The United States' $9 Billion Move in the South Caucasus: Armenia's Strategic Game for Energy Independence from Russia

On February 10, in Yerevan, the capital of Armenia, U.S. Vice President J.D. Vance and Armenian Prime Minister Nikol Pashinyan signed a civilian nuclear cooperation agreement. The core commitment of this document is an investment of up to 9 billion U.S. dollars, aimed at helping this landlocked South Caucasus country reduce its energy dependence on Russia. The ink had barely dried before the strategic intent became clear—Washington is attempting to pry open a geopolitical crack in a key region traditionally viewed as Moscow's backyard.

Technical Details and Business Landscape of the $9 Billion Agreement

The legal text of the agreement paves the way for the United States to export nuclear technology, nuclear fuel, and related services to Armenia. Vance revealed during a briefing in Yerevan that the funds will be allocated in phases: approximately 5 billion dollars initially for equipment and technology exports, followed by 4 billion dollars through long-term fuel supply and technical service contracts. The focus is on Small Modular Reactors (SMRs), an emerging technology that is more flexible and has a shorter construction cycle compared to traditional nuclear power plants.

This transaction directly targets the lifeline of Armenia's energy system—the Armenian Nuclear Power Plant located in Metsamor, approximately 30 kilometers west of Yerevan. As the only operational nuclear power plant in the South Caucasus region, its two VVER-440 reactor units were constructed during the Soviet era between 1969 and 1977, currently supplying about 40% of Armenia's national electricity. Although the plant's operational life is planned to be extended until 2036 with technical support from Rosatom, the Armenian government has clearly stated that it is considering building a brand-new nuclear power plant to replace the aging Soviet legacy.

For nuclear power giants like Westinghouse Electric, this is an opportunity not to be missed. Analysts point out that American companies are gearing up to compete for the massive contract to replace the Armenian nuclear power plant in the future. This is not just a competition for commercial orders but also a substitution of technical standards and supply chains. Once the American reactor is installed at Metsamor, it will mean that nuclear fuel supply, spare parts replacement, and technical maintenance for decades to come will be deeply tied to the United States, fundamentally reshaping Armenia's energy security architecture.

Armenia's Geopolitical Shift and Security Dilemma

The Pashinyan government hailed this agreement as a new chapter in the Armenia-U.S. energy partnership, emphasizing its goal to diversify energy resources and enhance energy sovereignty. However, behind the official rhetoric in Yerevan lies a profound disappointment and strategic reassessment of Russia, Armenia's traditional security guarantor, following the defeat in the 2020 Nagorno-Karabakh war.

Since the conflict, relations between Armenia and Russia have remained tense. Yerevan has repeatedly accused the Moscow-led Collective Security Treaty Organization (CSTO) of failing to fulfill its security commitments in the face of Azerbaijan's offensive. This sense of distrust is directly reflected in the energy sector. Although Armenia currently relies almost entirely on Russian gas supplies and its power grid is connected to the Russia-led Eurasian Economic Union (EAEU) system, the Pashinyan government is urgently seeking westward-looking alternatives.

It is worth noting that this nuclear cooperation agreement is not an isolated event. It is embedded within a broader series of strategic interactions between the United States and Armenia. Just last August, a key scene unfolded in Washington: U.S. President Trump simultaneously met with Pashinyan and Azerbaijani President Ilham Aliyev, with the three parties signing a declaration on establishing peace and interstate relations. Even earlier, the United States and Armenia signed an exclusive agreement on the Zangezur Corridor, which reportedly entrusts the management of this strategic passage connecting mainland Azerbaijan to its exclave of Nakhchivan to the United States for 99 years, and it has been named the Trump International Road for Peace and Prosperity.

These actions outline a clear trajectory: Armenia is cautiously yet firmly adjusting its diplomatic and security axis, attempting to introduce American power to balance Russian influence and seek a new fulcrum under the geopolitical pressure from Azerbaijan and Turkey. Although parliamentary speaker Alen Simonyan claims that Armenia will not withdraw from the Eurasian Economic Union, the decoupling from Russia in the energy sector is undoubtedly the first step in testing Moscow's reaction limits and achieving diversification.

