bne -

Armenia has firmly stepped back into Moscow's zone of influence with an announcement that it is set to join the Customs Union. The news overturns speculation that Yerevan was planning to reject entry to the Russian-led bloc in favour of closer ties with the EU.

A joint statement, issued on September 3 by the Russian and Armenian presidential administrations, says Armenia is now ready to join the Customs Union, which currently sees Russia share a free trade zone with Belarus and Kazakhstan. The announcement came in the wake of talks between President Serzh Sargsyan and Russian counterpart Vladimir Putin.

"Armenian President Serzh Sargsyan voiced Armenia's decision to join the Customs Union and take the relevant required practical steps, and later participate in forming the Eurasian Economic Union," the statement read, according to RIA Novosti. It added that Putin "expressed the Russian side's readiness to contribute to the process in every possible way."

Amid arguments over energy with Moscow, Armenia had appeared this year to be moving away from the Russian sphere of influence. It has been pursuing an EU Association Agreement, which includes the development of political, trade, social, cultural and security links with the European bloc.

Quite what the decision to join the Customs Union will mean for Yerevan's ambitions for greater integration with the EU is unclear. The planned Eurasian Economic Union - due to be launched in 2015 - is designed as an alternative to the EU for the post-Soviet region. However, Yerevan is already at an advanced stage of negotiation over the Association Agreement, and plans to finalise it before the EU's Vilnius summit in November.

Yet the Customs Union announcement follows a rise in pressure from Russia to bring Armenia - usually one of its closest allies - back into line. The tactics mirror those used to pull other former Soviet states, such as Ukraine, back from flirtations with Brussels.

In July, Armenia's Public Services Regulatory Commission announced an 18% price increase for gas consumers, following a price hike by Russian export monopolist Gazprom. The previous month, Russia completed an arms delivery worth around $1bn to Azerbaijan, potentially escalating the long-standing conflict over the breakaway Nagorno Karabakh Republic.

At the same time, despite the recent tension, Russia remains Armenia's most important partner in the economic sphere. Bilateral trade between the pair grew by over 22% to reach $1.2bn in 2012.

Helping ease Yerevan's route back into the fold, Putin told journalists as the announcement was made that Russian Railways may invest around RUB15bn ($450m) to develop Armenia's railway system. Russian state-ownd oil giant Rosneft also appears to have revived its interest in Armenia's debt-ridden Nairit chemicals plant, which has lain virtually idle for several years.