example presented by the expert, the Russian side demanded payment of approximately $700 million in debt while also proposing an external audit.
The amount paid was to be held in a deposit account and later returned if the audit found that the debt was not justified.
In Vardanyan’s assessment, a complete halt in gas supplies would currently be the most severe scenario for Armenia, although he considers its probability very low.
Overall, the scenarios presented by the expert show that the main value of the 2022 agreement for Armenia was not only the $165 gas price.
Its most important outcome was a decade of predictability.
Now that the possible revision of this arrangement is once again appearing on the agenda, the key issue is not only the new gas price but also the conditions under which Armenia will enter the next stage.