Iran and Turkmenistan: status and outlook of relations in energy and transport sectors

Two neighbors in the Caspian Region – Iran and Turkmenistan – play a very important role for each other. At the current stage, both parties attribute new dynamics to the development of their long-lasting relations. Ashkhabad and Teheran combine their efforts in search for response to numerous social and economic challenges of today, they intend to jointly look for areas of common interests, to develop and use their potentials in strategically important spheres including energy and transport.

Strategic neighborhood

The Islamic Republic of Iran (IRI) is a long-standing and important trade and economic partner of Turkmenistan. This post-Soviet country is notably the only directly adjacent neighbor of Iran in Central Asia. Starting from the moment of gaining independence, Ashkhabad started building active multi-faceted ties with Teheran. Iran was one of the first countries to recognize the sovereignty of Turkmenistan in 1991. The three pillars of the relations between Iran and Turkmenistan are fuel-and-energy, transportation-communications and agricultural sectors.

Mutual visits of the leaders of both countries are traditionally of a regular character. In November 2021, Sayyid Ebrahim Raisi, the President of the Islamic Republic of Iran, visited Turkmenistan to participate in the 15^th Summit of the Economic Cooperation Organization. In mid-June of 2022, Serdar Berdimuhamedov, the newly elected President of Turkmenistan, arrived to Teheran for a 2-days visit. For a young President this visit to Iran was the second official one after his visit to Russia, which speaks about the important role of this Caspian neighbor country in the long-term foreign strategy of Ashkhabad.

Serdar Berdimuhamedov was accompanied by a government delegation, which held official meetings with the heads of the main ministries and industry agencies of Iran. During the negotiations, the two Presidents discussed a broad variety of issues associated with further development of cooperation between Turkmenistan and Iran. The meeting resulted in signing the package of nine Memos of Understanding covering bilateral interaction on the entire spectrum of priority areas. [1] This included cooperation in such spheres as investment, transportation, transit, environmental protection, television and radio, trade and economics, science and engineering, and culture.

After the signing ceremony, at the following press-conference, Ebrahim Raisi stated that the visit of Serdar Berdimuhamedov to Iran was the turning point in the bilateral contacts. «The relations between the two countries and fraternal, civilizational, cultural, and to put it briefly – very close. These deep relations may pave the way for many types of cooperation», the President of Iran said. [2]

It is worth noting that the incumbent Iranian leadership makes a big focus on the «neighbor policy» and «economic diplomacy» as two main priorities of the foreign policy of the Islamic Republic of Iran. Raisi said that new agreements may bring the cooperation to the higher level. He also emphasized that Teheran was fully committed to sign new agreements with Ashkhabad: «In the course of negotiations, it became clear that both countries have a serious will to develop their relations and to put the achieved agreements into practice. And even more important that we are determined to sign the strategic document on 20-year partnership».

By the way, this July Teheran executed the agreement on comprehensive and long-term cooperation with Turkey. One month prior to that Iran signed the 20-year plan of cooperation with Venezuela, which is one of the major oil producing countries in the world and similar to IRI is counteracting the sanctions imposed by the USA.

In his turn, Serdar Berdimuhamedov called energy and transportation sectors the most important and strategic spheres in the relations between Teheran and Ashkhabad. The President of Turkmenistan emphasized that both parties will be focused on efficient use of their capabilities to enhance their interaction.

Gas diplomacy

Cooperation between Iran and Turkmenistan in the energy sphere demonstrates high dynamics and is a priority for both parties. Though Iran has the second biggest proved reserves of natural gas in the world, it is importing gas from Turkmenistan to supply it to its North-Eastern regions. It is cheaper than to build a pipeline from the South to the North of Iran. It is also instrumental to release redundant capacities for further selling gas to Armenia and Turkey, especially in the winter season.

This cooperation between Turkmenistan and Iran started in July 1995 from the agreement on natural gas signed by the Presidents being in office at that time – Saparmurat Niyazov and Akbar Hashemi Rafsanjani.

In 1997, the 200-km Korpeje – Kordkuy pipeline was commissioned with 8 bcma throughput. This pipeline transports gas from Korpeje gas field in Western Turkmenistan to Kordkuy region in Northern Iran. [3] Due to insufficient throughput and lack of investment into Korpeje gas field, Tirkmenistan failed to provide the natural gas volumes needed by Iran on an annual basis.

