An Armenian official has announced that the long-discussed railway line connecting the country with neighboring Iran is not an immediate priority. The announcement comes as rival Azerbaijan moves ahead with its own ambitious infrastructure development.

On July 19, Armenian Transport and Communications Minister Ahot Hakobian told RFE/RL’s Armenian service Azatutyun that the project is “not part of [the government’s] short-term plans at the moment,” citing its estimated $3.5 billion construction cost as the main obstacle.

Initial agreements on the railway’s construction were made between Yerevan and Tehran in 2009. Three years later, in a separate deal, Armenia granted the Dubai-based Rasia FZE Investment Company a 50-year concession to manage the 305-kilometer Armenian section of the railway.

“The idea is good and, depending on the country’s development, if we can afford it in the future we could go for it,” Hakobian said. “But it is not topical now.”

Armenia’s former Prime Minister Karen Karapetyan had acknowledged the project’s financial difficulties in January this year.

Trade between the two countries has been growing but remains modest, reaching just $263 million this year. In December 2017, Armenia launched a free economic zone in Meghri, a city on the Iranian border, in a bid to boost trade and make the railway more economically viable.

But it is Armenia's rival, Azerbaijan, that appears to be gaining ground in the region’s infrastructure development race. In January, Tehran accepted a $500 million loan from Baku to construct a 205-kilometer railway from Rasht to the Azerbaijani border (known as the Rasht-Astara line). The line will form part of the International North-South Transport Corridor.

That project is an ambitious, 7,200-kilometer trade route comprised of shipping routes, highways and rail links moving freight between Indian, Russian and European markets. Tests conducted in 2014 showed that transport costs were reduced by $2,500 per 15 tons of cargo by using the route.

And geopolitical uncertainty – most notably the threat of renewed U.S sanctions on Iran – do not appear to have put the project on hold.

“The work on the International North-South Transport Corridor is proceeding ahead as planned and no changes have been made to the project,” Abbas Nazari, an Iranian transport official told the Azerbaijani news outlet Trend.

“We are even moving ahead of the schedule,” Nazari added confidently, noting that “this is not the first time” Washington has imposed sanctions on Tehran.

U.S. President Donald Trump withdrew from a multinational nuclear deal with Iran in May, with a new round of sanctions scheduled to begin in August, but the full implications for Armenia and Azerbaijan remain unclear.

Baku hopes the project will gain it a strategic advantage in its decades-long conflict with Armenia. Planners are in talks with Turkish and Iranian officials to revive a Soviet-era railway linking Azerbaijani exclave Nakhchivan with both Kars (in Turkey) and Mashad (in Iran), allowing goods to pass through to markets in Pakistan.

On March 17, 2022, Eurasianet received a letter from Thomas Rudkin, a lawyer representing Rasia owner Joseph K. Borkowski, providing additional information on the company's role in the Armenian rail project. We are reprinting part of the letter below.

...In July 2012, Rasia entered into two concession agreements which were signed by our client on behalf of Rasia and by the Armenian Minister of Transport and Communications, acting on behalf of The Republic of Armenia (the Agreements). There were no other parties to the Agreements. The Southern Armenia High Speed Road Concession Agreement involved the development of "a new high speed road between the city of Sisian and the city of Meghri and/or Armenia's southern border near the city of Mehgri", while the Southern Armenia Railway Concession Agreement involved a "new railway between the existing operating central railway system of Armenia and Armenia's southern border near the city of Meghri". Both projects were to be situated exclusively within Armenia. It is the latter of these Agreements, hereafter referred to as the Armenia Rail Agreement, that is relevant to this letter (and the Article).

The Armenian government subsequently expropriated the Agreements from Rasia in 2015 after the feasibility assessment stage and engaged other companies, in place of Rasia, to implement the projects described within the Agreements. As a result, our client initiated arbitration proceedings against the government which began in August 2018. Final submissions were completed in June 2021 and a decision of the arbitration tribunal is currently pending.

Separate to its Agreements with Rasia, we understand that the Armenian government had been involved in discussions with Iran regarding the development of transport links between the two countries, including in the terms set out in a Memorandum of Understanding signed by Armenia and Iran on 3 April 2009 (the 2009 MoU). Neither Rasia nor our client acting in any capacity were party to these inter-governmental discussions, nor has Rasia ever entered into any agreement with Iran or by which the Armenian railway system would be extended into Iran. To the extent the Armenian railway was ever to be extended into Iran, this was a matter for the Armenian and Iranian governments, and other third parties....