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Turkmenistan: Tightrope Caspian Energy Policy Runs Huge Risks

Boston, 10 July 1998 (RFE/RL) -- Turkmenistan has succeeded in attracting U.S. companies to two key projects in recent weeks, but both face political problems that could keep the republic from enjoying any commercial gains.

The deals include a plan by U.S.-based Amoco Corp. to build a 1,200 kilometer gas pipeline under the Caspian Sea in a venture with the construction company Bechtel and General Electric Co. The trans-Caspian connection to Turkey's gas network is expected to cost $2.4 billion.

The project would give Turkmenistan an outlet for gas that would bypass Russia, which has effectively barred exports through the former-Soviet pipeline system since March 1997. The trans-Caspian line would also be a victory for the Clinton administration's strategy of creating an east-west energy corridor through the Caucasus to avoid both Russia and Iran.

The obvious problem is that there has yet to be an agreement between Turkmenistan and Azerbaijan on the dividing line between their Caspian offshore claims. A pipeline project that would join the two countries is unlikely until a settlement of the border dispute is reached.

The same problem faces the second deal, an agreement by Mobil Corp. to develop the Caspian offshore field known by the Turkmens as Serdar. Ownership of the field is claimed by Azerbaijan, which calls it Kyapaz. Mobil has said it will not proceed until an agreement between the two republics is reached.

But the problems are more complex than the bilateral dispute. Russia has yet to be considered in either of these deals. Moscow started the debate over a legal division of the Caspian in 1994, insisting that all littoral states must agree on offshore projects. It has since muted its stand and signed a deal with Kazakhstan on dividing their seabed resources during the past week.

But Russia is likely to be heard from again on the division issue, especially in light of the fact that the east-west pipeline plan is designed as a detour around Moscow's control. The Kremlin has already objected to the concept of a trans-Caspian line on environmental grounds.

The signs of a larger conflict with Russia have started to emerge. Last month, Nezavisimaya Gazeta blasted U.S.-Turkmen cooperation in a commentary. The newspaper owned by tycoon Boris Berezovsky cited plans to replace Russian gas in Ukraine and European markets. The attempt to portray Turkmenistan as a dangerous rival does not bode well for Russian acceptance of a trans-Caspian line or a resolution on pipeline access to the north.

Iran's reaction is equally crucial for Turkmenistan, which must maintain good relations with its only current customer for exported gas.

On his visit to Iran this week, Turkmenistan President Saparmurat Niyazov faced criticism for supporting U.S.-sponsored projects in the Caspian. The Iran News cited signs that Turkmenistan has been "following in the footsteps of U.S. policy in the region" and shown "an inclination to transfer its resources to the outside world by routes other than Iran." The paper warned that cooperation with foreign interference in the region "would prove problematic" in the long term.

Niyazov was also rebuked by Iran's leader, Ayatollah Ali Khamenei, for Turkmenistan's ties to Israeli business interests.

"The presence of the Israelis behind Iran's important borders is a cause of concern," said Khamenei. "Turkmenistan does not need the Israelis and we must all observe that wherever the Israelis go, they create discord because their existence depends on sowing differences," he said. Clearly, Turkmenistan's policy of neutrality is one of walking a tightrope with huge risks on both sides.

Turkmenistan was also forced to support the Iranian position on the Caspian, calling for an equal division of its resources and condemning the Russia-Kazakhstan pact. The stand is likely to make a settlement more difficult both for an overall Caspian division and a bilateral border deal between Turkmenistan and Azerbaijan.

Tehran continues to hope that Royal Dutch/Shell will lead a consortium to build a pipeline from Turkmenistan to Turkey across Iranian territory. The trans-Caspian line would compete, and there are serious doubts that there will be room in the market for both, even if a Caspian pact can be reached.

Amoco and U.S. officials believe that the growing Turkish market can handle all the gas that becomes available, even if Russia builds new pipelines to Turkey. But energy analysts are skeptical. They insist that one of the competing routes from Turkmenistan or Russia is bound to lose out.

There are also questions of cost. Analysts wonder whether huge sums will ultimately be spent on what are essentially political games. U.S. officials now concede privately that their opposition to pipelines through Iran is only a medium-term policy that will change if President Mohammad Khatami prevails in the struggle for power in Tehran. None of the competing projects is likely to get underway until 2000, when Iran holds its next elections, U.S. officials say.

In that case, a trans-Caspian project would be only a costly insurance policy. Analysts are also skeptical about the costs of the Amoco plan. Last November, a Bechtel official estimated that a gas pipeline to Turkey would cost $3 billion to $4 billion. It seems unlikely that the cost would drop to $2.4 billion dollars in a region where project estimates have been going up, not down.

So far, Turkmenistan has been in the position of agreeing to proposals from the U.S. and Iran, hoping either that one will materialize or that it can enjoy both at the same time. The real goal is to convince Russia that there is a competitive threat from Washington and Tehran so that it will reopen the old Soviet pipelines for exports.

But Turkmenistan cannot possibly please all parties, and its U.S.-backed projects remain too problematic to make Russia change its course immediately. Its best hope is that peace will develop between the United States and Iran so that the republic will not have to play a losing game with three major conflicting powers at the same time.