The construction of the 470-kilometer long railway, with 410 kilometers passing through Armenian territory, is expected to last for at least five years and to cost $1.5-$1.8 billion.
"It is difficult to estimate the cost as the length of the tunnel has not been determined and the construction of a tunnel is relatively expensive," Armenian Transport Minister Gurgen Sargsyan said.
Landlocked Armenia, currently under economic blockade by neighboring Turkey and Azerbaijan, has railway links with other countries only through Georgia.
A memorandum of understanding on the strategic route was signed by Sargsyan and his Iranian counterpart, Hamid Behbahani, on April 3. A working group will take about three months to do a feasibility study, Sargsyan said on Wednesday.
The railway connecting the northern Armenian city of Sevan to the southern city of Meghri, bordering Iran, will ensure the transportation of energy supplies and other goods, and increase trade between the countries.