Publication: Eurasia Daily Monitor Volume: 2 Issue: 67

Russia has been courting Turkmenistan’s authoritarian regime in an apparent attempt to secure its energy interests in the gas-rich Central Asian state. However, the pursuit has been dealt a number of setbacks recently.

In the wake of regime change in Kyrgyzstan, Russian President Vladimir Putin and his Turkmen counterpart, Saparmurat Niyazov, held telephone consultations on March 30, reportedly discussing bilateral energy issues and “regional” problems. Officially, events in Kyrgyzstan were not discussed, as the two leaders focused on economic issues. Yet despite Russian efforts to achieve a measure of detente between Russia and Turkmenistan, Niyazov remains defiant.

Notably, on March 12, Turkmen authorities expelled RIA-Novosti reporter Viktor Panov, who was handcuffed, brought to the Ashgabat airport, and put a plane bound for Russia. As Panov reportedly had dual citizenship in Turkmenistan, his expulsion, allegedly on espionage charges, came as a blow to Moscow’s attempts to maintain a semblance of mutual understanding with Ashgabat.

Moreover, in late March Niyazov reportedly refused to accept Ramazan Abdulatipov, a member of the Federation Council, as Russia’s new ambassador to Ashgabat. In a gesture described by Russian media outlets as a “slap in Moscow’s face,” Niyazov insisted on a career Russian diplomat for Ashgabat, while Abdulatipov, an experienced politician and former cabinet minister, reportedly will be re-assigned as ambassador to Tajikistan.

Until recently, Russia had repeatedly voiced concern over alleged discrimination against ethnic Russians in Turkmenistan. Around 100,000 Russian-speakers were believed to hold dual citizenship in Turkmenistan. In April 2003, Turkmenistan revoked a dual-citizenship agreement signed in 1993 and residents who hold both Turkmen and Russian citizenship were given two months to choose one or the other.

It is widely believed that Moscow agreed to cancel the dual citizenship agreement in exchange for a major gas deal. In April 2003, Niyazov traveled to Moscow and signed a framework agreement on gas cooperation as well as a 25-year contract on gas supplies to Russia. Niyazov pledged to supply up to 100 billion cubic meters of gas to Russia from 2010 onward or a total of 2 trillion cubic meters over 25 years. Russia would pay Turkmenistan $44 per 1,000 cubic meters, 50% in barter and 50% in cash. Niyazov claimed that the deal would bring Turkmenistan $200 billion and $300 billion to Russia.

Last December, Turkmenistan halted gas supplies to Russia. Niyazov reportedly explained the move by “Turkmenistan’s national interests.” Ashgabat reportedly demanded $60 per 1,000 cubic meters. In early January, Turkmenistan announced that gas supplies to Russia had resumed, but reportedly failed to deliver. On February 11, the Russian Foreign Ministry had to dismiss media allegations that Turkmenistan had declared a “gas war” on Russia. In February 2005, Gazprom CEO Alexei Miller traveled to Ashgabat twice, but a bilateral gas deal remains elusive (see EDM, January 12, February 11).

On March 30, Putin reportedly informed Niyazov that Miller is due in Ashgabat April 13-15 to hold yet another round of talks. It remains to be seen whether Russia and Turkmenistan will manage to solve their unprecedented price dispute.

The Russian natural gas monopoly Gazprom needs Turkmen gas to make up for the shortages created by its export commitments to Ukraine and its West European customers. Gazprom’s annual shortfall in supplying the Russian domestic market has been estimated at 30-40 billion cubic meters. Therefore, the oil and gas pipeline game seems to have an immediate importance for Moscow, while other aspects of the Caspian settlement appear to be less time-sensitive.

As a part of its drive to control the Caspian hydrocarbon riches, Russia has also suggested creating a group of Central Asian natural gas producers, presumably around the nexus of its gas pipelines leading to Western European markets. However, this grouping remains a daring vision rather than a realistic plan (see EDM, March 24).

By clinching the deal to buy virtually all of Turkmenistan’s gas, Moscow hoped to outmaneuver the trans-Afghan pipeline plan. Facing Russia’s reluctance to review the gas deal, the Foreign Ministry of Turkmenistan has reiterated that the construction of a $3.3 billion gas pipeline to Pakistan and India via Afghanistan is due to start in 2006.

Turkmenistan is the largest natural-gas producer in Central Asia. Its hydrocarbon reserves are estimated at more than 80 billion barrels (some 11 billion tons) of crude and 5.5 trillion cubic meters of gas. Turkmenistan plans to attract up to $26 billion worth of foreign investment in its oil and gas sector by 2020.

Turkmenistan has pledged to sign a major deal with a consortium of Russian oil and gas companies to develop offshore oil fields in Turkmen sector of the Caspian Sea “in the near future.” The Russian oil consortium Zarit — which includes state-owned firms Rosneft and Zarubezhneft and gas trader Itera — hoped to sign a production sharing agreement (PSA). The 25-year agreement would involve four oil- and gas-rich blocs in the southern part of the Caspian shelf near the Iranian border.

Zarit was registered in May 2002 in Moscow as a joint venture between Rosneft, Itera’s subsidiary Gazkhiminvest (each controls 37% of Zarit), and Zarubezhneft, which holds the remaining 26% stake. The consortium aims to attract Turkmen state-owned Turkmenneft and Turkmenneftegaz, as well as Iranian firms, to take part in the project. In December 2003, the Turkmen government put off signing the PSA, while no reasons for delay were disclosed. Itera had pledged to start drilling at the offshore blocks in 2004, but the deal has yet to materialize.

Russia has had significant expectations connected with future energy ties with Turkmenistan. So far, these high hopes are yet to be realized, while Turkmen authoritarian leader Niyazov seemingly makes it clear that Moscow should not expect any concessions from him.