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C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 001164 
 
SIPDIS 
 
E.O. 12958: DECL: 05/06/2019 
TAGS: PREL PGOV ECON RS AM AZ
SUBJECT: MEDVEDEV-SARGSIAN: NAGORNO-KARABAKH, ECONOMICS 
 
Classified By: Pol M/C Alice G. Wells for reasons 1.4(b) and (d) 
 
¶1.  (C) Summary:  In a press conference after his April 23 
meeting with Armenian President Sargsian, President Medvedev 
stressed the November 2 Moscow Declaration he personally had 
brokered as the basis for progress on Nagorno-Karabakh, while 
the MFA stated its hope the Turkey-Armenia rapprochement 
would benefit the negotiations.  The MFA noted that Russian 
companies operating in Armenia saw the opening of the border 
to Turkey as a new export opportunity, and clarified that the 
approved USD 500 million loan to Armenia still required Duma 
passage of the budget, with additional assistance possible 
through the EurAsEC anti-crisis fund.  Analysts see Russia's 
role declining in the South Caucasus, including over 
Nagorno-Karabakh, as a result of Turkey's diplomatic 
initiative.  However, Armenia's decision to cancel its 
participation in the May 6 PfP exercises with Georgia is one 
indication that Moscow will not cede its "privileged 
interests" easily.  End Summary. 
 
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Nagorno-Karabakh 
---------------- 
 
¶2.  (U) In a press conference after his April 23 meeting with 
Armenia President Sargsian, President Medvedev stressed the 
November 2, 2008 Moscow Declaration signed by Sargsian and 
Aliyev as a common approach "based on the fundamental 
principles of international law" to resolving 
Nagorno-Karabakh, and the basis for Sargsian's and Aliyev's 
willingness to "move in a positive direction."  Sargsian 
agreed, stressing that the core issue in the Nagorno-Karabakh 
conflict was the status question.  In reference to Turkey, 
Sargsian welcomed the "appearance of another country that 
thinks of Russia as its strategic partner," which he said 
"increased Russia's role" in resolving the conflict.  MFA 
spokesman Nesterenko on April 29 echoed FM Lavrov's April 16 
remarks in Yerevan that the Turkey-Armenia rapprochement was 
a "bilateral affair," adding that Russia hoped it would "help 
ease tensions in the region" and "benefit the atmosphere of 
negotiations" on Nagorno-Karabakh. 
 
¶3.  (C) Calling Nagorno-Karabakh a "permanent" item on the 
Russia-Armenia agenda, MFA Armenia desk officer Petr 
Volokovykh told us April 29 that the Presidents discussed the 
upcoming May 7 Sargsian-Aliyev meeting in Prague.  In order 
to counteract the "image of enmity" the conflict sides bore 
toward each other, Medvedev and Sargsian agreed to pursue 
"people's diplomacy" by staging a cultural event in the 
summer designed to increase the mutual understanding of the 
Azerbaijan and Armenia peoples. 
 
¶4.  (C) Volokovykh termed the Turkey-Armenia rapprochement a 
"bilateral issue" that Russia welcomed, but posited that the 
Nagorno-Karabakh resolution process should not suffer because 
of it.  He disagreed with the notion that Russia would lose 
its influence in Armenia if Turkey and Armenia normalized 
relations.  While it was true that Russia was Armenia's 
greatest partner both in political and economic terms, 
Volokovykh noted that the Armenian market was very "narrow," 
and that the Russian companies operating in Armenia saw the 
opening of the border to Turkey as a new export opportunity. 
 
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Economics 
--------- 
 
¶5.  (U) In the press conference, Medvedev highlighted 
existing energy and infrastructure projects as means by which 
Russia was helping Armenia weather the economic crisis and 
protect the USD 1 billion Russian-Armenia trade relations and 
USD 2.5 billion Russian investment in Armenia.  He singled 
out as examples the joint construction of a civilian nuclear 
plant and development of uranium mines.  Calling Armenia one 
of Russia's "closest partners," Medvedev indicated that 
Russia sought additional ways to assist Armenia during the 
crisis, including "special economic mechanisms" and 
"guarantees." 
 