To overcome the shortage of gas and to enhance cooperation in the energy sphere, the decision was made to build a new gas pipeline Dauletabad – Sarahs – Khangiran. This 524-km pipeline with 12.5 bcma throughput was launched in January 2010. It transports gas from Dauletabad gas filed in Turkmenistan to the North-Eastern provinces of Iran (Semnan, Mazandaran, Golestan, Razavi-Khorasan, Northern and Southern Khorasan).

The new gas transportation complex was launched in September of the same year. In comprises gas treatment plant with two process lines of 1.5 bcma, and 30-km high-pressure gas pipeline connecting Akpatlavuk oil and gas field in Turkmenistan with Korpeje – Kordkuy pipeline.

The history of Iran and Turkmenistan gas cooperation demonstrates serious disputes on natural gas prices. Due to the problems associated with Western economic sanctions against Iran, Teheran failed to make timely payments for gas supplies. In response, Ashkhabad several times shut-off the valve and doubled the price for natural gas.

The most recent gas scandal broke out in early 2017. On January 1, one of the four major companies accountable to the Iranian Ministry of Oil Industry – National Iranian Gas Company (NIGC) made a statement that Turkmenistan terminated supplying natural gas to Iran. The state concern Turkmengas claimed the accrued debt of USD 1.8 bn from NIGC. This debt was formed in 2007-2008, when due to abnormal cold Teheran was forced to increase the imported volumes of gas from Turkmenistan. At the same time, Ashkhabad was facing the financial crisis and raised the price for the gas volumes supplied on top of those stipulated by the contract. The contracted volumes were supplied at USD 40 per 1,000 cubic meters, but for the additional volumes the price was 9 times higher – USD 360. However, Teheran refused to recognize the debt referring to the fact that it evolved at the time of the preceding administration and required it to be revised. The parties held very arduous negotiations prior to Turkmenistan terminating the delivery of gas to Iran, and the MOU was signed at the end. [4]

In the National Iranian Gas Company, they called the measures taken by Turkmenistan blackmailing and threatened to apply to court. [5]

During lengthy negotiations, the parties failed to achieve a mutually acceptable compromise. Eventually, in August 2018, Turkmenistan initiated a law suit against NIGC in the International Court of Arbitration (ICA) in Switzerland. [6] Iran filed a counter action. In June 2020, ICA issued an award on this dispute between Iran and Turkmenistan, however, the information about the result is not disclosed. Some Iranian sources wrote that the International Court of Arbitration compelled NIGC to pay the debt to Turkmenistan for the gas imported in 2007-2013. At the same time, the Iranian Ministry of Oil refuted this information. [7]

In September 2021, Gurbanguly Berdimuhamedov, the President of Turkmenistan at that time, and Ebrahim Raisi, the President of Iran, during their meeting at the Summit of the Shanghai Cooperation Organization agreed to resolve the gas issue.

In the course of the visit to Teheran of the delegation headed by Rashid Meredov, the Foreign Affairs Minister of Turkmenistan, the parties discussed various spheres of bilateral cooperation. They also explored the possibility of resuming gas supplies from Turkmenistan to Iran. The Iranian party offered to pay back the debt on a barter trade basis, providing engineering and technical services to Turkmenistan in developing off-shore and on-shore fields, oil and gas treatment and processing. [8] Let us remind here that prior to this dispute Teheran already used the barter scheme for gas settlements with Turkmenistan providing goods and services including in road construction.

Eventually, the parties agreed that the gas debt to Turkmenistan was to be paid back by Iran via Bagdad, which also had a USD 1.6 bn debt to Teheran for unpaid gas fees. [9]

One of the areas of cooperation in energy sector is Iran’s participation in swap supplies of gas from Turkmenistan to Azerbaijan. In November 2021, Teheran, Ashkhabad and Baku signed a natural gas swap agreement, according to which Iran shall annually supply 1.5-2 bcm of gas received from Turkmenistan. In June 2022, during the Baku Energy Week and during the visit of Javad Owji, the Minister of Oil of IRI, to Baku, Iran and Azerbaijan signed an MOU to increase the supplies of natural gas from Turkmenistan. [10]

The swap supplies are likely to grow in future, because both Turkmenistan and Iran are interested in them. With account of the constantly growing demand for Azerbaijanian hydrocarbons in Europe, Baku is expected to buy more gas from Turkmenistan via swap deals.

