Armenia and the EEU: A Social and Economic Assessment

Earlier this year, on May 29, a who’s who of dictators met up in the Kazakh capital of Astana to finalize the details of an agreement that is supposed to be of “epoch-making significance.” The treaty signed was to create the Eurasian Economic Union (EEU), an amalgamation of the Russian Federation, Kazakhstan, and economic powerhouse Belarus, to commence on Jan. 1, 2015. Creating a sort of free trade bloc, as well as getting rid of work permit regulations, the EEU is still, much to Russian President Vladimir Putin’s chagrin, not as big as he would like it to be.

The Presidents of Russia, Belarus, and Kazakhstan finalizing the details for the Eurasian Economic Union (Photo from the official website of the Kremlin)
The Presidents of Russia, Belarus, and Kazakhstan finalizing the details for the Eurasian Economic Union

Putin had previously stated that he wanted to get all of the ex-Soviet nations, including the European Union’s (EU) Estonia, Latvia, and Lithuania, to sign on to the treaty, fully knowing that it is all but impossible for one country to be a part of both blocs. Already out of the running are Ukraine, Moldova, and Georgia, which recently signed deals with the European Union that should prepare them for entry into the EU (at some point in the distant future) by taking steps like raising quality controls to modern standards and increasing competition. Azerbaijan has also withdrawn any interest in the deal, as have Uzbekistan and Turkmenistan.

Of the Soviet republics then, only Tajikistan and Kyrgyzstan—not exactly world beaters when it comes to their respective economies—have interest in joining the new Russian Customs Union. Armenia’s position is one worthy of investigation. Just about a year ago, it looked like Armenia was going to reach a similar deal with the EU as Ukraine, Moldova, and Georgia did. Armenia had an opportunity—an exceedingly rare opportunity—to bring itself closer to Europe, with potential EU membership a (distant) possibility.

But much like Putin strong-armed then-Ukrainian President Viktor Yanukovych into ditching talks with the Europeans, which resumed after the Euromaidan protests, the Russian president called his Armenian counterpart to Moscow. President Serge Sarkisian quickly told the media he had committed Armenia to joining the EEU.

Sarkisian’s sudden flip-flop surprised the Europeans, namely Swedish Foreign Minister Carl Bildt, who mentioned that the agreement with the EU was four years in the making. And who can blame him? One would expect Belarus (exceedingly dependent on Russia) and Kazakhstan (a state whose dictator, Nursultan Nazarbayev, may have been switched at birth with Putin, such are their ideological similarities) to side with Russia. But the statistics do not make sense from the Armenian perspective. According to the International Monetary Fund, adjusted for factors like currency valuations, combined GDP in the EEU is about $2.9 trillion, give or take. This is less than the GDP of just Germany alone. The EU’s GDP is closer to $16 trillion. The EU also has three times the people of the EEU.

Of course, Armenia does trade with Russia more than any other country, and bilateral trade between the nations is close to $900 million a year, according to data from the UN. That being said, there is more bilateral trade between Armenia and Mexico than between Armenia and Kazakhstan. Armenia trades with Sweden more than it trades with Belarus. If Georgia, Ukraine, or both were involved in the EEU, it would have made some sense for Armenia to hop aboard. Combined, bilateral trade between Armenia and the EU is around $1.6 billion, almost double the trade with the current EEU countries. The economics simply do not make sense for Armenia.

Gazprom owns 80 percent of Armenia’s energy infrastructure, and the Russian government is in charge of most of Armenia’s power plants. Russian firms own large parts of Armenia’s rail and mining sectors, as well as parts of the telecommunications market. Sarkisian’s hands may be tied by the deep-rooted nature of Russia in Armenia’s economy, implanted mostly before he took power in 2008.

One thing to note here is that although trade with Russia is not nearly as high as with the EU, Russian firms—state-run and private—own several important Armenian entities. Gazprom owns 80 percent of Armenia’s energy infrastructure, and the Russian government is in charge of most of Armenia’s power plants. Russian firms own large parts of Armenia’s rail and mining sectors, as well as parts of the telecommunications market. Sarkisian’s hands may be tied by the deep-rooted nature of Russia in Armenia’s economy, implanted mostly before he took power in 2008.

Yes, it will be much easier and cheaper for Armenia to import Ladas, and these savings will be passed onto consumers. But in joining the EEU, Armenia will have to raise tariffs on goods from outside the bloc, which totals over 80 percent of imports. Not only will this petty protectionism prevent imports from stronger economies with higher quality goods, it may actually hurt Armenia’s status as a member of the World Trade Organization (WTO). Armenia will be forced to pay compensation to members of the WTO affected by this raising of tariffs. It will be more difficult for countries outside the EEU to do business with Armenia, creating an even greater dependence on Russia.

