Almost no foreign dignitaries travelled to Moscow to stand next to President Vladimir Putin on the podium to watch the annual May 9 victory parade. But Armenian Prime Minister Nikol Pashinyan was one of them.

The liberal reformer and former journalist that led Armenia’s Velvet Revolution two years ago found himself rubbing shoulders with such unsavoury characters as Belarus President Alexander Lukashenko, who has brutally repressed his population following a massively falsified presidential election in August 2022 that returned him to office, and Tajikistan’s President Emomali Rahmon, who has been in power since the fall of the Soviet Union and has presided over the collapse of the economy that is now mired in poverty and corruption.

What was Pashinyan doing there, who can claim to have orchestrated the only successful coloured revolution that has actually made the lives of his citizens better?

Armenia’s economy is rapidly becoming increasingly dependent on Russia, its long-standing strategic partner and patron. Too far from Europe to ever realistically aspire to join the EU and too dependent on Russia for goods, energy and security, it seems that Pashinyan has little choice. After taking office his first trip abroad was to Moscow and he regular meets with Putin to maintain cordial relations. For its part, the Kremlin has tolerated Pashinyan, but the increasingly tight relationship has exposed Armenia to considerable political risk.

Trade between the two nations nearly doubled in 2022, primarily due to Western sanctions against Moscow, which led to re-exports. However, Armenian producers have reaped little benefit from this growth and face mounting uncertainty due to trade conducted in the weak and unstable Russian currency. This situation threatens to undermine Armenia's cautious attempts to reduce its political and security reliance on Russia while forging stronger ties with the West.

The ruble trade has a significant impact on Armenian exporters. Armenian Economy Minister Vahan Kerobyan said that as of March 16, Armenia and Russia have ceased using dollars and euros for mutual trade, relying solely on rubles. The gradual de-dollarisation of trade has been a long-standing priority for the Russian-led Eurasian Economic Union (EAEU), which Armenia joined in 2013. However, sanctions against Moscow over the Ukraine conflict have hastened this transition.

Although the Armenian Central Bank has officially welcomed the shift, it acknowledges the risks involved in ruble-only trade. Vardan Aramyan, former Armenian finance minister and current public finance management consultant, highlights the substantial risks to Armenian exporters. The ruble's volatility since the start of the war and its recent downward trajectory against the Armenian dram pose significant challenges.

Armenian exporters have already been struggling due to the dram's surge against the dollar over the past year. Last year, Russia's share in Armenia's trade turnover almost doubled, exceeding $5bn, or 35% of the total. The main export market for Armenia is Russia, with 45% of Armenia's exports directed there. This growth is primarily due to the departure of Western businesses from the Russian market.

While some Armenian suppliers have managed to expand their business in Russia, most Armenian exports to Russia are re-exports of goods from Western countries. According to Aramyan, the minimal growth in Armenian production is not commensurate with a doubling of exports.