Armenia’s economic dependence on external powers
03.11
2025
Armenia’s economic dependence on external powers is a multi-layered and historically shaped issue. Since the very first years of independence, Armenia’s main challenge has been maintaining economic self-sufficiency and resisting external influences. Armenia is a small, landlocked country; two of its four neighboring countries are hostile. This limits the country’s economic connections and deepens its external dependence.
The main challenges facing Armenia are semi-closed borders, limited natural resources, and a complex geopolitical environment. Dependence on external sources in the energy and financial sectors also significantly influences political decisions. Armenia’s economy, with its small market, is highly dependent on external relations. Over the past three decades, economic developments have been heavily influenced by investments, remittances from migrant labor, and imports of energy carriers and strategic goods.
Armenia’s economy is classified among countries with small markets. With a population of around 3 million, the country had a GDP of approximately $25.8 billion in 2024, or about $8,500 per capita. In terms of economic structure, services and trade account for over 50%, industry about 22–23%, and agriculture around 12–13%.
Remittances from Armenians working abroad continue to be a key driver of economic growth. In 2024, these amounted to around $1.51 billion, with more than half—about $800 million—coming from Russia. This means a significant portion of Armenia’s economy still relies on external income.
External economic dependence is not only an economic but also a political issue for Armenia. The greater a country’s dependence on a major power or a neighboring state, the more limited its ability to make independent decisions. Today, Armenia is significantly dependent on one or two main partners. In terms of energy, the country is almost entirely reliant on imports: around 80–85% of its natural gas comes from Russia, with the remainder from Iran. In trade turnover, Russia accounts for over 35%, while the EU accounts for around 7.5%. Although China’s and Iran’s roles have increased in recent years, they still cannot balance Russia’s dominant position.
Russia supplies gas and strategic goods while maintaining political influence in return. Armenia has attempted to diversify its foreign policy by developing relations with the EU, the U.S., and China, yet the dependence structure remains concentrated.
Two of Armenia’s four neighbors—Turkey and Azerbaijan—have closed their borders since the collapse of the Soviet Union. Thus, Armenia finds itself in a semi-blockaded situation, not a full blockade, as authorities often claim to justify their pro-Turkish and pro-Azerbaijani policies.
Energy dependence: Since the 1990s, Armenia has effectively had closed borders with Azerbaijan, and since 1993, with Turkey. Naturally, this not only limited trade and transport opportunities but also increased reliance on northern and southern routes through Georgia and Iran; over 70% of Armenia’s imports and exports pass through Georgia.
Under these conditions, Russia became Armenia’s main pillar, whose support, while helping maintain energy stability, also deepened political dependence. Thus,
Gazprom Armenia supplies the majority of gas while controlling several strategic infrastructures. (Iran also supplies gas, but in much smaller volumes.)
The Metsamor nuclear power plant operates thanks to Russian loans and technical support.
Financial and economic dependence: Armenia’s public debt has largely been built through external loans from Russia, the International Monetary Fund, and the World Bank. Today, external debt exceeds 55% of GDP. In addition, remittances from migrant workers—mainly from Russia—account for about 12% of GDP, directly linking Armenia’s economy to the Russian economy. Around 30–35% of household income comes from these remittances.
External investments and trade: Russia is Armenia’s main investor, controlling the energy, telecommunications, railway, and mining sectors. Around 40% of Armenia’s exports go to Russia, which is risky, as any crisis in the Russian economy immediately affects Armenia. At the same time, investment activity from the EU, China, and Iran is increasing, which is a positive trend.
Political security component: It is axiomatic that a country’s economic dependence leads to political dependence. For example, Russia, as Armenia’s strategic ally, often uses economic levers to influence Armenia’s domestic and foreign policy in accordance with its own interests, creating a dependency that limits Armenia’s actions, especially in relation to the West.
Negative consequences of economic dependence:
Limited economic sovereignty affecting domestic politics;
Vulnerability of the domestic market;
Slow development of economic diversification;
Increased external pressure on political decisions;
Social instability in case remittances decrease.
Possible Solutions: Handling this situation requires a systematic approach:
Diversify trade relations by developing ties with the EU, India, China, the Middle East, and Asian countries;
Reduce energy dependence by developing solar and other renewable energy sectors;
Promote local production, especially in food processing, mining, pharmaceuticals, and IT sectors;
Develop new transport corridors toward Iran, the Persian Gulf, and the Indian Ocean;
Strengthen educational and scientific-technical policies to prevent brain drain;
Develop military-industrial potential.
Conclusion: Armenia’s economic dependence on external powers is not only an economic issue but also one of state sovereignty. Since it is deep-rooted and systemic, it cannot be overcome through short-term political measures. A long-term national economic strategy is necessary to ensure balanced relations with external partners and internal economic self-sufficiency. Armenia has significant potential in mining and processing industries, and only with such a strategy can it restore economic independence and become a meaningful participant in the regional economic system.
In recent years, international developments, the regional peace agenda, and the prospect of opening borders—especially regarding the “Zangezur Corridor”—have once again posed the question of what impact these changes will have on Armenia.
Sasun Davidyan, Economist
Armen Sargsyan, Historian