The U.S. Caucasus Strategy and Its Game with Russia

From Washington's perspective, these 9 billion dollars are far from a mere commercial investment. Bloomberg's report clearly states that the United States views this as a strategic decision. The South Caucasus region, situated between the Black Sea and the Caspian Sea, serves as a crossroads connecting Europe and Central Asia, and has historically been a buffer zone where the influences of Russia, Turkey, and Iran converge. For the United States, establishing a substantial foothold in Armenia means being able to exert pressure on Russia from its southern flank and enhance surveillance and influence over Iran's northern border.

This strategy is a continuation of the containment policy towards Russia from the Biden administration era and has been intensified under the current government. By initiating energy cooperation, the United States avoids the sensitivity of direct military intervention while achieving deep penetration. Civil nuclear cooperation involves national security, infrastructure protection, and long-term technological dependence, with its strategic binding effect comparable to that of a quasi-alliance agreement. The SMR technology provided by the United States, if successfully deployed, will become a Trojan horse embedded in Armenia's energy heart, ensuring decades of sustained U.S. presence and influence in the country.

This move is also a direct counter to Russia's energy diplomacy. For a long time, Russia has maintained its influence over former Soviet states like Armenia through natural gas supply, nuclear power plant operations, and grid control. The United States, by introducing nuclear energy—a higher-tier form of energy—aims to undermine this foundation. Moscow has not yet issued a formal, strong reaction to this agreement, but it is foreseeable that the Russian Ministry of Foreign Affairs and Rosatom will assess its impact. They may likely exert pressure on Yerevan within the framework of the Eurasian Economic Union or through bilateral channels, or offer more attractive countermeasures.

Restructuring Regional Balance and Future Risks

U.S. capital and technology entering Armenia's energy sector will inevitably disrupt the already fragile balance of power in the South Caucasus. Azerbaijan will be the first to bear the brunt. Baku has remained vigilant about Armenia's rapprochement with the West, concerned that it may enhance Yerevan's military or economic resilience, thereby affecting the negotiating leverage between the two countries on unresolved issues such as border demarcation and the opening of transportation corridors. Turkey, as a close ally of Azerbaijan, will also play a crucial role. Ankara may draw closer to Baku and seek greater coordination with Moscow to hedge against the rise of U.S. influence in the region.

For Russia, this presents a severe challenge. Losing dominance over Armenia's energy sector signifies a weakening of its strategic pillar in the South Caucasus. Potential countermeasures Russia may adopt include: exerting economic pressure on Armenia, further sidelining security cooperation within the Collective Security Treaty Organization framework, and possibly even balancing the Pashinyan government by supporting pro-Russian political forces within Armenia. There is a risk of regional realignment into blocs, evolving from the original Russia-Armenia versus Turkey-Azerbaijan dynamic into a new complex game involving the U.S.-Armenia alliance and Russia, Turkey, and Azerbaijan.

Armenia itself is also walking a tightrope. The Pashinyan government must calculate each step precisely: it needs to secure economic and security resources from the West to enhance its independence, while avoiding overly provoking Moscow, which could lead to the cutoff of critical natural gas supplies or security support, leaving Armenia in a more dangerous isolation in the face of Azerbaijan's military superiority. The energy transition itself is also fraught with technical risks and lengthy timelines—a new nuclear power plant takes at least ten years from planning to operation, during which Armenia's energy vulnerability may increase rather than decrease.

A nine-billion-dollar investment commitment, like a heavy stone cast into the tranquil lake of the South Caucasus. Its ripples are spreading from the meeting rooms in Yerevan, reaching the Kremlin in Moscow, the White House in Washington, the Presidential Palace in Baku, and the Parliament in Ankara. This is not merely a transaction about reactors and kilowatt-hours; it is a geopolitical power shift measured in megawatts. Armenia is attempting to carve a path of sovereignty amidst the giants, and each step along this path is accompanied by the sound of old balances shattering.