The idea of exporting natural gas from Turkmenistan to third-party countries via Iranian territory emerged in 1990s. Several strategic gas pipelines were designed to bring natural gas from Turkmenistan to the global markets. The transnational Turkmenistan – Iran – Turkey – Europe (Bulgaria) was one of them. The government of Turkmenistan, Iran and Turkey signed the agreement about its construction in 1997. The project was estimated at USD 7.6 bn. After one year, Turkmenistan and Shell company, which was to participate in the project, signed the MOU. However, it was never brought into practice due to D’Amato’s amendment enacted by the USA Congress prohibiting the American companies (and companies with American interest) to participate in any projects in the territory of Iran. [11]

Teheran continues to claim its commitment to transport energy from Turkmenistan, oil and gas in particular, to third-party countries.

In addition to supplying gas to Azerbaijan, Iran could perform swap supplies to other countries, i.e., to Pakistan; this is the market Turkmenistan has been trying to enter for many years. Back when the gas dispute between Ashkhabad and Teheran was in place, Hamid Reza Aragi, Deputy Minister of Oil of Iran, spoke about the possibility to supply gas from Turkmenistan to Pakistan. Simultaneously, he pointed at the problem associated with the construction of the competing gas pipeline – TAPI (Turkmenistan – Afghanistan – Pakistan – India).

Let us note here that Iran may receive revenues from the transit of natural gas from Turkmenistan to UAE via its territory. [12]

Turkmenistan and Iran both have significant potential for expanding partnership in the hydrocarbons sector. Besides, gas import from Turkmenistan may be instrumental for Iran to achieve the strategic goal of turning into a regional energy hub. This is the conclusion by the Iranian Parliamentary Research Center in their report «Considerations and strategic needs for trading energy between Turkmenistan and Iran». [13]

With account of Ashkhabad’s intent to diversify its gas import destinations, the Iranian market will be the most profitable for exporting natural gas. Iran, in its turn, needs it for turning into a regional energy hub, as was mentioned above.

The supplies of gas from Turkmenistan to Iran are economically feasible because of the three arguments listed in this report. Firstly, this is geographical proximity allowing for avoiding gas transportation for long distances. Secondly, these two countries have a common border. Thirdly, energy flows may go through Iran to the third-party markets, such as Turkey, India, Pakistan, Iraq.

Currently, Teheran is concerned with the fact that China accounts for the lion’s share of gas export from Turkmenia, and after the fourth string of the gas pipeline from Central Asia to China is brought on stream, the supplied volumes will grow even more. [14]

Electricity sector

Electric power industry is one of the most dynamically growing sector of the economy. In Turkmenistan it is controlled by the Ministry of Energy and Industry. In 2013, the government developed the concept of electricity sector development in Turkmenistan for 2013-2020 stipulating for retrofit and enhancement of the electricity transfer infrastructure and for construction of 14 gas-fired power plants. Thanks to successful implementation of this program, two-three power plants are currently operating in every province of Turkmenistan.

Electricity generation in Turkmenistan exceeds the domestic consumption needs and allows for export of the redundant energy. Turkmenistan is connected to the Central Asian grid and send electricity to Afghanistan, Iran, Turkey and some Central Asian countries.

Pakistan plans to purchase electricity from Turkmenistan through TAP (Turkmenistan – Afghanistan – Pakistan) and TUTAP (Turkmenistan – Uzbekistan – Tajikistan – Afghanistan – Pakistan) power transmission lines. In order to receive electricity from Turkmenistan, Pakistan is also exploring the possibility of building 500 KW OHPL (Overhead Power Transmission Line) along TAPI pipeline (Turkmenistan – Afghanistan – Pakistan – India). [15]

During the first five months of 2022, according to the data of the Ministry of Energy, the targets for generation and works performed were exceeded (128.1% performance). The power generation growth was 116.8%, and its export – 150.3%. [16] According to Gurbanguly Berdimuhamedov, the Chairman of the upper chamber of the Parliament of Turkmenistan, this year the country intends to bring the electricity export to the level of 9 bn KWh. This is 3.3 above the 2013 level. [17]

Electricity sector has high potential in bilateral cooperation of Ashkhabad and Teheran. Turkmenistan started supplying electricity to the Islamic Republic back in 2003 using Balkanabat – Gonbad 220 KW OHPL.

