The United States has expressed concern about Armenia's deepening economic relations with neighboring Iran, with a senior American diplomat warning that they might run counter to international sanctions imposed on Tehran over its controversial nuclear program.

In an equally significant development, the US charge d'affaires in Yerevan, Anthony Godfrey, also indicated that Washington is ready, in principle, to help the South Caucasus nation build a new nuclear power plant. "We are very concerned about the increasing relations with Iran," Godfrey told a news conference on June 15, commenting on multimillion-dollar energy projects planned or already implemented by the two countries.

"We are working with the rest of the international community to push Iran to comply with its international obligations [on nuclear non-proliferation]," he said. "And two new [United Nations] Security Council resolutions deal directly with investments in Iran, financial dealing with Iran. We have expressed our concerns to the government of Armenia on all levels."

Armenia has until now maintained strong political and economic ties with Iran, while being a leading per-capita recipient of US government assistance. The Islamic Republic has served as one of Armenia's few conduits to the outside world ever since the economic blockades imposed on the small landlocked country in the early 1990s by its more hostile neighbors, Azerbaijan and Turkey. Armenian leaders hope that joint projects with Tehran will also reduce Armenia's strong dependence on Russia for energy resources.

Godfrey was apparently the first senior US official to publicly and explicitly voice alarm over Armenian-Iranian cooperation. His remarks contrasted with what the former US ambassador in Yerevan, John Evans, said on the matter in February 2006. Washington, Evans said at a news conference, is "very sympathetic to Armenia's efforts to diversify sources of energy," not least because they have not yet breached long-standing US sanctions against Iran.

"Up to now, so far as we can tell, the American legislation has not been triggered by anything that Armenia has done," he said at the time.

The Armenian-Iranian relationship, largely covering the energy sector, has since gained new momentum. The presidents of the two countries inaugurated last March the first Armenian section of a pipeline that will pump Iranian natural gas to Armenia. Armenian President Robert Kocharian hailed that as a "historic event," while his Iranian counterpart Mahmoud Ahmadinejad said the pipeline will "further reinforce friendship and ties between our peoples."

Work on the pipeline's second, much longer section is due to be complete by the end of next year. Armenia will then be able to import up to 2.3 billion cubic meters of Iranian gas a year, or nearly twice the current level of its gas deliveries from Russia. It is expected that the bulk of the imported Iranian gas will be converted into electricity that will in turn be exported to Iran.

To that end, the Armenian and Iranian governments agreed last year to build a third high-voltage transmission line connecting the power grids of their countries. Construction of a major hydro-electric plant on the Arax River, which marks the Armenian-Iranian border, is also planned.

In addition, Armenian, Iranian and Russian officials are scheduled to meet later this year to discuss an ambitious proposal to build an oil refinery in Armenia that would process Iranian crude. An oil subsidiary of Russia's Gazprom energy conglomerate has shown interest in financing most of the project, which has an estimated cost of more than $1 billion.

In Godfrey's words, the US government is worried about these developments. "We do appreciate the transparent way in which the government of Armenia conducts its energy relations with Iran, and we appreciate the straightforward way that they tell us where they are going with their relations," he said.

But the diplomat went on to urge the Kocharian administration to be a "more active partner" in US-led international efforts to prevent Iran from developing nuclear weapons. The Armenian government has avoided any criticism of Tehran's nuclear program, contenting itself with general calls for a peaceful resolution of the dispute.

Speaking to journalists on June 19, Armenian Foreign Minister Vartan Oskanian refrained from directly responding to the US concerns. He said only that they will not damage US-Armenian relations. For his part, Deputy Parliamentary Speaker Vahan Hovannisian, whose Armenian Revolutionary Federation party is a junior partner in the governing coalition, argued that Armenia is right to forge closer links with Iran. The country "doesn't have much of a choice," given the continuing Azerbaijani and Turkish blockades, he said.

Washington seems to have somewhat widened Armenia's energy security options by publicly indicating its readiness to help the country replace its aging Metsamor nuclear power station with a new nuclear facility. [For background see the Eurasia Insight archive]. As Godfrey said, "We are working with the Armenian Ministry of Energy to develop a feasibility study as to just what would be the best replacement for this capacity."

US diplomats, however, say that support for the project would not be conditional on Armenia putting the brakes on its energy cooperation with Iran. "Our position on Armenia's need to replace Metsamor with a new power plant is independent of our concerns over Armenia's cooperation with Iran," one State Department official told EurasiaNet.

The Metsamor plant, which generates about 40 percent of Armenia's electricity, was built in the late 1970s and was shut down following a catastrophic 1988 earthquake. It was reactivated in 1995 to end a severe energy crisis caused by the war with Azerbaijan over the disputed territory of Nagorno-Karabakh. The United States and the European Union strongly opposed the decision, saying that Metsamor's Soviet-designed reactor is inherently unsafe. They both have spent tens of millions of dollars on upgrading the plant's safety systems, while pressing successive governments in Yerevan to close the facility as soon as possible.

The Kocharian government announced last year that Metsamor will be decommissioned by 2016. It also embarked on a search for potential foreign investors interested in providing an estimated $1 billion need for the construction of a new nuclear plant. The Russian government and energy companies promptly expressed their readiness to help to put the project into practice. The issue was high on the agenda of a late April visit to Yerevan by Sergei Kiriyenko, head of Russia's Federal Agency on Atomic Energy.

Kocharian reaffirmed his government's far-reaching intentions as he chaired an annual meeting of his Council on Atomic Energy Security on May 30. The project to build a new plant is "justified both in terms of energy security and economically," he said.