Commentary by the Center for Analysis of Economic Reforms and Communication (CAERC)

In Armenia, a country lacking significant natural resources and possessing limited domestic energy sources, internal energy production covers only 30–35% of total demand. The remaining energy needs are primarily met through imports from Russia, Iran, and European countries. In this context, Armenia’s energy sector faces three major challenges:

• addressing recurring supply gaps;
• ensuring reliability of energy supply;
• maintaining affordable tariffs.

Overall, 57% of Armenia’s energy supply is generated from natural gas, 20% from nuclear fuel, 11% from renewable energy sources, 10% from oil, and 2% from coal and other sources. The country has no proven oil or natural gas reserves and remains heavily dependent on imports, which account for approximately 65–70% of total energy supply. Oil and petroleum products are mainly imported from Georgia, Iran, Russia, and several European countries. Natural gas is supplied from Russia via a pipeline transiting through Georgia, as well as from Iran under a barter arrangement in exchange for electricity. At the same time, Russia remains Armenia’s primary supplier of nuclear fuel.

Electricity generation in Armenia is mainly based on three sources: (1) the Metsamor Nuclear Power Plant, which depending on its annual operating time and nuclear fuel supply covers 25–50% of electricity demand; (2) hydropower plants, which provide around 20–40% of national needs depending on precipitation levels; and (3) thermal power plants operating on natural gas, which cover the remaining share. In 2019, Armenia generated 7.3 billion kWh of electricity. Of this, 27.8% was produced by the nuclear power plant, 39.9% by thermal power plants, 32.2% from renewable sources including hydropower plants, and 0.1% from other sources. Of the total electricity generated, 6.2 billion kWh was consumed domestically, 0.2 billion kWh was imported, and 1.3 billion kWh was exported.

Due to strained political relations with key neighboring countries (Azerbaijan and Türkiye), the lack of synchronization of energy networks and the closure of Azerbaijani and Turkish markets to Armenia have had a significant negative impact on the country’s electricity export potential.

The Metsamor Nuclear Power Plant, Armenia’s main electricity generation facility, is considered a serious risk not only for the country itself but for the entire region. There is ongoing international pressure on Armenia to decommission the plant. However, the government has opted to extend its operational life until 2028, with approximately USD 300 million in required upgrades to be financed through a Russian loan. Given the projected annual growth in electricity demand of 2–3%, the issue of replacing Metsamor remains a critical challenge for Armenia’s energy stability. At the same time, Armenia prefers to continue operating the plant rather than increase gas imports from Russia, despite the environmental risks associated with Metsamor.

Natural gas plays a dominant role in the country’s energy sector. All services related to gas transmission, storage, distribution, and sales in the domestic market are provided by “Gazprom Armenia”, a wholly owned subsidiary of Russia’s Gazprom. Since January 2014, the company has become the sole gas supplier in Armenia after acquiring the remaining 20% stake previously held by the Armenian government. Thermal power plants, which accounted for around 40% of Armenia’s electricity generation in 2019, are powered by natural gas, further increasing the country’s dependence on imported Russian gas.

Gas supplies to Armenia are delivered mainly through two pipelines: the Iran–Armenia gas pipeline and the Russia–Georgia–Armenia pipeline. The Iran–Armenia pipeline has a capacity to supply approximately twice Armenia’s annual gas demand (2.3–2.5 billion cubic meters). In its early years, Iranian gas was exchanged for electricity exports. However, following the monopolization of gas supply by the Russian company, interest in Iranian gas has declined.

Historically, Russian gas has been supplied to Armenia on preferential terms, with an average price of around USD 165 per 1,000 cubic meters between 2014 and 2019—approximately 50% lower than Russia’s export price to Europe. The difference was subsidized by the Russian government. At the same time, Armenia pays transit fees to Georgia amounting to approximately 10% of the gas volume transported through the Russia–Georgia–Armenia pipeline, effectively increasing Russia’s losses from discounted gas exports to Armenia.

Since 2020, the global economic downturn triggered by the COVID-19 pandemic has significantly affected natural gas prices. During the first quarter of the year, gas prices dropped sharply, with Russian gas exports to Europe falling to USD 65–87 per 1,000 cubic meters—2 to 2.5 times lower than the price paid by Armenia. In response, Armenia has raised the possibility of negotiating cheaper gas supplies from Iran or revising pricing terms with Russia. Such steps, however, could be perceived as undermining Armenia’s traditionally strategic energy relationship with Russia.

Overall, monopolization in the utilities sector and limited access to external markets have resulted in relatively high utility tariffs in Armenia. This is reflected in household consumption patterns, where utility expenses account for approximately 17–20% of the average consumption basket in recent years.

Analysis shows that energy security—an essential component of national economic security—is not adequately ensured in Armenia.

Armenia’s energy security is heavily dependent on the Metsamor Nuclear Power Plant, which itself is considered a regional environmental threat. Any replacement of Metsamor would likely create a short-term energy deficit that could only be compensated through thermal power plants. At the same time, Armenia’s reluctance to extend gas imports from Russia further highlights its preference to maintain the plant’s operation, despite associated risks.

The country’s frequently changing foreign policy direction has contributed to an image of Armenia as an unreliable partner in the international arena, further complicating its energy security. This instability, combined with a confrontational policy approach, has excluded Armenia from major regional and global energy projects and deprived it of significant transit opportunities due to its unfavorable geographic positioning.