US embassy cable - 04YEREVAN2656

C O N F I D E N T I A L SECTION 01 OF 03 YEREVAN 002656 
 
SIPDIS 
 
DEPARTMENT FOR EUR (DAS KENNEDY) AND EUR/SNEC (AMB. MANN) 
NSC FOR BRYZA 
 
E.O. 12958: DECL: 12/10/2014 
TAGS: PREL, ETRD, AM, AZ 
SUBJECT: RAIL BLOCKADE: TIGHTENING THE NOOSE AROUND ARMENIA 
 
Classified By: Ambassador John M. Evans for reason 1.4 (b) and (d) 
 
SUMMARY 
------- 
 
1.  (C) For more than twelve years, the blockade of Armenia 
by Turkey and Azerbaijan has disrupted regional transit 
corridors.  All political considerations aside, regional 
economic development has been stymied.  Recent steps by 
Azerbaijan to improve the effectiveness of its blockade have 
tightened the noose.  Armenia has a single active 
international rail crossing, through Georgia.  International 
freight arriving at this point must either arrive via the 
port of Poti (at significant cost), or through Azerbaijan. 
Press reports suggest that Azerbaijan is pressing Georgia 
hard to step up enforcement of agreements which prohibit 
trans-shipment of cargoes to Armenia.  More than 1000 
railcars intended for delivery to Armenia, primarily carrying 
fuel and grain, are now being held in Azerbaijan. 
 
2.  (C) The GOAM is feeling the pressure.  In addition to the 
immediate economic pressures of the blockade, a new rail line 
is under consideration to link the Turkish city of Kars 
directly to Georgia, bypassing Armenia.  The GOAM offered 
Turkey the use of the rail connection from Turkey to Georgia, 
even if only for transit purposes.  As he prepared for a 
recent trip to Turkey, President Putin told the press he 
would argue against construction of this line and the further 
economic isolation of Armenia. 
 
3.  (C) We think the proposed bypass would remove the 
incentive to develop the economic links which could bridge 
the political gaps that divide this region.  A rail bypass of 
Armenia would work against U.S. regional goals.  End Summary. 
 
ISLAND IN THE STREAM 
-------------------- 
 
4.  (C) Situated on the historic silk road, less than 200 
miles from the busy ports on the Black Sea and 350 miles from 
the Caspian, Armenia nonetheless faces some of the highest 
transport costs in the world; a recent World Bank report 
compares costs as exceeded only by some "African landlocked 
countries."  Azeri and Turkish borders are closed.  The road 
to Iran is steep, narrow, and perilous in winter.  Nearly 
ninety percent of goods (other than diamonds) imported to or 
exported from Armenia transit Georgia, where they incur high 
transit costs, both in terms of formal customs fees and also 
in what the World Bank report charitably termed "informal 
transit costs." 
 
5.  (C) Goods that come to Georgia from the East which 
transit Azerbaijan must be consigned to Georgia and then 
resold to an Armenian importer, incurring customs duties and 
taxes in both Georgia and Armenia.  Armenian importers once 
solved this problem informally with Georgian customs 
officials.  "Under Shevardnaze, we would just fix the 
paperwork," a senior customs official told us recently, but 
now Georgian officials are "unfortunately are following the 
law." 
 
Azerbaijan Steps Up The Pressure 
-------------------------------- 
 
6.  (C) Azerbaijan in recent weeks has stepped up the 
pressure and is reportedly holding more than a thousand rail 
cars, mostly laden with grain and fuel, at the Georgian 
border on suspicion that they will be re-consigned to 
Armenia.  According to Deputy Minister of Trade Tigran 
Davtyan, the goods held are in fact bound for Armenia. 
Davtyan told us earlier that recent measures by Azerbaijan 
have caused shortages of aviation fuel in Yerevan, forcing 
Armenian airlines to stop in Sochi for refueling and driving 
the price of aviation fuel to more than USD 700 per ton in 
Yerevan.  According to press reports, the Azeri Embassy in 
Tbilisi has added a new officer whose sole duties are to 
enforce a CIS agreement which prohibits the improper 
re-consigning of cargoes. 
 
THE COST TO BUSINESS IS HIGH 
---------------------------- 
 
7.  (C) If the transit through Georgia is costly to 
importers, it is prohibitively expensive to businesses 
seeking to export from Armenia, whose goods -- save polished 
gems -- tend to be heavy for their value.  An American marble 
importer told us that to bring marble from Armenia to 
California he pays USD 4,000 per container, opposed to USD 
2,000 from across the border in eastern Turkey.  Another U.S. 
company that exports molybdenum from Armenia to Western 
Europe claims that the trip from Armenia to the Georgian port 
of Poti is the most expensive part of shipping costs, at USD 
1,500 per container.  Armenian freight forwarders point out 
that Georgia levies high transit fees (USD 300 per container 
plus ecological charges--higher for Armenians than for 
Azeris, despite the fact that both Georgia and Armenia are 
members of the WTO.  Freight companies also point to high 
risks due to corruption and poor infrastructure in Georgia. 
In total, Armenia's balance of payments shows a USD 90 
million debit for external freight charges -- more than one 
third the value of Armenia's total exports excluding precious 
gems. 
 
