Russia and Turkmenistan
BY MARK N. KATZ
Saparmurat Niyazov ruled Turkmenistan from its December 1991 independence that resulted from the collapse of the Soviet Union until his death in December 2006. Although Turkmenistan has enormous natural gas reserves, Niyazov—who styled himself “Turkmenbashi” (leader of the Turkmen)—kept most of his citizens impoverished, uneducated and in fear of his security services. He also kept his country largely isolated from the rest of the world. Shortly after his death, Gurbanguly Berdymukhammedov emerged as the new president of Turkmenistan. While hardly a democrat, he has pursued more moderate policies domestically as well as improved ties with other countries.
This change in Turkmenistan has been welcomed by many governments—but not by Russia. Indeed, Turkmenistan’s recent opening up to the outside world has been a source of great concern and anxiety for Moscow. For change in Turkmenistan—no matter how positive for its citizens, its neighbors and others—could well have negative consequences, both for Russia’s economy and for its foreign policy ambitions.
Even under Niyazov, Turkmenistan was not easy for Moscow to deal with. He treated the ethnic Russian population residing there poorly. He even withdrew recognition of Russian, as well as other, foreign educational degrees. He either refused to participate in Moscow-backed regional groupings or did so only perfunctorily. Moscow, though, did not complain about any of this much. For Niyazov did one thing that Moscow valued very highly: he sold most of the gas Turkmenistan exported to Russia at well below world market prices.
Why did Niyazov do this? He did not clearly explain this—or much else about his bizarre rule. In many ways though, for Turkmenistan to sell gas to Russia was the course of least resistance. There was already an existing gas pipeline built in the Soviet era that ran from Turkmenistan into Russia. Nor was there a major gas pipeline route out of Turkmenistan leading to anywhere else.
Turkmenistan did export some gas to its southern neighbor, Iran. American hostility toward Tehran, though, ensured that investment funds were not available to build a major gas pipeline from Turkmenistan to Iran for export elsewhere. Unocal as well as other firms proposed building a gas pipeline from Turkmenistan through Afghanistan to Pakistan. However, their inability to agree upon terms with Niyazov as well as chronic conflict in Afghanistan prevented this plan from being realized. There was also talk of Turkmenistan piping gas across the Caspian to Azerbaijan. This plan, however, was unworkable due to three factors: 1) there was no onward gas pipeline from Azerbaijan through Georgia to Turkey, 2) there was an unresolved dispute between Azerbaijan and Turkmenistan over their maritime border in the Caspian (in an area believed to contain petroleum reserves) and 3) Russia and Iran opposed the construction of pipelines across the Caspian—ostensibly due to environmental concerns but really because both wanted petroleum from Central Asia to transit through each of their territories. Finally, the possibility of building a long pipeline from Turkmenistan eastward to China appeared remote due to the massive expense it would entail.
While the lack of other feasible alternatives may explain Niyazov’s willingness to export Turkmenistan’s gas to Russia, his willingness to do so at well below world market prices is more difficult to understand. Though his country lost out from this arrangement, it appears that he, his family and his favorites personally benefited from it. Niyazov may also have been willing to charge Russia below market prices for Turkmen gas in exchange for some form of reassurance that Moscow would support his continued rule—something that Niyazov may not have trusted democracy-promoting Washington to do. Niyazov may also have feared—whether realistically or not—that not selling gas to Russia at low prices would risk Moscow acting to replace him with someone who would.
Whatever Niyazov’s motivations for selling gas to Russia at below market prices, Moscow certainly benefited from this arrangement. Although the Russian gas monopoly, Gazprom, was able to sell gas to European customers at world market prices, the Kremlin has required it to sell gas inside Russia at well below this level. Further, the Kremlin had Gazprom sell gas at below market prices to former Soviet republics that Moscow sought to retain influence in. Finally, the level of proven natural gas reserves inside Russia itself is limited. Much more may yet be found, but Gazprom’s inability to charge world market prices to many of its customers; its conservative, risk-averse corporate culture; and Russia’s shabby treatment of foreign investors have all conspired to greatly curtail the expensive exploration work that will be needed to find it. Being able to buy gas from Turkmenistan was instrumental in enabling Gazprom to export gas to Europe and also meet its sales commitments in Russia and certain other former Soviet republics.