The geography does not make sense, either. Both Kazakhstan and Belarus share borders with Russia, and Kyrgyzstan would extend these further. One of the main points of a customs union is to increase trade and transnational business. This is made just a tiny bit harder when the country in between Armenia and Russia is Georgia, which has already indicated that it is firmly on Team Europe, and probably won’t be doing any favors for the EEU. Whatever economic benefits there could be by trading more with the EEU are in part nullified by the increased burden of transportation, as well as the decline in trade with other, stronger economies. Anybody that doubts whether this is a political move by Putin needs only to realize that Armenia shares no border with the EEU, nor will it ever. Meanwhile, with Georgia looking like a potential member of the EU down the line, and Turkey slowly but surely getting closer, Armenia could be even more isolated than it already is.

The more worrisome aspect of the EEU is the potential for further integration. Belarusian President Alexander Lukashenko has already indicated that he would support a common currency, as well as closer political and military ties. Kazakhstan has sought to keep its relationship with the EEU as purely an economic one. The former is an unsettling thought. With the flak Russia is already receiving after the crisis in Crimea, and then the downing of MH17, its economy has taken a massive hit. Russia is an energy powerhouse. That’s about it. The ruble frequently oscillates in value, particularly now in the face of sanctions. Tethering the Armenian economy to three weak and undiversified economies is a death sentence, not to mention the Putin Doctrine of “rescuing” Russian speakers and nationals in foreign countries. While there are few native Russian speakers in Armenia, there are plenty of dual nationals.

Securing cheaper gas for Armenia is always nice, but the key tenet to the Russian plan to control Armenia is surely embedded in security guarantees. Despite keeping thousands of troops in Armenia, the Russians continue to sell weapons to the growing Azeri Army, as does Belarus, according to the UN Register of Conventional Arms. Neither country seems intent to stop. Perhaps Sarkisian was fine with the status quo, and Putin threatened to play into Azerbaijan’s hand even more if Armenia deviated from the EEU. Considering that Russia has not recognized Nagorno-Karabagh as an independent nation, it could theoretically get out of any commitment to defend Armenia by pointing this out. Armenia gains so little in this deal, though, that it is clear that Sarkisian must not have had much of a choice.

Ukraine, Georgia, and Moldova all certainly faced similar coercion from Putin, yet all three decided to continue on their path to European integration. Moldova’s economy is just about half that of Armenia’s, despite having about as many people. Georgia faces the threat of Russian invasion as in 2008, and the Russians have already supported two separatist nations inside its borders. Ukraine was threatened with increased energy prices and barriers to trade. Although none have as serious a security crisis as Armenia, all three of these countries decided to stay the course and get closer to the EU. Sarkisian capitulated.

But worse than all this, worse than impending economic stagnation, is the set of new values that Putin and his cronies are seeking to create. Members of the Russian diplomatic team have mentioned the desire to create a more conservative and traditional set of political values. This “new set of values” includes things like homophobia, silencing of the independent press, and autocracy.

Armenia is a democracy that is capable of running somewhat proper elections. Russia, Belarus, and Kazakhstan are not. The latter two have had the same dictator in charge since the fall of the Soviet Union, and Putin is known for his electoral antics, to say the least. Armenia is a country with a mostly independent press. According to Reporters without Borders, Armenia ranked 78th, roughly middle of the pack, ahead of countries like Greece and Israel. Russia came in at 148th, a disappointing ranking until you consider that it is better than both Belarus and Kazakhstan. Not so surprisingly, the three best faring ex-Soviet countries are Estonia, Lithuania, and Latvia, in that order, all members of the European Union.

When a country tries to get closer to Europe, it is forced to provide freedoms as opposed to taking them away; Ukraine has been forced to release political prisoners, for instance. Armenia should strive for this, as opposed to cozying up to dictators.

When a country tries to get closer to Europe, it is forced to provide freedoms as opposed to taking them away; Ukraine has been forced to release political prisoners, for instance. Armenia should strive for this, as opposed to cozying up to dictators. Of course, Nazarbayev and Lukashenko seek closer ties to Russia; they would rather not have the Europeans breathing down their respective necks about such petty issues as “human rights” or, even worse, “democracy” in return for some economic gain.

