The territory now known as Turkmenistan has been controlled by various empires throughout its history, largely because of its strategic position along the Silk Road. The Persians, Arabs, Mongols and Turks ruled the territory before it came under the control of local Turkic tribes. Russia has been the dominant foreign player in Turkmenistan since the late 19th century. Russia's forced settlement of the nomadic Turkic tribes dramatically changed the country, particularly during the Soviet-era drives toward collectivization and industrialization.
Turkmenistan's system of government is extremely centralized. The president goes virtually unchecked without opposition from the parliament or any meaningful opposition groups. In terms of foreign policy, Turkmenistan is officially neutral and seeks to avoid membership in any international political or security blocs like the Commonwealth of Independent States or the Collective Security Treaty Organization. This isolation is driven by Turkmenistan's small size and fear of its larger neighbors. Ashgabat is particularly concerned about Uzbekistan and Iran, which abut its population clusters along the Amu Darya river in the north and the Karakum Canal in the south, as well as Russia and China, the strongest external players in Central Asia.
However, Turkmenistan is of great interest to its neighbors and the larger powers active in the region for one reason: energy. Turkmenistan produces 77 billion cubic meters of natural gas per year and exports 44 billion cubic meters annually. The country's natural gas reserves are among the world's largest, at an estimated 17.5 trillion cubic meters. Thus, while Turkmenistan is officially neutral in its foreign policy, energy has given Ashgabat the option to engage in bolder foreign policy moves. The question is to what extent Ashgabat will exercise that option.
Turkmenistan's Energy Relationships
Until 2009, Turkmenistan's energy ties were dominated by its former Soviet ruler, Russia. Turkmenistan sent around 87 percent of its natural gas exports to Russia, which then re-exported this natural gas to Europe at much higher prices. However, in 2009 the European financial crisis led to weakening demand for natural gas, causing a glut of supplies, and Russia restricted its imports of Turkmen natural gas. Turkmenistan's exports to Russia plummeted from nearly 40 billion cubic meters per year prior to 2009 to 9.6 billion cubic meters in 2010, and have only slightly rebounded to about 9.9 billion cubic meters per year as of 2012.
This was of major concern to Turkmenistan, because natural gas exports account for 80 percent of the country's total exports and at least 50 percent of budget revenues. Moreover, the disruption of exports to Russia forced Turkmenistan to shut down many of its natural gas wells and production sites. As a result, Turkmenistan made new plans or sought to speed up previously existing plans to diversify its export markets to make up for the Russian shortfall. Turkmenistan increased natural gas exports to Iran from 6 billion to 10 billion cubic meters per year. However, this allowed Turkmenistan to regain only a small part of its previous export volumes, so Ashgabat looked at a much larger market to the east: China.
Turkmenistan and China struck a long-term deal in 2009 for the export of as much as 40 billion cubic meters of natural gas per year. With financing help from China, the Central Asia-China pipeline, which carries Turkmen natural gas across Uzbekistan and Kazakhstan to China, was constructed and then inaugurated in 2010. However, Turkmenistan only exported about 3.5 billion cubic meters in 2010 due to the significant amount of time and resources it took to get natural gas production back up and running after the 2009 cutoff with Russia and because of a series of pricing disputes with Beijing. Turkmenistan's natural gas exports to China have since increased, rising from 14 billion cubic meters in 2011 to 21.3 billion cubic meters in 2012 and 24 billion cubic meters in 2013. Also in 2013, Turkmenistan and China signed a purchase agreement for an extra 25 billion cubic meters of natural gas, making a natural gas flow of 65 billion cubic meters per year between the two countries possible by 2020.
China thus has overtaken Russia as the single largest destination for Turkmenistan's natural gas supplies. However, Turkmenistan is increasingly concerned about Russia's ability to control the natural gas flowing to China. Currently, Turkmenistan has to rely on Kazakhstan to transit the energy via the Central Asia-China pipeline. With Kazakhstan growing closer to Russia through the Customs Union economic alliance, Turkmenistan has been exploring other options to hedge its reliance on Russian-dominated infrastructure. In March, construction began on a fourth leg of the Central Asia-China pipeline that goes around Kazakhstan and transits Uzbekistan and Tajikistan instead. However, Turkmenistan is considering other options, and the current crisis in Ukraine has opened up the possibility for Turkmenistan to export to an entirely new market: Europe.
