Ashgabat’s gas blackmailing doesn’t work with Iran

Turkmenistan has limited natural gas supplies to Iran since January 1 saying Tehran fails to pay for past deliveries. Yet, the blackmail does not work so far, as Tehran is not going to pay the disputable debt immediately. The National Iranian Gas Company (NIGC) says it is Turkmengaz State Concern that violates the deal and Iran has compelling reasons to refer to international arbitration.

NIGC does not deny its $4.5billion debt for previous deliveries saying Tehran the debt belongs to the years of sanctions when money transfers were impossible, so the country paid for the debt “through different methods and based on goodwill”. Meanwhile, Iran says Turkmenistan violated the deal concerning gas volumes and quality.

According to PressTV.ir, at the heart of the dispute between the two countries is a claim by Turkmenistan that Iran owes it $1.8 billion from sales between 2007 and 2008 when freezing winters led to severe shortages across 20 Iranian provinces, forcing the country to raise gas imports from its northeastern neighbor and agree with the nine-fold hike which yanked the price up to $360 from $40 for every 1,000 cubic meters of gas.

Turkmenistan complains that it had notified Tehran of its debt for many times. However, the situation in the northeast of Iran has changed over the past decade and Tehran has apparently decided to start its own game. According to Iranian Mehr agency, the daily gas supplies from Turkmenistan were reduced by 10 million cubic meters to 4-5 million cubic meters. Iran’s Oil Minister Bijan Zanganeh charged covering shortage of natural gas supply for power generating and industrial enterprises through internal deliveries. NIGC Managing Director Abbas Kazemi said Iran now enjoys a larger volume of strategic reserves of heating fuel, gas oil and fuel oil. He reassured that three routes were available for gas supply to northeastern plants including pipeline, road oil tankers as well as railroad.

Turkmenistan halted gas supplies to Iran following hours-long talks on New Year’s Eve in Ashgabat. The sides failed to agree on the gas debt and price. Although Iran warned it will refer to the international arbitration, NIGC still hopes for settlement of the dispute at a negotiating table and for a new five-year deal for gas supplies. At least, Abbas Kazemi made such statement. Neither the foreign ministry of Iran is tragic about it. Its spokesperson Bahram Qasemi hinted that his country will cope with the gas supply problem, if the talks with Turkmenistan fail. Natural gas imports from Turkmenistan constitute just two or three percent of Iran’s domestic production, he said adding that through saving some of the natural gas produced domestically, Iran can compensate for the probable shortages.

Like many other Central Asian countries, Turkmenistan has found itself in an economic crisis and feels shortage of money. In such a situation, Ashgabat’s demands are logical, however, blackmail through halting gas supplies may result in a gas stalemate for Turkmenistan. The situation has changed not only in Iran during the past ten years. In 2008, Turkmenistan supplied 40 billion cubic meters of gas to Russia annually, the gas pipeline to China was just being constructed and Ashgabat was “in the catbird seat.” Now, the only customers of Turkmenistan are China and Iran. Last year, Gazprom terminated the contract with Turkmengaz. Alexander Medvedev, Vice Chairman of the Russian gas holding says the Company took a two-year pause to analyze the situation. In fact, Gazprom hinted Ashgabat that it must become more flexible in cooperation with partners amid global reduction of gas prices. Under the contact made in 2009, Gazprom pledged to buy up to 30 billion cubic meters of gas annually for almost $300 per 1,000 cubic meters. As Turkmenistan refuses to revise the contract terms, Gazprom has reduced the gas price, applied to the Stockholm Arbitration Court and stopped procurement on January 1 2016. In response, Ashgabat said Gazprom is not able to pay for debts.

Anyway, Turkmenistan has lost Russia, since the latter has enough gas to satisfy its domestic demand and implement its export commitments. Ashgabat may lose the ongoing dispute with Iran too. On the one hand, Turkmenistan’s intractability has not brought it money. Furthermore, the country has lost billions of dollars of profits. On the other hand, the gas dispute with Iran is growing and the cooperation with Turkmenistan may be terminated, though Iran was the first export country for Iran in 1997. Iranian oil minister Bijan Zanganeh has repeatedly made remarks calling for halting gas import from Turkmenistan. It is evident that Tehran is pressing Ashgabat to make it reduce the gas price. However, this may leave Turkmenistan with one customer – China. Beijing will hardly resist the temptation to bargain out a lower price. Last year, Beijing imported natural gas from Ashgabat for $180 per 1,000 cubic meters in average, according to the Chinese Customs.

Turkmenistan is a country rich in resources, but the global gas market and the geopolitical situation in the region are leading it to a stalemate, anyway,” says Igor Yushkov, senior analyst at the National Energy Security Fund. “I guess, the dispute with Iran is partially connected with China too. Beijing is the largest consumer of the Turkmen gas and has access to ground based and offshore projects in the country. If Ashgabat gives way to Iran and reduces the price, China will also demand a lower gas price.”

Therefore, the expert says, Ashgabat will lose in any situation and has already appeared before a dilemma: whether to sell gas for a lower price and keep Iran as customer or feel into full dependence on China sooner or later.

“Iran wants to buy gas cheaper, but sell it for a higher price like Turkmenistan does. At present, Iran’s gas is the most expensive for Turkey, and Tehran constantly disputes with Ankara over gas price,” Igor Yushkov says. “In such situation, Turkmenistan could play on price but increase sales volumes. Besides Iran’s northeast, Tehran could supply the Turkmen gas to Turkey creating an overland alternative pipeline to the Trans-Caspian one that has little chances as such.”

In a deadlock situation with Russia and Iran, it is logical for the authorities in Turkmenistan to try to implement alternative gas export projects. However, at present, they do not seem implementable for Ashgabat, including the construction of the Trans-Caspian Gas Pipeline to Azerbaijan. It will create access to the Southern Gas Corridor that is under construction now. It will supply gas to Europe. However, the uncertain status of the Caspian region gives Iran and Russia an opportunity to block construction. The more so as Iran has already demonstrated that it is ready to apply even force. When Turkmenistan tried to start design work and ships entered the Caspian Sea to explore the future route of the gas pipeline, Tehran sent a ship to the area of exploration and the project was suspended.

The fate of another gas pipeline, TAPI, is even more uncertain. In 2015, Turkmengaz ceremonially launched the construction of the gas main via Afghanistan to Pakistan and India. However, the project did not go beyond Turkmenistan. The pipeline construction requires $10 billion, no one knows how to ensure safety of the pipeline in Afghanistan and, for instance, India refuses to make long-term gas supply contracts.

Considering all these factors, alternative projects from Turkmenistan are unlikely. Neither Turkmenistan will manage to get out of the gas stalemate on its own.