July 30 2014

Will Sanctions on Russia Hurt Armenia?

July 30, 2014 - 9:52am, by Giorgi Lomsadze

As international sanctions pile up against Russia, Armenia, a country
literally powered by the Russian economy, expects to get hit, too.

Armenian officials and economy-wonks are not certain about the size
and scope of the impact, but they are positive there is going to be
one. Russia is Armenia's single largest investor, export-outlet and
energy supplier, so the lateral effects of the sanctions could be
potentially felt in all those directions. "At this stage it is hard
to make expert conclusions. Even the Russian experts do not yet have
precise calculations," Economy Minister Karen Chshmatirian was quoted
as saying by Regnum news agency.

The latest round of US sanctions targeted, among others, Russia's VTB
Bank, which happens to be the largest private lender in Armenia. "The
measures taken by the US Government to restrict VTB's access to the
capital market do not impact the bank's operational performance and
creditworthiness," asserted VTB, which is majority-owned by the
Russian government. Bloomberg, however, reported that major
international lenders to the VTB Group already have put on hold a
$1.5-billion loan to the bank.

Another target of the sanctions, Gazprombank, also has a presence in
Armenia. It is owned by Russia's state energy giant Gazprom, which
essentially is the sole supplier of natural gas to Armenia.

Armenia was also pinning investment hopes on the Russian state oil
corporation Rosneft, another sanctions-target which had plans to
purchase Armenia's Nairit, a large rubber-manufacturer. Armenian Prime
Minister Hovik Abrahamian did not rule out that these plans may fall
through, though, since the sanctions may put Rosneft out of the
investment mood.

Vaagn Khachatrian, an expert on the Armenian economy and member of the
opposition Armenian National Congress, said in comments to news
service that he expects Russian investment to become scarce and
lending more expensive.

The assessments vary about the depth of the impact, but, for now, no
official word on cold feet about the Customs Union; a membership-move
that would further tie Armenia to Russia's economy.