The Politics of the Trans-Caspian
Europe has long sought to break away from its energy dependence on Russia, which supplies more than 25 percent of the oil and natural gas used on the Continent. The latest crisis in Ukraine and the potential for disruptions to energy supplies transiting Ukraine on their way to Europe (akin to previous natural gas cutoffs in 2006 and 2009) has increased the impetus for this diversification drive. One project that has received particular interest from the Europeans is the Trans-Caspian pipeline project, which would entail constructing a 300-kilometer (186-mile) underwater pipeline from the western Turkmen port town of Turkmenbashi across the Caspian Sea to Baku in Azerbaijan.
The discovery of the Shah Deniz natural gas field off the coast of Azerbaijan in 1999 also significantly weakened the prospects of the Trans-Caspian project. This made it possible to tap into natural gas and send it via the Southern Corridor route — from Azerbaijan through Georgia to Turkey — without having to deal with Caspian legal disputes. The Baku-Tbilisi-Erzurum natural gas pipeline and its sister oil pipeline, the Baku-Tbilisi-Ceyhan, were constructed and have sent Azerbaijani natural gas and oil to Europe. The discovery of a second natural gas field, dubbed Shah Deniz II, has resulted in plans to send more Azerbaijani supplies to Europe, this time through the Trans-Adriatic Pipeline.
However, the actual volume of natural gas that Azerbaijan has produced and exported via the Southern Corridor projects has been relatively small — 4.7 billion cubic meters annually via the Baku-Tbilisi-Erzurum pipeline as of 2013. Supplies from Shah Deniz II are expected to come online by 2018, but this will add only 10 billion cubic meters of exports to Europe — certainly not enough to provide an alternative to Russia. The addition of natural gas supplies from Turkmenistan would make the Southern Corridor a much more viable option, especially if combined with other liquefied natural gas-based diversification projects planned in the coming years, so the Trans-Caspian project has been given new life.
Numerous meetings on the Trans-Caspian issue have been held in recent weeks. Turkmen Foreign Minister Rashid Meredov made an unplanned visit to Baku on April 2 for the first impromptu meeting between Turkmenistan and Azerbaijan since 2009. On April 11, Berdimukhammedov highlighted the Trans-Caspian as a priority project for the country, and on April 18, the president of the State Oil Company of Azerbaijan Republic, or SOCAR, visited Turkmenistan and reportedly discussed the project. Russian media outlet Nezavisimaya Gazeta reported April 21 that the two countries could be on the verge of an agreement on the Trans-Caspian, though neither side has responded to this report.
Despite this flurry of activity connected to the Trans-Caspian project, the issue is not one that Baku and Ashgabat can address bilaterally. Their willingness to move forward depends on their insulation from Russia and backing from the West.
The Trans-Caspian still faces major obstacles. Russia and Iran remain opposed to the project, and the legal disputes over Caspian maritime boundaries have yet to be resolved. During the latest meeting of Caspian littoral states, on April 22, there were no signs of a breakthrough over the boundary issues, and the next meeting — to be at the head-of-state level — is scheduled for September. Given the threat that the Trans-Caspian would pose to Russia's position in the European energy market, Moscow is likely to do everything in its power to prevent it from materializing. This could include lowering the price of Russian exports to Europe in a bid to undermine any significant investment in the Trans-Caspian project. As the Crimean crisis showed, Moscow would not rule out military action if Russia's fundamental interests are threatened.
The key question moving forward is whether Turkmenistan will shift its position on the Trans-Caspian. Despite its diversification away from Russia on its energy exports, Turkmenistan has not yet proven willing to seriously challenge Moscow on broader strategic matters. Given its fear of Russian power projection, Ashgabat is likely to proceed very cautiously on the Trans-Caspian issue.
However, important economic and social shifts taking place in Turkmenistan could change Ashgabat's position. The Turkmen economy expanded 10 percent in 2013, and will most likely do the same in 2014. This comes amid a generational shift in the leadership and technocrats in the country that could make Turkmenistan less wary of challenging Russia. Ashgabat's consideration of routes around Russian interests to export its energy could be a sign of things to come.
But there are other constraints for Ashgabat to consider. Turkmenistan must take into account its contracts with China; Beijing does not want to see significant amounts of natural gas from Turkmenistan flowing westward. Therefore, Turkmenistan's participation in the Trans-Caspian project will also depend on its ability to increase production levels in the coming years. While the Turkmen government has said it will be able to produce as much as 155 billion cubic meters by 2020, estimates from the International Energy Agency are much more modest at 84 billion cubic meters, making it unclear that Turkmenistan will be in a position to supply both east and west.
These uncertainties about Turkmen natural gas production levels, potential legal obstacles concerning territorial rights in the Caspian Sea, and other economic and political factors will keep the Trans-Caspian project from becoming a reality in the near to medium term.