Armenia receives many dividends from CIS membership: Peskov

Armenia remains an important participant in the CIS and the Eurasian Economic Union, Russian President's Press Secretary Dmitry Peskov said, TASS reported.

"Armenia has stopped participating in the CSTO format, but even so, Armenia is still a very important participant in both the EAEU and the CIS. Both Armenia and the Armenian people receive great dividends from this participation. Therefore, it is a bilateral direction. Both the CIS and our Armenian friends are interested in it," Peskov told reporters.

The meeting of the leaders of the CIS countries traditionally takes place every year in late December in St. Petersburg. This time, the informal summit will be held at the Igor ski resort complex in the Leningrad Region, not far from St. Petersburg.

Russia has helped Armenia strengthen food security. This fact has also been acknowledged by the Armenian authorities. Thus, in 2022, Armenian Prime Minister Nikol Pashinyan stated during a meeting with Russian Prime Minister Mikhail Mishustin: “I would like to thank you for some recent decisions that have supported us in many ways within the framework of food security. This is very important for us.”

But then the idea of ​​diversification appeared, and already this year, from the lips of the Secretary of the Security Council of Armenia, Armen Grigoryan, who is obsessed with Western ideas about reducing the Russian factor in the Armenian economy, the idea that wheat imported from Russia should be abandoned in favor of rice (imported from third countries) was heard.

Against this background, let's consider how self-sufficient Armenia is.

And so, Armenia produces about a third of the wheat consumed and a small portion of the corn itself, while the rest is imported (almost entirely from Russia).

Russia periodically imposes customs duties on grain exports, but Armenia, as a member of the EAEU, is exempt from them. The rate of these duties is floating and has recently increased quite significantly (up to $10-11 per ton, i.e. almost 5 percent of the current cost of grain).

In addition, wheat imported from Russia remains relatively cheap. In 2022, a ton of Russian wheat cost Armenia an average of $280, while wheat from other countries is mostly above $350 (for comparison, we looked at the prices of wheat exports from Bulgaria, Romania, and Kazakhstan to countries in the region). In 2023, the price of Russian wheat for Armenia decreased to about $180 per ton.

Of course, Armenia will still be able to buy grain from Russia, even if it leaves the EAEU, but in that case it will have to pay a 5% duty, which will be included in the price of the final goods. An increase in their prices not even by 5%, but by 3-4% will increase overall inflation by 0.25-0.3% (taking into account the share of these products in Armenia's consumer basket, on which inflation statistics are based).

Armenia also buys almost all of its corn from Russia as livestock feed. If corn exports are also taxed, the price of meat and eggs could rise.

And if the authorities are leading the country towards the West, they should understand that customs duties will be imposed on Russian goods, and the EU is steadily raising these duties for political reasons. Thus, the customs duty on Russian wheat in the EU is 148 euros per ton (while the EU buys wheat from most third countries without customs duties).

Gas   problems​

It is impossible to say for sure at what price Armenia will buy Russian gas in the event of deepening European integration. But for comparison, we can look at the prices of the Rotterdam TTF exchange (which is considered a benchmark for the EU) over the past year. Let's compare them with the fixed prices of Russian gas for Armenia - one of the lowest gas prices in the world ($165 per 1,000 cubic meters).

TTF data more or less reflects the reality not only for Western Europe: for example, in Poland, the tariff for households, after the increase from July 1, is approximately 30 kopecks per 1 kWh (the price may vary slightly depending on the category of consumers and suppliers). This is approximately $800 per thousand cubic meters, or more than twice as much as in Armenia ($370).

Theoretically, Armenia could start buying large volumes of Iranian gas , but the capacity of the Iran- Armenia gas pipeline , according to various estimates, is about 1.5 billion cubic meters per year , while today Armenia imports about 2.7 billion cubic meters from Russia .

Armenia has not negotiated with Iran over the price of gas , as under the 2013 agreements, the Armenian government has committed itself not to worsen the economic situation of Gazprom and its subsidiaries in Armenia until the end of 2043. The Russian government , in turn, has committed itself to supplying gas to Armenia at a stable price until 2031. Earlier , energy officials had stated that the cost of Iranian gas significantly exceeds the price of Russian gas .

It is difficult to predict what would happen in the worst-case scenario if gas contracts with Russia were to cease to operate. Let's try to understand what would happen if the price of gas for Armenia were to increase by a conditional 20%.

It should also be noted that Armenia imports nuclear fuel from Russia, which cannot be replaced with foreign fuel for technical reasons (reactor design). In the event of entry into the EU, Russian fuel assemblies will be subject to a 3.7% customs duty, which will be reflected in the price of electricity, amounting to 0.44%.

In general, a 20% increase in gas prices could increase overall inflation in the country by about 0.7% (taking into account the specific weight of gas and electricity costs in the Armenian economy). Prices in the industrial sector could increase by about 0.4%. However, this is an average indicator: in energy-intensive industries (production of brandy, canned fruits and vegetables, cheese, greenhouse vegetables) prices could increase by 1-2% or more. These are the products that are of important export importance for Armenia.

And who to trade with ?

Armenia will face trade barriers even if it decides to remain in the CIS, simply isolating itself from the EAEU. Of course, the CIS continues to operate as a free trade zone, but a reservation has appeared here: the EAEU countries reserve the right to apply union customs duties on goods from the CIS countries in order to protect their market.

These duties, as can be seen from the table, are high enough to hit the competitiveness of Armenian goods (a significant portion of which is exported to the EAEU countries). There is no guarantee that it will be possible to make up for these lost exports in other markets in a sufficiently short period of time.

It should be noted that until 2022, the EAEU countries accounted for about a third of Armenia's exports (now a little over 40%, but mostly at the expense of intermediary trade, which we will talk about below).

About intermediary trade

In the list of 1000 largest taxpayers in Armenia for the first half of 2024 , we previously counted 46 companies and individual entrepreneurs who do not publish any information about themselves and were mostly established in 2022 or later. All this suggests that they are engaged in the resale of electronics, diamonds, and jewelry (which is why they do not seek to advertise their activities). However, according to a rough estimate, about 13 billion drams ($34-35 million) were deposited into the Armenian budget from them.

Here we add car dealers who import used cars from American and Japanese auctions and resell a significant part of them to the EAEU countries, and not only to Russia, but also to Kazakhstan. A significant part of them are either again the “invisible ones” or did not appear in the top 1000, since they work with a very small margin. But even those who appeared in the top paid 3.4 billion drams in taxes (almost $9 million) for the first half of the year.

If the opportunities for such resale for Armenia outside the EAEU do not disappear altogether (Turkey, the UAE, and a number of countries that are not members of the EAEU are engaged in this), then they will at least be severely reduced.