EurasiaNet Business & Economics - The Iranian-Turkmen Gas Row: And the Winner is ... Russia

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THE IRANIAN-TURKMEN GAS ROW: AND THE WINNER IS ... RUSSIA
Yigal Schleifer 1/28/08

A natural gas-supply dispute between Turkmenistan and Iran has the potential to significantly alter the Caspian Basin’s energy export calculus in Russia’s favor.

Already, the dispute has had a trickle-down effect � disrupting exports along the line connecting the Caspian Basin to European markets. In the broader scheme, the Iranian-Turkmen wrangling could cause the European Union to rethink the notion of the Caspian Basin as an alternate to Russia as a source of energy. Ultimately, then, Moscow could end up the winner in the Ashgabat-Tehran gas quarrel.

Turkey could end up being a big loser. "Turkey has basically tried to present itself as the major transit route for oil and gas from the Caspian [Basin] and Middle East regions. This event implies that there will be questions asked regarding that. This whole episode is very problematic," says Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies.

Iran normally exports up to 30 million cubic meters (mcm) of natural gas to Turkey every day, while importing roughly 23 mcm daily from Turkmenistan. Although Iran possesses the world’s second-largest gas reserves after Russia, a lack of infrastructure has forced it to import gas in order to meet its domestic needs, especially in northern Iran near the Turkmen border. Under its current agreement with Turkmenistan, Tehran pays $75 per thousand cubic meters (tcm), roughly half of what Russia pays for Turkmen gas. [For background see the Eurasia Insight archive].

The Iranian-Turkmen clash began January 1, when Turkmen gas supplies to Iran abruptly ceased. Originally, Turkmen officials attributed the disruption to technical difficulties, but it quickly became apparent that Ashgabat was disgruntled over the low price that Tehran was paying. The hard-line tactic backfired, however. Instead of rushing to the negotiating table, Iranian leaders responded to the Turkmen action by heaping invective upon Ashgabat, calling the behavior of President Gurbanguly Berdymukhamedov’s administration "immoral." [For background see the Eurasia Insight archive].

The two countries remain at an impasse, with Turkmenistan keeping the taps shut, and Iran refusing to negotiate until after the resumption of exports. The impact of the cut-off has been felt as far away as the EU. To try to compensate for the Turkmen cut-off, Iran severed its own exports to Turkey, which, in turn, found it difficult to meet its supply obligations to Greece.

On January 27, Iran resumed exports to Turkey, though only at a level roughly 10 percent of that which flowed before the start of the Iranian-Turkmen feud. Meanwhile, experts believe it unlikely that Berdymukhamedov will bend anytime soon in his effort to hike the price Iranians pay for gas.

Turkmenistan has succeeded in recent months in wringing higher prices for its gas out of both Russia and China, which on January 21 agreed to pay $195/tcm -- a price that includes a premium of $50/tcm to finance construction of a Chinese-Turkmen pipeline. [For background see the Eurasia Insight archive]. Experts have long questioned whether Turkmenistan has sufficient reserves to meet all its export obligations. [For background see the Eurasia Insight archive]. In mid-January, however, Ashgabat moved to remove all doubts about the country’s reserves by announcing that international auditors will be invited in to provide an independent estimate.

For European observers, the Iranian-Turkmen dustup is raising concerns about the two countries’ ability to play a role in the proposed Nabucco pipeline, which would bring Caspian gas to the European Union. "It makes a Nabucco that would take gas from Turkmenistan via Iran less likely," said Charles Esser, an energy analyst with the International Crisis Group, a Brussels-based policy and research organization.

Although still struggling to get off the drawing board, the proposed pipeline is designed to diversify the EU’s gas supply, in particular by bringing Turkmen gas online, either by funneling it to Azerbaijan and then to Turkey via a trans-Caspian pipeline, or to Turkey via Iran. [For background see the Eurasia Insight archive]. In Turkey, while there is some understanding for Iran’s predicament, questions are also being asked about Iran’s reliability as an energy supplier, considering Tehran has cut gas supplies to Turkey on previous occasions.

"Even before this, Iran’s reputation as a reliable deliverer of energy to Turkey has been questioned," says Gareth Winrow, an expert on energy politics at Bilgi University in Istanbul. "It puts into question again the whole nature of the Turkish-Iranian relationship as far as energy is concerned."

The Iranian-Turkmen dispute has enable Russia to reinforce its image as the most reliable source of energy for the EU. When Iran cut off its gas supplies to Turkey, Russia helped offset some of the decrease. And, at the same time that the dispute between Ashgabat and Tehran helped put question marks around the possibility of Caspian gas coming to Europe, Russia signed a major deal with Bulgaria, laying the groundwork for a pipeline running under the Black Sea which would bring more Russian gas to Europe.

"The message for me is that you can rely on the Russians to supply more gas and that all this talk about diversification is good in theory, but very hard to do in practice," says the Oxford Institute’s Stern. "The reality of when things go wrong is that mostly Russia can be relied upon to supply more gas. That strengthens [Russia’s] hand."

Editor�s Note: Yigal Schleifer is a freelance journalist based in Istanbul.

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