Picking Europe or Eurasia is a very difficult decision to undo. Since Armenia would have to raise tariffs on goods from countries outside of whatever trade bloc it joins, it cannot be part of both the EU and the EEU. This is a decision that will shape Armenia for the coming decades. Armenia can go the way of the Baltic nations, and of former Warsaw Pact nations like Poland and Romania, or it can lag behind, tied to weak and one-dimensional economies. The problem is that Armenia may very easily have no choice in the matter.

It is difficult to juxtapose the security requirements of Armenia, and the economic, as well as social, deficiencies that would result from Armenia joining the EEU. Perhaps Sarkisian should find a way to delay the agreement with the Russians until he knows more of what it will entail, as opposed to signing the EEU treaty this October, as announced by Armenian Prime Minister Hovik Abrahamyan. By feeding Putin with assurances that Armenia is getting ready to join the EEU, Sarkisian may be able to fend off Russian advances, while simultaneously trying to rehash relations with Europe. Sarkisian may also cite the aforementioned geopolitical events as reason for Armenia to reconsider its relationship with Russia. There may be a path in between both worlds, a bit like the path Armenia has followed in the past, and this would be ideal. Armenia could reap the rewards of increased economic engagement with Europe, while not threatening national security.

All of this is a Catch-22. Either Armenia sacrifices both its economy and wellbeing for a potential security alliance, or Armenia seriously risks losing Nagorno-Karabagh by doing what is best for its people. It seems unlikely that Sarkisian will flip-flop once again as to where his loyalties lie. Whether or not the EEU is, as Hillary Clinton put it, an attempt to “re-Sovietize” the former Soviet republics, the EEU makes little to no sense for Armenia from an economic or social perspective—if it has a choice in the matter.

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Aren Torikian

Originally from Beirut, Lebanon, Aren Torikian has lived in Lexington, Massachusetts for most of his life. A student at Tufts University, Aren intends to study history and economics. He is currently interning at the Armenian Weekly, as part of the Armenian Students’ Association of America (ASA) internship in journalism program.He is a member of the Greater Boston chapter of the Armenian Youth Federation, and enjoys watching re-runs, namely of Scrubs and The Office.

13 Comments

  1. The author wrote:

    “only to realize that Armenia shares no border with the EEU, nor will it ever.”

    Not with your defeatist attitude.

  2. Armenia’s chief goal now is survival. Everyone knows that without Karabagh there will be no Armenia period. Military strategic alliance with Russia is the most important issue of our times. To claim that Putin called Sarkissian to his office and made him change his mind about joining the EU is childish and exposes ignorance of the matter. Armenia may have been negotiating superficially with the Europeans for 4 years but they have been negotiating with the Russians on a strategic level for 20 years. Sarkissian clearly knew the direction his country had to take and he chose wisely.

    Armenia exists today because of Russia and Armenia can hold onto Karabagh because of Russian high tech military supplies, mostly free of charge. As the EEU develops, it will bring together almost 200 million people which live in countries with NO DEBT while Europe sinks in austerity. Armenian products are well known and received in these EEU countries. Armenian agriculture exports will most likely double this year because of the EEU membership and its only the beginning.

    Another factor, Armenia will never lose Karabagh because it is not in Russia’s interest to reduce Armenia to a narrow strip of land which is indefensible and vulnerable to Turkic and NATO encroachment on her southern border. And even if Russia were collapse and let this happen, Iran never will because it will mean the end of Iran too. So get this fear mongering about losing Karabagh out of your minds.

    A strong strategic relationship cannot be separated from an economic one, they both go hand in hand. This is truly a time of survival for Armenia and as such she made the right choice. This will become evident in future years.

    The arguments made in this article and the points presented are truly juvenile. Sorry no offense to the author but he has lots to learn if he truly loves Armenia.

  3. Excellent article and I completely concur with the comments… The only way out of this EEU direction is to let Nagorno-Karabagh go, and I don’t think that will happen anytime soon or ever!

  4. Excellent article.

    At long last, an actual analysis of what it may mean to join the Eurasian Economic (ie. Russia) Union. This has been lacking. Congrats to the writer and the Weekly.

    99% of Armenians have had little idea as to what an economic union means, what it would restrict, and what good it may do. We need even more information, Aren. Tell us.

    What exactly is the benefit of ANY economic union, one wonders.
    China does billions of trade with other countries that are not in any specific union. The US is not in the EU or the EEU but seems to do rather well (except for a huge trade deficit).

