Fuel Fuss: Iran’s gas bid generates competition for Armenian, Georgian markets

The Georgian government and Russia’s gas monopoly Gazprom are discussing new terms of natural gas transit through Georgia to Armenia. The Georgian opposition and civil movements are holding protest actions in this connection, considering that the government in Tbilisi should not conduct negotiations with a country that has occupied parts of the territory of Georgia (Tbilisi considers its breakaway republics of Abkhazia and South Ossetia to be under Russian occupation since the 2008 Russo-Georgian war).

However, the Georgian government did not fully disclose the essence of the negotiations, stating only about some details. For example, yesterday Georgia’s Deputy Prime Minister and Minister of Energy Kakha Kalalze said that Russia suggests paying for the transit to Armenia with money and not with 10 percent of the transited gas as it does now. Besides, he said that Gazprom offers natural gas to Georgia at a lower price than the Azerbaijani state oil company, SOCAR.

Today, the SOCAR chief is also expected to conduct negotiations with Georgian officials and, logically, he is going to offer lower prices for natural gas supplies.

The current struggle for the natural gas markets of Georgia and Armenia began in view of Iran’s intention to enter the market with less expensive gas. Judging by the statements of experts, Iran offers gas supplies to Armenia at a much lower price than Gazprom. At the same time, Georgia has to change its relationship with Gazprom after the enforcement of this country’s Association Agreement and related Free Trade Area deal with the European Union, and it is possible that Georgia will refuse to transit Russian gas to Armenia at all. Then the Armenian market will be taken over by Iran and Russia’s Gazprom, apparently, is now trying to keep at least the Georgian market.

Experts consider a variety of options, up to the most revolutionary ones. For example, there is a variant under which Iran and Georgia will agree to oust Gazprom from the South Caucasus region. Another version offered by Azerbaijani experts is that Russia is pursuing a price dumping policy with Georgia to retain its domination in the Caucasus market, and may even buy some of the shares of Georgia’s gas distribution company.

In any case, experts agree that the schemes of gas supplies to the region may change, and this will also entail political transformations. Some predict that under the circumstances Russia will either have to completely withdraw from Georgia and Armenia, or will “win” Georgia over.

Russia watchers often describe Gazprom as Moscow’s political stick, and many European countries, including Ukraine, have announced their intention not to buy natural gas from Russia anymore in order to neutralize Moscow’s political influence. It is possible that the same process has begun also in the Caucasus, where another major player, Iran, is likely to appear soon.

The fall in international oil prices also leads to a reduction in prices of natural gas on the world market, and many experts link this change to technological development in the field of energy. In particular, some speak about the near end of the oil century and transition to new energy sources, which makes countries with large reserves of fossil fuels sell them at any price.