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Turkmenistan/Iran: Oil Powers Race For Pakistan Market

Boston, 10 February 1998 (RFE/RL) -- After more than two years of delay, the race to deliver gas to Pakistan has entered a new phase with Iran's announcement last week that it will compete with Turkmenistan for the strategic eastern market.

Competition appears inevitable as the result of the decision by one of Iran's biggest organizations to invest $3 billion in a gas pipeline from the Persian Gulf to Pakistan.

The huge investment comes from Bonyad-e Mostazafan va Janbazan (the Foundation for the Deprived and the War Disabled), probably the largest of the charitable institutions which control much of Iran's nationalized industry.

According to the official news agency IRNA, the bonyad will join in a consortium with Royal/Dutch Shell, British Gas and Petronas of Malaysia to build a 1,400-kilometer pipeline to Pakistan from Iran's South Pars offshore gas field in the Gulf. The deposit is the subject of a $2-billion contract with Total SA of France, Russia's Gazprom and Petronas to produce 20 billion cubic meters of gas per year starting in 2001.

At the same time, Turkmenistan is trying to speed up its own plans with a consortium led by U.S.-based Unocal Corp. to pipe gas through Afghanistan to Pakistan and possibly the larger market of India. A Unocal official said last week that the company hopes to build the $2-billion line in the next two years, also to supply 20 billion cubic meters per year.

The situation has made Turkmenistan and Iran both energy partners and competitors. Since December, Turkmenistan has been supplying gas to Iran's northern cities where fuel is in short supply. Most of Iran's energy wealth is in the south, allowing it to compete for the Pakistani market if it can successfully develop the South Pars field.

Both plans have disadvantages, making it unclear which one will win. Turkmenistan's plan, which has U.S. backing, depends on peace in Afghanistan. No financing is likely until stability comes to the divided country, another Unocal official said last week. A further complication is a lawsuit against Unocal by the Argentine company Bridas over an earlier version of the Afghanistan pipeline plan, which Turkmenistan decided to cancel.

The Iranian pipeline avoids Afghanistan and its problems altogether, but it may run afoul of U.S. policy if Washington decides to apply sanctions to the South Pars deal.

Although the Clinton administration has postponed a sanctions decision several times, the latest reports indicate that an announcement will come this month.

Iran needs western technology to develop the vast South Pars field, but it may not need multilateral financing to raise its share of the pipeline costs. The bonyad, a tax-free institution in Iran, is believed to have ample funding of its own, as well as access to government loans. On the other side of the argument, Iran's route to Pakistan may be longer and more expensive.

There are serious questions as to whether the Turkmen and Iranian plans can both succeed. While Turkmenistan's project is aimed mainly at serving the Pakistani populations centers in the north, the Iranian pipeline would join Pakistan's gas system in the south, requiring the direction of the country's central line to be reversed in order to get the gas to Islamabad.

It remains to be seen whether Iran, Turkmenistan and their respective partners could agree to share the Pakistani market, given the problems of serving both parts of the country and the high cost of building separate pipelines.

Adding to the competition and the complexity is the role of Gazprom, which recently announced that it would not join in the consortium to build the Turkmenistan pipeline through Afghanistan. The decision is probably good news for Turkmenistan, given the republic's many problems in negotiating with Russia for gas deliveries to Europe.

Western analysts have been concerned that Russia might use its role in the Unocal consortium to frustrate progress in order to continue its domination over Turkmenistan. Instead, Gazprom has cast its lot with the Iranian development at South Pars and may eventually take a part in the pipeline to Pakistan. The move makes Gazprom's competition with Turkmenistan appear clear.

The relationship between Iran and Turkmenistan will probably be more complicated. The two countries must still cooperate in building a pipeline across Iran to Turkey, a project with vital interests for both Turkmenistan and Iran. Until development gets underway at South Pars, Iran will also depend on Turkmen gas for a portion of its domestic energy needs.

That connection is likely to keep relations between Iran and Turkmenistan from turning into the kind of conflict that has marked Turkmen negotiations with Russia over pipeline access to Europe for the past year. But it remains to be seen how a formula can be found that will serve all interests in the race to supply gas to Pakistan.