Following an unofficial meeting, rumored to have taken place at the Ashgabat International Airport in between Gurbanguly Berdimuhamedov’s trips to the UAE and Kuwait, Iran’s President Hassan Rouhani visited once again Turkmenistan in late March. As a traditional issue of bilateral interest, energy was one of the central topics of discussion. Mr. Rouhani was quoted as saying that the two countries have been exploring options to increase gas swap transactions and extend the use of existing pipeline infrastructure for the supply of Turkmen natural gas to third countries. It should be reminded that, as far oil is concerned, on August 3 the ENOC-owned Dragon Oil shipped an oil cargo from Turkmenistan to the Neka Port, in northern Iran, as part of a crude swap arrangement through the Persian Gulf that had been on hiatus since 2010.
Nevertheless, things are more complicated with regard to natural gas, since the two sides have been embroiled in a long-lasting gas debt tiff. As of early 2017, Ashgabat has decided to shut off gas flows to neighboring Iran accusing it of some $2bn of accumulated debt, dating back more than a decade. In Tehran’s view, Turkmengaz exploited for its own benefit a gas shortfall faced by Iran throughout the notably cold winter of 2007-2008, causing a nine-fold price increase of $360 per 1000BCM, instead of the usual $40 tariff. Furthermore, Iran claims that it had acquired its debt in the course of the sanctions years, when banking restrictions had locked the country out of the global financial system, and that it has already partially paid back Turkmengaz with goods and engineering services. Unlike the gas-abundant South, northern and northeastern Iranian regions remain heavily reliant on gas imports from Turkmenistan due to their poor interconnection with the national grid. During wintertime, Iran was said to have been importing over 30MCM/d of Turkmen gas, although this figure had dropped by half several months before the 2017 cutoff was put into effect. Of course, this situation is now thought to be changing thanks to the 12.7BCM/a Damghan-Neka Gas Pipeline, that broke ground in July 2017 and from that time onward has been transporting natural gas from the giant South Pars field all the way to Iran’s North.
Mr. Rouhani’s statement on tighter energy cooperation with Ashgabat was made a few months after the National Iranian Gas Company (NIGC) managing director Hamidreza Araqi’s suggestion that the gas debt row could be resolved through dialogue and that Iran was eager to swap Turkmen gas with Azerbaijan and Armenia, but not with Turkey and Iraq. It was the same company that, in unison with Iran’s Oil Minister, later announced that Tehran has no choice but to file a case with the International Court of Arbitration (ICA) over the quality and price of gas it receives from Turkmenistan. Therefore, it can be deduced that it is not unusual for Iran to appear as both a friend and a foe for Ashgabat, which is withering under the impact of a sharp economic crisis largely provoked by its inability to claim competitive remuneration for its immense gas riches. Currently, the holder of the world’s fourth largest natural gas reserves has been left with China as the sole export route, since Gazprom has ceased purchasing Turkmen gas from late 2016 due to disagreements over pricing, the ambitious Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project has a long way to go before completion and the Trans Caspian Gas Pipeline (TCGP) remains frozen owing to the yet unsettled legal status of the Caspian Sea.
Rouhani’s two visits to Ashgabat comprehensively imply that Tehran wishes to escape confrontation and restore energy relations with Turkmenistan, possibly via the imposition of its own terms in the context of future gas import agreements in exchange for not suing its neighbor in court. On the other hand, Turkmenistan for its part also seeks to work things out with all Caspian littoral states, as this would be to the benefit of the whole region. Gas fight with Iran and the Kyapaz/Serdar dispute with Azerbaijan serve as examples of conflict Turkmenistan will try to eliminate in the near future.
Available online at: http://www.caspianpolicy.org/energy/caspian-energy-insight-april-4-2018/#3