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Turkmenistan: Nuclear Crisis Results In Loss Of Energy Markets

Boston, 2 June 1998 (RFE/RL) -- The South Asian nuclear crisis seems certain to increase Turkmenistan's reliance on the decisions of the United States and Russia while limiting the republic's options in dealing with Iran.

In its isolation, Turkmenistan will now have to face the fact that Pakistan no longer represents an attractive market for Turkmen gas. The republic has been hoping for years that a pipeline across Afghanistan would allow it to sell gas from its huge Dauletabad field to Pakistan.

Until now, the biggest problem with the plan has been Afghanistan's long civil war. But now regardless of whether peace comes to Afghanistan, the project looks unlikely to go ahead. As a result of its nuclear testing, Pakistan will be unable to find financing for its portion of the pipeline. Under U.S. sanctions law, the United States is required to oppose lending by the World Bank, which was looked to as the source of funds. Loan guarantees by the U.S. Export-Import Bank are also barred by law.

India's earlier nuclear testing had already ended the opportunity for cooperation on extending the line to New Delhi, eliminating some major benefits of the plan. After the response from Pakistan, that country's heavily indebted economy will now come under further pressure from sanctions, making it doubtful that it will be able to pay for imported gas.

Turkmenistan is not the only country that will suffer the loss of an important energy market. Iran has also been counting on selling gas to Pakistan from its giant South Pars offshore field in the Persian Gulf. But it is hard to see how Iran's pipeline project can be undertaken on Pakistan's territory now, unless Iran can finance the entire development. Payment for the gas will also be problematic. Although Pakistan needs increasing volumes of gas for electricity, its rising military expenditures will take precedence over all other demands until peace with India is assured. Even if pipelines were built, neither Iran nor Turkmenistan could afford to accept Pakistani goods in barter for gas.

The closing of the Pakistani gas market to both Turkmenistan and Iran is likely to dictate a radical shift in regional energy needs and trade. Within the past year, Iran has become increasingly dependent on Turkmen supplies of gas. Despite its large untapped reserves, Iran has had little gas available to pressurize its older oilfields, generate electricity and substitute for the large volume of oil that is used domestically.

That will all change when the South Pars project starts producing. One phase of the project got the green light last month when the United States decided to waive sanctions against the $2-billion contract for development by Total of France, Russia's Gazprom and Malaysia's Petronas. While some of the South Pars gas might have gone to Pakistan in future years, it now seems more likely that all of it will have to be used domestically in Iran. The alternative is to route it to Turkey, where it would compete with Russian gas. Plentiful Iranian gas may also interfere with Turkmenistan's plans to supply the Turkish market.

Either way, Turkmenistan's relationship with Iran as its gas supplier is likely to change as a result of the loss of the Pakistani market. Ashgabat can still look to Iran as an outlet for some Central Asian and Caspian oil, but Iranian demand for Turkmen gas seems sure to wane quickly as the South Pars field comes on line.

That trend will leave Turkmenistan as dependent as ever on access to Russia's gas pipelines. The republic has exported no gas through the lines for fourteen months because of disagreements with Moscow over transport charges and rates. So far, Russia has shown no interest in compromising, despite Turkmenistan's increasing gas sales to Iran over the past six months. It will not take long for Moscow to figure out that its position has been strengthened further by Turkmenistan's loss of the Pakistan option and Iran's prospect of new gas supplies.

The role of the United States as a counterbalance to Russia may now become even more critical to Turkmenistan. Washington continues to insist that pipelines across the Caspian to Azerbaijan and then on to Turkey are the solution to the region's access problems. But so far, none of the oil companies are willing to invest the billions of dollars that the plan would require.

Despite its waiver for the South Pars project, Washington is continuing to oppose any pipelines across Iran and has threatened sanctions against companies that offer to build them. The United States has also shown no signs of approving the request of Mobil Corp. to conduct oil swaps with Iran from its new development in Turkmenistan with Britain's Monument Oil and Gas.

Although Turkmenistan's problems are great, the United States appears to view them as minor when measured against the political goal of outmaneuvering Iran. Washington has also used none of its influence with Russia to restore its pipeline access for Turkmen gas. The aim may be to compel Turkmenistan's compliance with the U.S. pipeline strategy, even if it takes years to realize.

Turkmenistan does not have years to wait. But the narrowing of Turkmenistan's options in the region since the nuclear tests means that the republic will be caught between the interests of the United States and Russia for an indefinite time with little chance of relief from Iran.