According to some analysts, Iranian activity in the South Caucasus is probably too small to concern the international community but that may change if the Tehran government uses its close ties to manipulation of sanctions
Iran may look north to skirt US sanctions
YEREVAN // As legislators in the United States debate new sanctions for Iran, both the regime and ordinary Iranian citizens are looking to their northern neighbours in the South Caucasus, the region between Turkey and Russia, as a way to maintain links to the outside world.
Siyamak Bolandi, an Iranian businessman who has lived in Armenia's capital city of Yerevan for the past 13 years and imports carpets from Iran, said that even his business has been affected by the strength of international sanctions on Iran.
"I also import goods from Turkey," he said. "If I was only working with Iran my business would suffer by 50 per cent."
Yet, he said, life is far more difficult for his countrymen still living in Iran, some of who he has seen try to bring their savings to Armenia to avoid depreciation.
The sanctions in the works by the US have been described as targeting everything from Iranian assets overseas to all foreign goods that the country imports, building on the tough sanctions package against Tehran's oil industry that was pushed through by the US earlier this year. The sanctions have hit Iran's economy hard in recent months, imposed over Iran's nuclear programme, which the West suspects is aimed at weapons development. Iran denies the charge, saying its programme is for peaceful purposes such as power generation and cancer treatment.
Armenia, Iran's isolated northern neighbour, has enjoyed close relations with Tehran for centuries. With two of its four borders closed because of disputes with Turkey and Azerbaijan, landlocked Armenia is reliant on Iran as an important trade route and, recently, a partner for energy projects.
In the past few years, visiting Iranians have started buying apartments and other property in Yerevan. Apartment prices remain inflated in Tehran, while real estate in Georgia and Armenia is "cheap by world standards", said Lawrence Scott Sheets, South Caucasus project director for the International Crisis Group.
Shirak Torosian, vice president of the Yerevan branch of TeleTrade Armenia, who is originally from Iran, said the investments began when the value of the US dollar dropped a few years ago.
"They are still coming over with suitcases full of money," he said, adding that these days most Iranians arriving in Armenia come to gamble. "It's not just sanctions. There is more trust in Armenia. The future is better."
Under the sanctions, companies from Europe, Asia and elsewhere selling machinery and other products to Iran would have to stop or face being cut off from the US market. Banks whose clients are making transactions with Iran would face a similar penalty if they did not break off relations. And Iranian assets in financial institutions overseas would have to be frozen.
According to some analysts, Iranian activity in the South Caucasus is probably too small to concern the international community.
"As long as these small countries in the South Caucasus engage Iran only at a very limited scale no one is going to complain about that. It happens to be pretty beneficial to those countries," says Mr Sheets.
"It's not sanction busting. There is a degree of sanction manipulation," said another diplomat. "The scale is the critical factor. If it is small scale, fine. If it is large scale, the international community would be really interested."
As pressure on Iran mounts, however, analysts say there is the potential for the regime to attempt to use its close ties with the region to carry out attacks against its enemies or increase its "manipulation" of sanctions.
Though Tehran denies its involvement in the incident, an attempted attack on a staff member of the Israeli embassy in Tbilisi, the Georgian capital, in February, was blamed on the regime.
On November 8, officials from Iran and Armenia broke ground for the long-planned US$330 million (Dh1.2 billion) Megrhi hydroelectric plant along the Arax river between the two countries. The 130-megawatt plant will be built by an Iranian company and Iran will use the electricity generated by the plant for the next 15 years. Afterwards, ownership of the plant will be transferred to Armenia.
Bilateral trade amounted to $323 million last year, about 6 per cent of Armenia's external trade. There is also a security aspect to the relationship, with Iran backing Armenia against its long-standing nemesis Azerbaijan.
"Look at the juxtaposition: Azerbaijan's closest ties are with Israel and the United States," said ICG's Mr Sheets. "Armenia's relations with Iran are purely pragmatic."
The new sanctions on Iran will test Armenia's loyalties between its old ally Iran and its new European orientation, said Richard Giragosian, director of the Yerevan-based Regional Studies Centre (RSC).
In August, Reuters reported that the Iranian regime was attempting to expand banking relationships in Armenia as a "convenient' location where it could skirt international sanctions. Armenian officials strongly denied the report, although their adherence to international banking sanctions against Iran has been questioned in the past by western officials.
Yet, Mr Giragosian said, Iran looks at the South Caucasus as a region where it could procure "critical elements" that sanctions have restricted.
"Many [Iranian] Revolutionary Guard units have pursued over the past several years setting up joint ventures with foreign partners - front companies - designed to pursue technical spare parts for military use and nuclear centrifuge development," he said.
Such front companies have been closed in recent years in Dubai and Kuala Lumpur.
"There is new concern that Armenia, Georgia, India, and maybe even Turkey may become attractive for such a pursuit," said Mr Giragosian.