Publication: Eurasia Daily Monitor Volume: 5 Issue: 108

Since 1991 the Kremlin and Washington have sparred over the hydrocarbon riches of the Caspian, the world’s greatest untapped regional deposits. While Azerbaijan is now firmly in the Western orbit, both Russia and America are vying for influence in Kazakhstan, but due to U.S. sanctions, Russia has greater opportunities to engage Iran. The final prize is Turkmenistan, where Russia’s initial, seemingly insurmountable lead seems to be increasingly undercut by Washington and EU initiatives, as President Gurbanguly Berdimukhamedov considers all options.

In a small yet significant incident, Berdimukhamedov failed to receive Deputy Chairman of the Board of Directors and Chairman of the Management Committee of Gazprom Alexei Miller during his visit earlier this week to Ashgabat. Berdimukhamedov delegated Turkmen Deputy Prime Minister Tachberdy Tagyev to hold discussions with Miller instead (Ekho, June 5). Miller also met with high-ranking officials of Turkmenistan’s fuel-energy complex (TEK) (Gosudarstvennoe informatsionnoe agentstvo Turkmenistana, June 4).

The significance of Berdimukhamedov’s slight was most certainly not lost on the visiting CEO and provides a fascinating if murky glimpse into the convoluted nature of energy politics between Russia and Turkmenistan.

According to Turkmen state media, Berdimukhamedov was occupied at the time of his guest’s stopover on a working trip to the Balkan region and Caspian coast, where he met border guards at a frontier post while squeezing in visits to Ogurdzhaly Island and a reservoir (Neitral’nyi Turkmenistan, June 4).

Miller and Tagyev still had a great deal to discuss, including the design of the natural gas pipeline along the eastern and northern Caspian coast, which Russian President Vladimir Putin, Kazakh President Nursultan Nazarbayev and Berdimukhamedov approved in May 2007, during an “energy summit” in Turkmenbashi. Also in need of discussion were the possibilities of transporting Central Asian gas via Turkmenistan and Uzbekistan’s proposal to modernize the Soviet-era inter-governmental SATS-4 gas transport system (www.turkmenistan.ru, June 3).

It was the first time that Miller did not meet personally with the president. The snub was noticed by a number of Russian publications, one of which observed, “The first visit this year of Gazprom head Alexei Miller to Ashgabat produced no new accords. Moreover, it could be considered a failure from the diplomatic perspective as well” (Vremya Novostei, June 3).

Miller did not return to Moscow exactly empty-handed, however. The Gazprom delegation flew to Ashgabat from Baku, where Miller and his officials engaged in a bit of sleight of hand energy diplomacy to obstruct increasing European and American interests in Azeri natural gas reserves. Since 1991 Gazprom’s heavy-handed and stingy pricing for FSU gas reserves has alienated governments across the Commonwealth of Independent States. In an abrupt turnaround from Gazprom’s previous policy of “buy cheap and sell dear,” Miller offered Azeri President Ilham Aliyev an arrangement by which Gazprom would purchase Azeri natural gas at market prices based on current Gazprom contracts in Europe. At a stroke Miller dashed European hopes of possibly purchasing Azeri natural gas at rates well below market prices, while the offer had the added bonus of lessening the attractiveness of delivering Caspian gas to the EU market via routes bypassing Russia.

Berdimukhamedov is currently in the driver’s seat and obviously in no rush to extend Turkmenistan’s commitment beyond its current arrangements with Russia, under which Gazprom purchases 42 to 44 billion cubic meters of Turkmenistan gas a year. Instead, he is investigating alternative markets. Last week Berdimukhamedov signed a memorandum with EU energy commissioner Andris Piebalgs. U.S. Assistant Secretary of State Richard Boucher followed Piebalgs’ visit and discussed Turkmenistan’s need to diversify its export routes. Capping a busy week, there were also talks in Ashgabat with Indian and Pakistani representatives on the potential price of Turkmen gas as part of engineering studies for the long-delayed Trans-Afghan Pipeline project.

Washington is now firmly in favor of expanding its relations with Central Asian nations, a fact that Deputy U.S. Secretary of State on European and Eurasian issues David Merkel underscored in a recent interview, saying, “We have many issues on the table concerning Central Asia, including diversification of global energy sources, combating terrorism, preserving security, ensuring sustainable development and promoting justice and democracy” (Gundogar, June 4). Washington has long promoted a Caspian undersea natural gas pipeline stretching from Turkmenbashi to Baku. Despite the fact that Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan have yet to agree to a final delineation of the Caspian’s offshore waters, the fact that such a pipeline would traverse through the middle of national sectors claimed by Turkmenistan and Azerbaijan indicates that the construction of such a pipeline would not necessarily be an insurmountable object at this point, as such a route would not impinge upon waters in potential dispute with Russia, Kazakhstan or Iran.

The Kremlin will have another opportunity to put its case to Berdimukhamedov on the weekend, when he is scheduled to visit St. Petersburg for an informal CIS summit. A bilateral meeting between Berdimukhamedov and Russia’s new President Dmitri Medvedev is scheduled, and the agenda undoubtedly will include the subject of gas cooperation.

As Berdimukhamedov continues his grand-master game with competitors for his country’s hydrocarbon assets, the only clear conclusion at this point is that Ashgabat is now determined to gain fair market prices for its exports, and both the Kremlin and Washington must understand Turkmenistan’s basic negotiating premise if they want to score a victory.