¶6.  (C) Volokovykh said that the GOR had decided to provide 
USD 500 million in credit to Armenia, but the allocation of 
funds was only possible once the Duma passed the new budget. 
Volokovykh said it was possible to discuss the terms of the 
loan, but it was "well understood by all" that Armenia had a 
history of not repaying loans, and this would be no exception. 
 
 
MOSCOW 00001164  002 OF 002 
 
 
¶7.  (C) Volokovykh clarified that Medvedev's remarks about 
using "special economic mechanisms" to assist Armenia 
referred to the anti-crisis fund of the Eurasian Economic 
Community (EurAsEC).  EurAsEC members had decided to let 
Armenia participate in the fund, even though it was only an 
observer in the organization.  While Russia was the biggest 
contributor to the fund, providing USD 7 billion of the 
fund's USD 10 billion total volume, EurAsEC members would 
have to jointly decide on the terms of aid to Armenia at 
their next summit in the summer.  The planned USD 500 million 
loan would not come from the EurAsEC anti-crisis fund, 
Volokovykh said, despite Medvedev's April 2 remarks that the 
bulk of Russian aid to its neighbors would be disbursed via 
that fund. 
 
¶8.  (C) Volokovykh said that apart from the civilian nuclear 
cooperation, Gazprom's participation in constructing an 
Iran-Armenia pipeline and the modernization of the Armenian 
railway system with the help of the Russian Railway were the 
main economic issues Medvedev and Sargsian discussed.  He did 
not have anything to add to the earlier allegations of 
Russian arms sales to Armenia that Russia had dismissed as 
forged, but stated that "military-technical" cooperation 
regarding the upkeep of Armenia's Soviet-era military 
equipment continued. 
 
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Analysts 
-------- 
 
¶9.  (SBU) Analysts are more critical of the effects of 
Turkish-Armenian normalization on Russia's influence in the 
Caucasus.  In a thoughtful piece in Vermya Novostei, Ivan 
Sukhov allowed that a solution for Nagorno-Karabakh might be 
found more easily if Armenia could break out of isolation. 
However, Turkey's offer to open its border to Armenia in 
return for Karabakh settlement was a carrot Russia could not 
match, forcing Russia out of its position as the main 
mediator in the Karabkah conflict.  Russia's use of the 
conflict to hold Armenia and Azerbaijan in its sway was 
trumped by Turkey's willingness to actually resolve the 
issue, Sukhov posited.  He attributed Russia's weak hand to 
its mishandling of the August 2008 Georgia conflict, which 
had alienated Armenia, Azerbaijan, and Turkey.  Noting that 
this would cause Russia's "main ally in the South Caucasus" 
to turn toward Turkey, Sukhov judged that Russian links to 
Yerevan would be reduced to an "auxiliary role." 
 
¶10.  (SBU) Mikhail Zirgar and Vladimir Solovyev argued in a 
Kommersant article that as a result of the normalization with 
Turkey, Armenia would no longer rely solely on Russia as the 
basis of its foreign policy, in particular as increased trade 
with Turkey crowded out Russian economic ties.  Boris 
Makarenko of the Political Technology Institute agreed that 
Russia must realize it "no longer held the monopoly on what 
used to be the Soviet Union," while Alexey Vlasov from Moscow 
State University described the new situation in the Caucasus 
as "multi-vectoral."  However, Zirgar and Solovyev reasoned 
Moscow's USD 500 million loan (down from the requested USD 2 
billion) would ensure Armenia went along with Russia's 
Nagorno-Karabakh initiatives, while quoting an MFA contact 
describing the Turkey-Armenia roadmap as "a PR ploy." 
 
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Comment 
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¶11.  (C) While Russia may be losing ground as the monopolist 
in the South Caucasus, Armenia's decision to withdraw from 
the NATO-Georgia PfP exercises shows that Moscow still has 
clout in the region, and will not lightly surrender control 
of its "region of privileged interests." 
 
 
RUBIN