    Really, who needs a union? Why not just trade the way we always have? Armenian trades with Russia already. Why the need for a union? I have seen no answer to that question anywhere.

    Keep questioning things, Aren.

    The fact that Armenia and Russia have an important military relationship is not necessarily a reason to join an economic union.

    What EXACTLY is the connection there? I don’t see one. Neither do most people.

    Just because you are not in an economic union does not mean that you can’t have a strong military relationship. Russia sells billions in arms to Azerbaijan, and Israel does too. Yet we see no economic “union” among any of them.

    To ask these questions is not anti-Russian or anti-anyone. It is just common sense.

    Right now, the only reason I see for Armenia to join the Russian Union is because of Russian threats to punish Armenia if it does not join. Is that a good reason?

  5. Will never let KARABAGH,Artsakh go!!! to begin with..
    Next, if High tech arms are supplied to RA by Uncle Putin,so are these supplied to Axerbaijan and much more,against latters´petrodollars. Armenia has survived so far and will pull through in the future too. Russia has a lot of investments in armenia. True. But now there may emerge other nations that may invest in RA too. Such as China, India, japan ,iran to name just a few.As rgds joining the EU…and Serge Sargsyan´s sudden whirlful thrust towrds the EEU,it is as yet to be seen if latter will definitely accept RA.Because Nazarbaef Sultan put FWD a precondition that NK (karabagh) would be left out of the Treaty,since it was not in the map drxawn up by the previous Govt.s etc., etc., etc.
    My suggestion is to not let go of the precious oppertunity of joining up with the EU.great Turkey has been trying to join latter for near 40 yrs without any avail.And Armenia has still got a chance to do so with a considerably shorter time period. Perhaps it would be interesting to keep the door open for us by the EU, to join up,EEU notwithstanding..
    As rgds protection of Armenia by russian troops. it is a myth…firstly because the small qty of their troops on the turkish border is no match for the Nato prepared and supported Toikish army

    • {As rgds protection of Armenia by russian troops. it is a myth…firstly because the small qty of their troops on the turkish border is no match for the Nato prepared and supported Toikish army}

      Mr. Palandjian:

      It’s no myth: it’s reality.
      The 5,000 or so Russian troops in Gyumri are not there to stop a hypothetical full-on invasion by Turkey/NATO.
      One Russian division certainly cannot stop one or two Turkish field armies by itself (…a field army being about 80,000-100,000 men).

      They are there to tell NATO (and Turkey) in a very unambiguous language that any attack on RoA or overt invasion into Caucasus by Turkey/NATO will be regarded as an attack on Russia.

      And they are not doing it because Russians have any particular love for Armenians. They are doing it for their own selfish reasons, the best reason of all.
      They are doing it because Armenia is _the_ only country that breaks the chain of Turkic nations right under the vulnerable underbelly of Russia: it is a matter of life or death for the Armenian nation; literally.

      Neither NATO (US) nor Turkey is going to risk a nuclear WW3 with Russia for the sake of Turkic counties.
      So NATO tries to weaken and attack Russia by other means: death by a thousand cuts (…war in Chechnya, Saakashvili, attack on Syria, Neocon coup in Ukraine…economic warfare)

      US has about 7,700 warheads and Russia has 8,500.
      For comparison France, the next largest, has about 300.
      Russia and US have enough warheads to cause mass extinction of all living things on Earth: many times over.

      btw: the largest nuclear detonation was done by USSR; something called Tsar Bomba.
      About 50 megatons TNT equivalent.
      Largest US was 15 megatons.
      Nagasaki and Hiroshima bombs were about 20 kilotons: Tsar Bomba would be 50,000 kilotons.

  6. Sorry it got disconnected.There are other important factors that aare to be taken into consideration.that of the ENERGY-read, pipeline that supplies Oil via Turkey to EU….those giant oil companies will never let go of that…They do not wish war to break out in that part of the world…
    This is rather a question of interests rather than WAR.No one wishes war in that area.it is not to be compared with Ukrain Vx Russia. or Israel vs palestinian Hamas. The area in question is the most important one, plus, indeed Mosull, Iran and the Gulf states…thence to speak of a possible confrontation there VERY FAR FECTHCED assumption. BTW, when Armenia has been in trouble uncle Russia NEVER, repeat never really helped Armenia!!!
    At least the U.S A in 1920 helped Armenia with thousands of tons of flour!!!
    Warfare is a matter of diplomats and Economists,not journalists,please excuse this expression but,diplomacy must be closely studied and evaluated from all angles….
    best hasgcoghin

    • { BTW, when Armenia has been in trouble uncle Russia NEVER, repeat never really helped Armenia!!!}

      Mr. Palandjian:

      Can you name _one_ country that has really helped Armenia when Armenia or Armenians have been in real trouble ?
      Any country ?