Gazprom had long chafed at having to sell gas at below market prices to former Soviet republics such as Georgia, Armenia, Ukraine and Belarus. The “color revolutions” that brought pro-American, anti-Russian leaders to power in Georgia in 2003 and Ukraine in 2004 sharply reduced the Kremlin’s incentive to continue doing so with these two countries. Gazprom, though, has been seeking to raise prices for other former Soviet republics, too. But it has faced a problem in doing this with both Ukraine (which Moscow perceives as pro-Western) and Belarus (which the West perceives as pro-Russian). Russian gas sold to Europe must go by pipelines mainly traversing Ukraine, but some also goes through Belarus. Both countries have been involved in high-stakes price disputes with Gazprom recently. When the contracts at the old (lower) price ended, Gazprom cut back on deliveries to Ukraine and Belarus while continuing to ship gas across their territory to market price paying customers in Europe. Ukraine and Belarus, though, each responded by taking what they wanted from the pipelines resulting in much less than contracted being delivered to downstream European customers.
In the face of strong protest from its European customers, Moscow backed down from its demands that Ukraine and Belarus pay market rates for gas, though they agreed to pay more than previously. Until a major gas pipeline route bypassing their territory is built (which does not seem likely), Ukraine and Belarus have a stranglehold on Russian gas shipments to Europe. Although this situation is highly unpalatable to Gazprom, it is made somewhat tolerable by its ability to supply Ukraine and Belarus with the gas it buys cheaply from Turkmenistan. It is not clear, however, that Gazprom will be able to continue doing this.
In his final years in office, Niyazov sought higher prices for Turkmen gas. President Berdymukhammedov has been even more insistent on this. Furthermore, changes have occurred that have put him in a position to do this. First of all, an oil pipeline from Azerbaijan through Georgia to Turkey’s Mediterranean coast (Baku-Ceyhan) is now up and running. A gas pipeline running parallel to it will soon be completed. Instead of being a pipeline to nowhere, this makes a gas pipeline going from Turkmenistan across the Caspian to Azerbaijan a viable export route. The improvement in Turkmen-Azeri relations since Berdymukhammedov became president as well as American support for the project have also increased the prospects for this route. Perhaps even more importantly, China has signed an agreement to buy gas from Turkmenistan, transporting it to China via a gas pipeline China will build across Central Asia.
Moscow, of course, is quite unhappy about both of these projects. In conjunction with Iran, though, Moscow might be able to frighten away outside investors fearing the risks of investing in the Transcaspian pipeline without assurances that Russia and Iran will not disrupt it. The worsening of Turkmen-Iranian relations since Berdymukhammedov came into office is also convenient for Moscow since this decreases even further the likelihood of a Turkmenistan-Iran-Turkey pipeline (which America opposes anyway) from being constructed. Moscow, though, appears far more reluctant to overtly block construction of a pipeline from Turkmenistan to China since this threatens to disrupt the delicate Sino-Russian partnership that Putin has labored hard to build up.
Indeed, the only way Russia can legitimately prevent Turkmenistan from exporting large quantities of gas to China is for Russia to pay more for it than China will. This, of course, is not something that Gazprom wants to do, but Turkmenistan’s opening to the outside world under Berdymukhammedov and its increasing prospects for exporting its gas to other markets may force it to do so, or lose the gas to China and/or other buyers.
Whether part of a larger plan to resurrect Russia as a great power or one to simply make money, Russia’s previous ability to export gas to Europe at world market prices while at the same supplying the Russian domestic and certain other former Soviet markets with gas at well below world market prices depended heavily on Turkmenistan’s isolation from the world under Niyazov. Though Moscow on its own has grown increasingly weary of subsidizing the former Soviet republics, Turkmenistan’s growing desire under Berdymukhammedov to embrace the world market is forcing Moscow to confront an uncomfortable choice between cutting back on profitable gas exports to Europe or ending expensive gas subsidies more quickly than planned inside Russia. The former course risks a decline in Russian influence in European countries that will increasingly seek to purchase gas from Algeria, Libya, Qatar and elsewhere. The latter course, though, risks the rise of internal opposition in Russia from a population that has grown used to subsidies. In other words, Turkmenistan’s increasing embrace of the world market is reducing Moscow’s ability to shelter Russia from its exigencies.
Mark Katz (mkatz@gmu.edu) is Professor of Government and Politics in the Department of Public and International Affairs (http://pia.gmu.edu).