THE IRON CURTAIN'S REMAINING CHINK 
---------------------------------- 
 
8.  (C) In Soviet times the Gyumri-Kars railroad crossing 
over the Arax river on the eastern Turkish border was the 
only rail link between the Soviet Union and Turkey.  We 
recently visited the site and were struck by how much it 
still seems like a scene out of the cold war.  Russian border 
guards still man Armenia's borders with Iran and Turkey and 
our Armenian hosts had to seek their permission to approach 
the border post. 
 
9.  (C) Today, the rails lie unused.  Although idle since 
1992, the railway from the border to Gyumri is intact.  Three 
years ago the Armenian Customs Service refinished a building 
at the border for use as a customs house in the anticipation 
that the border would open soon.  The old Akhurik rail 
station (five kilometers from the Turkish border) needs new 
loading and unloading equipment, but the rails are 
operational. (Armenian trains, like Georgian and other Soviet 
trains, have a different gauge than Turkish trains.  Cargo 
would have to be transferred from the Turkish trains to 
Armenian trains at Akhurik.)  From Gyumri the current 
Armenian railroad provides service to Tbilisi. 
 
Armenia Seeks to Open Rail Link 
------------------------------- 
 
10.  (C) Armenians are acutely aware of their isolation. 
Foreign Minister Oskanian and his Deputy Tatoul Markarian 
told us that Armenia seeks the rehabilitation of existing 
rail infrastructure through the Caucasus.  During a September 
meeting, the press reported that President Kocharian asked 
Georgian President Saakashvili to help re-open the rail 
connection through Abkhazia, thereby providing a railroad 
link to Russia.  Russian Transport Minister Igor Levitin 
recently announced that Russia agreed to re-open the line 
through Abkhazia, but we understand this will take more than 
a year to implement. 
 
11.  (C) Markarian told us the GOAM is willing to take bolder 
steps to encourage the use of the Gyumri-Kars railroad 
between Armenia and Turkey, including the use of the Armenian 
rail corridor by Turkey and Georgia without insisting on full 
normalization of trade ties.  Turkish cargoes would be 
permitted to transit to Georgia.  Markarian said Armenia 
offered to permit rail transit of cargoes bound for Iraq from 
Turkey and has also offered transit through Armenia for 
humanitarian goods from Turkey or Azerbaijan to the Azeri 
enclave of Nakhichevan.  Both offers were rejected in favor 
of maintaining the blockade, he asserted. 
 
12.  (C) The governments of Azerbaijan, Georgia and Turkey 
reportedly made a proposal to the TRACECA (Transport Corridor 
Europe Caucasus Asia) forum to solicit EU financing to build 
a new route from Kars to Tbilisi, going around Armenia. 
Armenia's representative to TRACECA, Gagik Grigorian, told us 
that the EU's current position on the proposal to build a new 
railway was to encourage the use of existing rail 
infrastructure instead.  Grigoryan admitted that the 
realization of the new railway would ultimately be 
commercially determined, but contrasted the situation from 
the Baku-Tbilisi-Ceyhan pipeline dispute:  "If the demand is 
there (for cargo from Kars to Tbilisi) the railway already 
exists.  Rather than build a new railroad let's operate the 
existing system."  Russia has already spoken out against the 
new rail link.  In a press interview given in advance of his 
December 6-7 trip to Turkey, President Putin said that he 
planned to raise Russia's opposition to the new rail link as 
it would increase Armenia's isolation and would be a step 
away from resolving the ongoing conflict. 
 
Comment 
------- 
 
13.  (C) The GOAM sees Azerbaijan's new push to enforce its 
blockade in the context of other efforts to force Armenia to 
concede in negotiations to end the conflict in 
Nagorno-Karabakh.  During a recent visit to Yerevan, Heikki 
Talvitie, the EU's Special Rep for the South Caucasus, told 
us that he saw a new pattern of actions by Azerbaijan to 
isolate Armenia in every way possible, and cited Azerbaijan's 
efforts to raise N-K at UNGA as an example. 
14.  (C) However legal Azerbaijan's actions to enforce the 
blockade may be and however legitimate -- from its view -- 
its political reasoning is, the economic division of the 
South Caucasus works against our goal of developing regional 
stability.  While we believe it likely would be 
counterproductive (and probably pointless) for outside actors 
to engage any of the players in the current border dispute, 
we believe it would be a blow to efforts to build regional 
ties to support a rail bypass of Armenia.  Encouraging the 
use of existing rail infrastructure through Armenia rather 
than the construction of a new route around could result in a 
small step towards the rapprochement between Turkey and 
Armenia. 
EVANS