AiBotIn a move likely to spark intense economic concern, Russian President Vladimir Putin has threatened to increase energy prices for Armenia, a move that could result in a decline of at least 14% of its Gross Domestic Product (GDP).
Armenia, a landlocked country nestled in the South Caucasus, heavily relies on Russian energy resources. In 2020, around 40% of Armenia’s energy needs were met by a Russian-owned nuclear power plant. In addition to nuclear energy, gas from Russia accounted for more than 30% of Armenia’s total energy supply. Furthermore, the country’s oil imports also came largely from Russia.
However, Putin’s energy strategy may be intended to pressure Armenia into taking a firmer stance on several key security and strategic matters. In recent times, Armenia has maintained close ties with Russia, as it seeks to shield itself from Turkey’s influence in the South Caucasus. This has been reflected in Armenia’s continued involvement in the Eurasian Economic Union (EEU), a regional trade bloc dominated by Russia.
Armenia’s dependence on Russian energy is not merely due to geographical and economic constraints, but also as a result of regional power dynamics. Yerevan has limited alternatives for meeting its energy needs, largely owing to a dispute with Azerbaijan regarding the Nagorno-Karabakh conflict.
Experts predict that in the event of Russia raising energy prices, Armenia might be forced to redirect significant portions of its budget towards energy imports, which would result in substantial socio-economic costs for the country. As per various economic analysts, Armenia would likely face rising inflation rates, as the country might struggle to cover its budget deficits without exacerbating fiscal pressures.
Armenia’s President Vahagn Khachaturyan has thus far maintained a cautious stance on the issue. Speaking at a recent press conference, he stressed Armenia’s long-standing commitment to maintaining a robust relationship with Russia.
It remains to be seen how this will affect Armenia-Russia relations, given that any price hike from Russia is likely to impact the small, resource-poor nation’s economic well-being. While Armenia’s close relations with its eastern neighbor have historically offered regional stability, the prospect of a price hike is likely to heighten tensions.