In a remarkable sign of tightening relations, Iran, Azerbaijan and Turkmenistan signed a trilateral natural gas swap deal on the sidelines of the 15th summit of the Economic Cooperation Organization (ECO), in Ashgabat, on November 27, 2021. Iranian Oil Minister Javad Oji noted that “Under this tripartite agreement, Iran will receive about 1.5 [billion] to 2 billion cubic meters of gas a year from Turkmenistan in the Sarakhs [region] and will deliver it to Azerbaijan from Astara” (Fars News Agency, November 27). Moreover, the Islamic Republic’s new president, Ebrahim Raisi, during a meeting with Iranian businessmen and private-sector activists in Ashgabat, emphasized that “the gas contract with Turkmenistan will be revived” (Mehr News Agency, November 28).
Raisi was specifically referring to the 1997 gas contract between Iran and Turkmenistan, which has faced many problems and challenges since 2005. Turkmenistan cut off gas exports to Iran three times during winter cold snaps in 2007, 2013 and 2017, affecting people in the northeastern and northern provinces of Iran. Turkmenistan has also repeatedly increased the price of gas exports to its southwestern neighbor, including in 2007, boosting the tariff rates nine times over. Tehran found it particularly difficult to pay for those energy imports from Turkmenistan due international sanctions approved by the United Nations Security Council as well as unilateral United States sanctions adopted by the administration of then-President Donald Trump. And although Iran tried to pay part of Turkmenistan’s financial claims through exports of goods, petrochemicals, technical and engineering services, and joint projects, the problem remained unresolved. Moreover, Iran has repeatedly objected to the quality of the Turkmenistani gas exports and late deliveries (Caravanserai, July 7, 2020).
The bilateral gas dispute peaked under the previous Iranian administration of Hassan Rouhani. Then–Iranian oil minister Bijan Zanganeh strongly opposed the swap of Turkmenistani gas to Turkey via Iran. He believed that Turkmenistan, as a competing gas producer to Iran, should not be allowed to export its volumes to rival regional power Turkey via Iranian territory. Indeed, he clearly announced that Iran had no need for gas from Turkmenistan at all. Finally, with regard to Tehran’s $1.8 billion debt, the government in Ashgabat took their gas dispute case to the International Court of Arbitration in Switzerland. On June 24, 2020, the court ordered the Iranian side to pay $2 billion (7 billion Turkmenistani manat) to Ashgabat as a penalty for missed gas purchase payments between 2007 and 2013. But Iran’s oil ministry argued the ruling only specified the exact amount of the debt owed and did not legally commit Iran to pay it (Caravanserai, July 7, 2020). Therefore, the Iranian-Turkmenistani gas troubles, which began in 2005, under the presidency of Mohammad Ahmadinejad, continued all the way through the end of Rouhani’s presidency, in August 2021, without a resolution.
But that situation finally appears to be changing, following the inauguration of President Raisi. As mentioned above, Raisi has specifically declared that the “gas contract with Turkmenistan will be revived” (Mehr News Agency, November 28). The reasons for this change in attitude in Tehran are at least three-fold. First, it is important to take into account the Raisi government’s emphasis on “neighborhood policy” and “economic diplomacy” as the two main priorities for Iranian foreign policy going forward. Notably, Turkmenistan is Iran’s only direct neighbor in Central Asia. The second reason is a change in the policies of the Ministry of Oil and the National Iranian Gas Company when it comes to pursing a more active “gas diplomacy.” The third reason is Tehran’s growing concerns over securing stable and reliable supplies of gas to homes and factories in the northern and northeastern Iranian provinces. Despite various measures taken in recent years, including the construction of the Neka–Damghan pipeline, the gas situation in these areas has still not stabilized. This was, thus, one of the main Iranian considerations for signing the trilateral gas swap agreement at the recent ECO summit in Ashgabat. While acting as a physical intermediary for gas flows from Turkmenistan to Azerbaijan, Iran will withdraw part of the volumes as payment for transfer rights; and those volumes will help meet gas consumption demands in Iran’s five northern provinces. The head of the National Iranian Gas Company (NIGC), Majid Chegeni, reiterated that “this contract contributes to the stability of the gas network in the north and northeast of the country” (Shana.ir, November 28).
At the same time, however, part of the driving force behind resolving the bilateral gas dispute is coming from Turkmenistan. As the sixth-largest holder of gas reserves in the world, Ashgabat is pursuing a gas export route diversification policy in four geographical directions: North (Russia), East (China), South (Afghanistan and Pakistan), and West (Iran, Caspian Sea and the Republic of Azerbaijan). However, Turkmenistan faces significant challenges in implementing this strategy. The recent gas swap agreement between Turkmenistan, Iran and Azerbaijan reflects the fact that despite the previous years’ gas cooperation agreements reached between Ashgabat and Baku in the Caspian Sea, conditions for the construction of a long-planned Trans-Caspian Pipeline from the Turkmenistani coast to Azerbaijan remain far too uncertain to proceed (see EDM, April 5, 2018 and January 27, 2021). Moreover, following the return to power of the Taliban in Afghanistan, the prospects for the Turkmenistan–Afghanistan–Pakistan–India (TAPI) pipeline are also unclear (see EDM, December 6, 2021). In such circumstances, the resumption of the Turkmenistani-Iranian gas agreement will allow Ashgabat to raise revenues as well as diminish its reliance on Russia and China, its two main consumers and export routes.
Considering that (in line with the maritime delimitation agreements within the Convention on the Legal Regime of the Caspian Sea), Azerbaijan and Turkmenistan are “adjacent” to Iran, growing cooperation between these three countries is almost inevitable. Recently, Iranian Oil Minister Oji announced that Iran and Azerbaijan, both members of the OPEC+ coalition of producers, intend to sign several energy agreements soon, including on the joint development of an oil field on the Caspian seabed (Tasnim News, November 22). Therefore, the November 2021 Turkmenistani-Iranian-Azerbaijani gas swap deal may eventually facilitate trilateral cooperation in offshore oil and gas extraction. However, it seems that given environmental considerations and Tehran’s unchanged (at least for now) objections to the Trans-Caspian Pipeline project, such tripartite cooperation will likely be limited to exploration and drilling.