The recent decision by Washington to prohibit Iraq from importing gas from Turkmenistan through a swap deal with Iran has significant implications for energy dynamics in the region. This move, part of a broader strategy to increase sanctions against Tehran, may inadvertently spark renewed interest in constructing a trans-Caspian gas pipeline. Such a pipeline would facilitate the flow of Turkmen gas directly to European markets, providing an alternative energy source.
Iraq has been grappling with severe power shortages, and its plan to import gas from Turkmenistan via Iran was seen as a temporary solution while officials aimed to develop their own untapped gas reserves. However, much of these reserves are located in regions not fully controlled by Baghdad, which complicates immediate exploitation. In the short term, the impact on Turkmenistan is expected to be minimal. The 5 billion cubic metres (bcm) per year that Iraq intended to import represents only a small fraction of the estimated 34 bcm that Turkmenistan exports annually to China.
Despite the limited immediate impact, Washington’s sanctions are likely to prompt Turkmenistan to reassess its export strategies. A gas deal with Turkey, which involved a swap arrangement with Iran, appears to be stalled. This agreement was initially seen as crucial for establishing Turkmenistan’s credibility as a reliable business partner for Western investors. Turkey was set to receive up to 1.3 bcm of gas from Turkmenistan this year, with the potential for increased volumes in subsequent years. However, Maksat Babayev, the CEO of Turkmengas, announced in late October that the deal is currently on hold due to unspecified technical issues.
Turkmenistan has previously exhibited challenges regarding gas pricing agreements. In 2022, it shipped up to 2 billion cubic metres of gas to Azerbaijan via a one-year swap deal with Iran, which was expected to be renewed. Yet, disagreements over pricing between Baku and Ashgabat prevented a continuation of this arrangement. The current pause in the Turkish deal, particularly the swap component involving Iran, may compel Turkmenistan to refocus its export strategy towards more direct routes to Europe.
Recent developments have not gone unnoticed in Ashgabat. At the 5th Tbilisi Silk Road Forum on October 22, Turkmen Foreign Minister Rashid Meredov reaffirmed the country’s commitment to reviving the concept of a “Silk Road” for gas transit from Central Asia to Europe. He emphasized Turkmenistan’s dedication to establishing a stable energy corridor along the Caspian Sea-South Caucasus route to Europe.
Azerbaijan, which plays a vital role in the transit of any Turkmen gas exports to Turkey and Europe, appears receptive to the idea of a trans-Caspian pipeline. Although Baku has prioritized the development of its own gas reserves, including the critical Shah Deniz gas field, it has encountered challenges in significantly increasing its gas output. Azerbaijani officials have acknowledged that they will be unable to double their gas exports to Europe to 20 bcm per year as previously promised to the European Union.
In light of these circumstances, additional volumes of Turkmen gas could help Azerbaijan fulfill its commitments to Europe. Should all parties agree on the construction of a trans-Caspian pipeline, it may attract the necessary investment for development and the expansion of existing gas transit lines through Azerbaijan, Georgia, and Turkey.
Further, there is potential for gas to be transported through a new pipeline along the proposed Armenian-Azerbaijani land corridor, informally known as the “Trump Route for International Peace and Prosperity.” This option could add another layer to the evolving energy landscape in the region.
The evolving situation highlights the complexities of energy geopolitics in Central Asia and the Caucasus, where decisions made in Washington can reverberate through markets and governments thousands of miles away. As Turkmenistan navigates these challenges, the future of its gas exports and potential infrastructure developments will be closely watched by energy stakeholders worldwide.
