Isolated Systems: The Political Economy of Iranian-Turkmen Relations

Economic and political isolation envelop the two energy giants. Tehran’s isolation is the result of US containment policy which operates on the assumption that energy pipelines through Iran will increase its strategic importance and lead to regional integration. In stark contrast, Turkmenistan’s isolation is a self-imposed consequence of the regime’s foreign policy doctrine of “positive neutrality,” which serves to insulate the state from international influence and thus consolidate the leadership’s domestic hegemony. However, Ashgabat has increasingly begun to view economic isolation as a political threat, but competition from its neighbor to the south may prove problematic for the Sultanistic autocracy.

In the natural gas sector, Iran has the world’s second largest reserves after the Russian Federation. Problematically, Iran’s major gas reserves are located in the south of the country, while the majority of the population is concentrated within the northern provinces. Traditionally, Iran countered this problem by importing gas from Turkmenistan into the northern provinces, thus providing for domestic consumption; and exporting its own reserves into the Middle East.

Recently, however, the Iranian government announced plans to build four new gas pipelines with one aimed at internal supply, and the remaining three for the purpose of exportation. The internal pipeline will pump from the gas field in South Pars toward the northwestern province of Khorasan, making the region self-reliant, and independent of Turkmen gas supplies. This is partially in retaliation to the Ashgabat leadership cutting gas deliveries in 2012, due to Iran’s $1 billion debt to Turkmenistan as a result of western sanctions on the Iranian banking sector. Furthermore, Iran’s natural gas output grew during the last nine months of 2014 by 12 percent, with production rising in the South Pars gas field (which contains 30 percent of the country’s 33.6 trillion reserves). Iran plans to increase production here between 2015 and 2016 by 100 million cubic meters per day (mcm/d) of gas, making the country’s total output 1.1 billion by 2020.

These developments are troubling signs for Turkmenistan’s President, Garbanguly Berdimuhammedov. The regime heralded the New Year with a dramatic 20 percent devaluation of the national currency, partly in response to falling oil prices. The reason for this is Turkmenistan’s over-reliance on the Chinese energy market which buys gas at a rate pegged to the price of oil. This is particularly concerning with rumors afloat this week of a second currency devaluation underway.

Turkmenistan occupies an obscure position within the political landscape of Central Asia. The excesses of the Niyazov era were widely publicized and mocked within the west, but less attention was paid to the regime’s distinctive foreign policy framework of “positive neutrality.” On Dec. 12, 1995, the United Nations endorsed Turkmenistan’s decision to adopt an internationally neutral status. The ruling elite have strategically used neutrality as domestic mechanism to consolidate its hold on power by insulating the regime from international influence.

Traditionally the rhetorical content of neutrality and the practical implementation of the doctrine have diverged from one another around the perceived impact of the Russian Federation on the internal stability of the regime. Niyazov initially centralized power after the collapse of the Soviet Union and placed the doctrine at the heart of his foreign policy as a means to dilute Russian influence. The glorification of Niyazov (self-proclaimed “Turkmenbashi”), inevitably entailed the idealization of the foreign policy mechanism which was the benchmark of his political theory. Perversely, this policy became a key feature of the regime’s nation-building project, eventually culminating in an absurd 250 ft. “neutrality arch” in 1998, complete with a rotating gold statue of Niyazov at the top.

The election of Vladimir Putin as president of the Russian Federation changed the dynamics of Turkmen foreign policy. As the international community grew critical of Niyazov’s brutal regime and its connections with regional drug trafficking, the autocrat looked to the increasingly authoritarian Russia as a potential patron. Obtaining Russia’s long-term support via the gas protocol finalized on April 10, 2003, allowed the regime to accelerate its insular position within the international arena, with exclusive reliance on the Russian energy market being viewed as the key to retaining domestic hegemony.

When Niyazov suddenly died of a heart attack in 2006, he was replaced by his former Chief dentist; the current President, Garbanguly Berdimuhammedov. The leadership has since vastly reduced its dependence on Russia and currently has three gas export routes with China accounting for 52 percent of the country’s demand, Iran (22 percent) and Russia (24 percent). The most important route being the China-Central Asian pipeline, destined to supply more than 40 percent of China’s gas demand by 2020 – the equivalent of 80 bcm per year. Its first two lines became operational in 2009 and 2010 respectively, and the third in June 2014. Line D, the fourth, is scheduled for 2016/17.

However, economic isolation is again becoming a threat to the regime’s stability with an increasing over-reliance on Chinese markets (as the currency devaluation has demonstrated). Furthermore, Russia’s Gazprom announced recently that it would cease buying gas from Turkmenistan after current contracts ended. There may also be a new competitive dynamic to supplying China now that Russia has agreed to build the “Power of Siberia” pipeline from Eastern Siberia to China. Finally, the announcement of Iran’s new pipeline proposals is a further blow to the regime.

Iran seeks to end its isolation by increasing its importance as an energy corridor for Central Asia’s vast energy reserves, and outmaneuver U.S. efforts to cut it out of the equation via the “New Silk Road,” overland energy and cargo networks. A major component of the U.S. plan is the TAPI (Turkmenistan, Afghanistan, Pakistan, and India) gas pipeline. However, Iran may yet outplay its Turkmen rival. India indicated revising its plan to be a part of the project (whether it would need gas from Turkmenistan after 2018 is questionable as it is already a major player in the Singapore LNG futures trading plan). Moreover, Pakistan is concerned that it may have to buy a fifth more of the gas shipped via TAPI than originally envisioned because of Afghanistan’s inability to absorb the 300 million cubic feet per day of its allocated share. Finally, part of Iran’s announcement was a rival TAPI scheme to transfer Iranian gas to Pakistan. The final capacity of this pipeline is 110 mcm/d, of which 21 mcm/d is projected to be delivered to Pakistan.

The shadow of isolationism is back and will continue darken the white city of Ashgabat.