      About Russia: As the NKR war heated up (1991-1994), Turkey would periodically mass and maneuver an invasion army near the border of RoA (Turkish 3rd Field Army). And Russia (CIS) would repeatedly warn Turks that any invasion would trigger a WW3. In 1993, when NKR army was crushing the Azerbaijan’s military and they were running like frightened sheep back to Baku, Turks put a division right on the border of RoA.
      The idea was to invade Southern Armenia and link up with Azerbaijan in Baku, thus saving them from imminent crushing defeat, and also roll Armenian troops back and grab NKR.

      Although it was not known at the time why Turks had parked the division on RoA’s border just then, there was something they were waiting for.
      Just about that time, if you recall, there was an attempted coup in Moscow against President Yeltsin.
      Do you know who was the guy leading the coup ?
      His name is Ruslan Imranovich Khasbulatov.
      He is a Muslim Chechen.
      So what happened was that Turks, who apparently knew well before the event that a coup in Moscow was coming, got a promise from Khasbulatov that if he won and became Russia’s leader (!), he would allow Turkey to mount a ‘limited’ incursion (!) into Armenia.
      As it turns out, Russian nationalist patriots crushed the coup, and shortly thereafter PM Tansu Ciller got a message from Moscow.
      In haste she ordered her troops back to their barracks.

      So I’d say on that occasion Russia did help Armenia when she was in real trouble.
      What say you, Sir ?

  7. At Vahe:
    “Right now, the only reason I see for Armenia to join the Russian Union is because of Russian threats to punish Armenia if it does not join. Is that a good reason?”

    So Vahe based on you comment, can you tell me why powerful, resource-rich, nuclear powered Russia would even bother with a weak, impoverished, landlocked country let alone want to force it to join its union? There are points that are being made in these comment field that clearly don’t make sense.

    And yes, Russia has supplied Azerbaijan with weapons but there is a clear qualitative difference. We get far more sophisticated weapons which are prepared for Russia’s domestic defense while Azerbaijan gets dumbed down export versions. We get sophisticated air defense systems while the Azeris get older less sophisticated versions. What good are 100 export version T-90 tanks when they can be marked and eliminated by sophisticated anti-tank systems within the first couple of days of battle.

    And make no mistake about it, Karabagh is not in our hands because we are in any way superior. We may have better fighters but we also had better fighters during the genocide too.

    As for the small Russian military base in Gyumri that is supposedly no match for mighty NATO, this is a ridiculous statement. There are Iskander missiles positioned there which no western anti missile shield can shoot down. Plus, the base is mostly a reconnaissance base watching over entire Turkish and Iranian air space and feeds the info to Russian supreme command. As Avery said, Russia has threatened and will use strategic nuclear missiles against Turkey if they invade Armenia.On the other hand the US & Europe would welcome such an invasion because it would allow further encirclement of Russia. The question to ask is why hasn’t Turkey put a military base in Nakhichevan. Who are they afraid of? Tiny Armenia?

    Armenia doesn’t have natural resources or any developed domestic industry. It MUST join an economic union to buy leverage and open markets for its goods and to form joint cooperation with institutions in the union. Don’t compare Armenia to Azerbaijan who has all that oil and gas and therefore dictates what it wants. And don’t compare Armenia to the US who has NAFTA and holds the global reserve currency.

    • “And yes, Russia has supplied Azerbaijan with weapons but there is a clear qualitative difference. We get far more sophisticated weapons which are prepared for Russia’s domestic defense while Azerbaijan gets dumbed down export versions. We get sophisticated air defense systems while the Azeris get older less sophisticated versions. What good are 100 export version T-90 tanks when they can be marked and eliminated by sophisticated anti-tank systems within the first couple of days of battle.”

      Gurgen, can you back these up with some sources? I follow the news and the military buildup going on right now. I don’t believe Armenia is getting non-export T-90s from Russia. Armenia is spending $100M to have a Polish company to upgrade T-72s.

      Remember, Azerbaijan is free to get weapons from non-Russian sources.

      Unfortunately they have shown that they have the manpads to shoot down Armenian helicopters.

  8. I do not think for a moment that Russia will risk a war with the West over Armenia. Russia is for Russia first, last and always. Russia desperately wants to regain influence/control over the former Soviet “republics.”

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