Iran imports 140 MW of from Turkmenistan to cover the domestic needs. These supplies allow for satisfying the needs of Khorasan region in the North-West of Iran. [18]

Ashkhabad is ramping up its generation capacities from year to year. According to the industry development plan, by 2024 electricity generation in Turkmenistan is to achieve 33 bn KWh per annum. The operating capacities are being up-graded to achieve that. To increase the electricity export, Turkmenistan authorities plan to retrofit power units of the hydropower plant (HPP) in the city of Mary and to implement a series of other projects, two of which will be performed in cooperation with Iran. The first project stipulates for building Mary – Sarah – Mashhad 400-500 KW OHPL running to the Iranian border. The second project stipulates to building similar OHPL from Balkanabat HPP to Iranian Gonbad.

In the course of bilateral negotiations in Teheran it was announced that the Iranian section of Mary – Mashhad OHPL was completed and ready for commissioning. Turkmenistan claimed it was ready to start building the section in its territory in the nearest future.

Previously it was announced that Turkmenistan was ready to start gas and electricity supplies to Armenia through Iranian territory.

Currently Iran is working on connecting its national power system to the grids of the Russian Federation and of other SCO countries via Turkmenistan. [19]

Transport corridors

Ashkhabad is active in «transport diplomacy» and is committed to broad cooperation in this sphere. Turkmenistan ratified 12 International Transport Conventions and initiated the adoption of four UN resolutions on these issues. Thus, during the 69th session of the UN General Assembly, the resolution emphasizing an important role of Turkmenistan as a part of the International Transport Corridor (ITC) between Europe and Asia was adopted. Ashkhabad’s policy in this area in based on the principle of diversifying transportation and communication networks. [20]

In its turn, this stipulates for creatin and expansion of the alternative transportation and transit structure in Central Asia and the Caspian Region along the East-West and North-South ITCs. Turkmenistan plays the key role here due to its geography being simultaneously a Central Asian and a Caspian country. Railway and motorway routes connecting Asia with Europe run across this former Soviet Republic.

In January 2022, Turkmenistan adopted the new national transport development program for the next three years. Ashkhabad sets an ambitious goal – to reinstate the Great Silk Route by building modern motorways, railways, marine and aviation lines. [21]

Interaction in the sphere of transportation and transit is one of the high-potential areas of cooperation between Iran and Turkmenistan. 

North-South ITC: India was the author of the idea of creating this International Transport Corridor, now it participates together with Iran in developing Chabahar sea port – one of the key elements of this ITC. [22]

Different from other Iranian port, Chabahar is located not on the Persian Gulf, but on the Arabian Sea. It means that the vessels going to the Indian Ocean will not have to pass the Strait of Hormuz. India connects the possibility of developing the commercial shipments along the marine lines and further by rail with this port. Commissioning of North-South ITC and Chabahar port, in particular, will be especially important for Iran from the geo-economic standpoint. [23]

After this ITC is operational at full capacity, it will be able to change the geo-economic landscape of the entire region, and in particular, of Central Asian countries with their rich natural resources by allowing them to export hydrocarbons to the global markets via Chabahar sea port. Subject to undertaking coordinated efforts to develop Chabahar as an energy transportation hub, the economic value of this port for Iran and other stakeholders interested in global energy trade will grow significantly.

The railway connecting Kazakhstan, Turkmenistan and Iran (Zhanaozen – Bereket – Gorgan) is also of big importance. It is a meaningful part of the Eurasian rail network and allows for the countries participating in the project to enter the global markets. [24] «This railway main line will provide for additional routes connecting Kazakhstan, Central Russia and Turkmenistan with Iran, the Persian Gulf countries, South and South-East Asia. It will contribute to increasing passenger and cargo traffic, to reducing the transportation costs and saving travel time, it will facilitate the economic growth in general», Miroslav Antonovich, Chairman of OSJD (Organization for Cooperation of Railways) committee said at the Ashkhabad ITC Forum in July 2022. [25]

