Armenians are guardedly optimistic that increased trade with Iran following the lifting of international sanctions will ease their regional isolation.

Armenian President Serzh Sargsyan recently summed up Armenia’s regional predicament by saying that his country “should get used to the idea that to the East… and to the West… we don’t have real partners. Let us think that there is a bottomless and impassable quagmire over there”. 

Sargsyan’s remarks, in a speech to government officials, lawmakers and judges, came in the wake of the unsuccessful Armenian-Azerbaijani summit held in Switzerland in December. Sargsyan met his Azerbaijani counterpart Ilham Aliyev to discuss how to put a lid on the rising violence along the borders of the disputed territory of Nagorno-Karabakh. The latest breakdown in talks between the two sides holds out little hope of a resolution to the conflict, which has simmered since the ceasefire agreement of May 1994.

At the same time, Armenian tensions with Turkey are growing. Following a rapprochement in the late 2000s, there was hope of a deal formalising ties between the two countries, which would have ended Turkey’s economic blockade of Armenia. But relations subsequently cooled, especially in the aftermath of Turkey’s downing of a Russian jet in November. Armenia has voiced support for Russia, with Duma Deputies reciprocating by raising the possibility of criminalising denial of the Armenian Genocide and even supporting Armenian claims to Turkish territory. 

However, given its own financial woes, Russia is unable to offer much in the way of economic support to its staunchest ally in the South Caucasus. Moreover, concerns about Moscow’s relationship with Azerbaijan and the merits of membership of the Eurasian Economic Union have prompted Armenians to question the country’s strategic alliance with Russia.

Armenia’s regional isolation could be eased by developments to the south. Since the lifting of nuclear-related sanctions against Iran in January, Armenians have been weighing the risks and opportunities attached to increased business interaction with the Islamic Republic. Speculation has been fuelled by a series of meetings between Armenian and Iranian officials over the past month. Discussions related to the construction of hospitals and railways, tourism and, most significantly, Armenia acting as a transit country for Iranian gas.

However, there’s a big question over whether increased Iranian investment is enough to stimulate Armenia’s flagging economy. With public debt expected to exceed $5bn in 2016, the collapse of the Russian ruble cutting export revenues and a slump in remittances from Armenians in Russia, the Armenian government’s economic growth forecast for 2016 was cut from 4.1% to 2.2% late last year. And that prediction might have to be revised again as the local currency, the dram, has begun to depreciate against the dollar.

Recent reports that Iranian companies have already started shipping goods to Russia via Azerbaijan, as opposed to Armenia, have only served to underline Armenian concerns that while doing business with Iran will help the country address its economic problems, it won’t solve them.

Jonathan Melliss is a CIS analyst at Alaco, a business intelligence consultancy.