If the Eurasian Economic Union treaty were suspended in relation to Armenia, the country’s annual gas import bill could rise by $268.5 million, or 69%, from $389 million to $657.5 million. This estimate appears in a report prepared by representatives of Russia, Belarus, Kazakhstan and Kyrgyzstan. The calculation assumes a gas price of $300 per thousand cubic metres and unchanged physical supply volumes.
The $300 price assumption lacks sufficient justification
Hakob Vardanyan, a former deputy minister of territorial administration and infrastructure responsible for energy, said the report does not sufficiently justify its $300 price assumption. He noted that gas pricing between Armenia and Russia is governed by separate contractual arrangements. Any potential changes should therefore be assessed in the context of existing agreements and their pricing mechanisms.
“I cannot say where the $300 calculation comes from. Looking through the report, I did not see a substantiated calculation. We have a contractual and legal framework with Russia, and we know how the price can change. There are different scenarios,” Vardanyan said.
In his assessment, applying the contractual mechanism could produce a price of around $253 per thousand cubic metres, taking into account the $165 base price, customs duty and the gas’s calorific value. Vardanyan thus questions the clarity of the methodology behind the report’s $300 assumption. At the same time, he stresses that potential price changes will depend on how the contractual and legal arrangements develop.
Armenia’s gas price is not set by the EAEU treaty
Vardanyan also said Armenia’s gas price is not established by the EAEU treaty. He explained that petroleum products, gas and rough diamonds are exceptions to the union’s general rules on export duties. Exemptions for these goods are governed by separate agreements between Russia and member states.
“Ending EAEU membership is not a basis for revising the gas price. The basis is the bilateral agreements with the Russian Federation, and changes would have to be made to those separate agreements. The economic consequences of leaving the union would be much broader than a change in gas prices because we are quite deeply integrated into the EAEU market,” the former deputy minister said.
He argued that Armenia needs to acknowledge the existing realities, assess the risks and consider how to overcome them. Vardanyan does not believe the report’s negative scenarios will necessarily materialise. He said Armenia’s economy is more resilient today, while its businesses and economic sectors are better organised than they were in 2013.
“There could certainly be difficulties, even serious difficulties. But if we overcome them, I think we will emerge stronger. In energy terms, that will take time, but the situation will be manageable,” he said.
Dependence on gas for heating is the main risk
According to Vardanyan, heating could become Armenia’s most pressing energy security challenge because the country relies predominantly on gas for it.
“Our entire heating system is built around gas. We need to change that, and doing so requires time and resources. We need to move from gas to electricity or other options. But a straightforward switch to electricity will not be possible either, because our grids do not have the capacity,” he said.
The former deputy minister believes Armenia needs to develop local solar generation and energy storage systems, gradually reducing its dependence on gas.
The government must decide what to subsidise
Vardanyan said that if gas becomes more expensive, the government must assess the potential effects on business competitiveness as well as household spending. If higher gas costs feed into production costs, some companies could lose their competitive position and cease operating, creating wider economic consequences.
He believes the government should consider whether to subsidise gas prices or whether it would be more effective to support the installation of energy storage systems and programmes to transform the energy system.
“The government cannot subsidise rising gas costs indefinitely. It has to decide what will be subsidised. Subsidising the gas price is not a long-term solution, because once that support ends, we will find ourselves in the same situation again. We need a thorough analysis of what makes more sense to subsidise: the gas price or the transformation of the energy system,” Vardanyan said.
He does not rule out a short-term economic contraction following a sharp gas price increase, but he does not expect such a situation to persist over the long term. He also said Armenia’s Central Bank has accumulated resources in recent years that are needed to withstand economic shocks.
Independence has a price
Vardanyan concluded that Armenia needs to understand the economic cost of making its own decisions and assess whether it is prepared to pay it.
“Deciding everything independently comes at a price. We need to understand whether we want to pay that price. I think that, as a nation, we are well beyond the point at which we could turn back. If we chose this direction, we should have considered its consequences and been ready to overcome difficulties in order to have a better and more independent country,” Hakob Vardanyan said.
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