During the negotiations with the Iranian President, Serdar Berdimuhamedov emphasized the great potential of the railway connecting Kazakhstan, Turkmenistan and Iran and proposed to establish a bilateral inter-governmental commission on transportation. «The Islamic Republic of Iran is one of our key partners in this sphere, because the railway from the North to the South coming from Turkmenistan to Iran opens the fastest route to  the Persian Gulf ports», the President of Turkmenistan emphasized. [26]

Teheran is preparing to open Zahedan – Khash railway. This section makes 154 km out of approximately 630 km of the strategically important Eastern railway corridor Zahedan – Chabahar, which is part of the North-South ITC. The line from Zahedan to Chabahar will provide for connecting the port with the Iranian and Central Asian railway network. In addition, in future it will assure the access to the Iranian port Makran currently under construction at the border with Pakistan. [27]

Another joint project of Iran and Turkmenistan is East-West ITC connecting Uzbekistan, Turkmenistan, Iran, Oman and Qatar. As of today, Qatar exited the project, but India and Kazakhstan officially joined it. Tashkent initiated the construction of this trans-national transportation and logistics arterial road to connect the Central Asian countries with the Iranian ports in the Persian Gulf and the Gulf of Oman.

Uzbekistan, Turkmenistan, Iran, Oman and Qatar signed the agreement about building this corridor in Ashkhabad in April 2011. The document is known as «Ashkhabad Agreement». It came into effect in April 2016. [28]

According to the design, after building the lines connecting the railways of Uzbekistan and Turkmenistan with the South-Iranian sea ports, the project participants will be able to establish the optimal transit route to the posts in the Persian Gulf and the Gulf of Oman. In the opinion of the experts, implementation of this international project will not only provide a new impetus to the economic development, but also will increase the volume of transit. [29] Russia and China also will get the access to some new markets via the East-West transport corridor. [30]

Prior to that, Turkmenistan also hosted a two-day international conference at the level of Ministers of Transport of the developing countries without outlets to the sea. Ashkhabad organized this Forum under the auspices of the United Nations with a rather broad agenda. Among other things, the Forum participants discussed current situation in aviation, motor, railway and marine transport, the outlook for developing this segment of the global economy, the possibilities for attracting investment into the industry infrastructure, roll-out of innovative solutions, the key aspects of protecting the environment and security.

Representatives of Iran, Turkmenistan, Uzbekistan and Kazakhstan discussed the outcomes of implementing the previously achieved agreements with respect to this transport corridor. At the end of the conference, Iran, Turkmenistan, Uzbekistan and Kazakhstan signed the final protocol and an agreement about establishing the International Transport Corridor within the framework of the «Ashkhabad Agreement». [31]

Conclusions

Iran and Turkmenistan are both rich with natural resources and at first sight seem to be competitors. However, this energy factor creates a fertile soil for closer relations between them. 

Neither Teheran, nor Ashkhabad are capable of fulfilling their hydrocarbon potentials by themselves. Major trans-national projects – Turkmenistan TAPI pipeline (Turkmenistan – Afghanistan – Pakistan – India) and Iranian IPI pipeline (Iran – Pakistan – India) are in deadlock due to a number of factors. 

In the current environment of prices uproar in the global energy markets, Iran and Turkmenistan could be gaining more from selling their hydrocarbons.

Contrary to Turkmenistan with its closed-country policy, Iran was forced to become isolated from international investment. Practice shows that any Iranian regional initiatives in the energy sphere come across tough counteraction on behalf of the USA, whose sanctions are «throwing a monkey wrench» into Teheran’s activities. 

Even though Turkmenistan has stable market outlets for its natural gas in the North (Russia) and in the East (China), nevertheless, it is extremely interested in diversifying gas export routes towards the South (Afghanistan and Pakistan) and the West (Iran, Azerbaijan, Europe). After settling the gas dispute with Teheran, one can believe that natural gas supplies from Turkmenistan to Iran will be resumed. IRI is interested in that and is linking the successful turn of the country into a regional energy hub to ramping up these supplies.

Close cooperation of Turkmenistan and Iran in transportation and communication sphere is of strategic character for both countries and is mutually beneficial. Turkmenistan is exporting its commodities via Iranian sea ports. Transport corridors running across the territories of both countries are connecting a big number of countries and regions. It allows for bringing the trade and economic ties between Asia and Europe to a totally new level based on significant decrease of distances covered by major traffic flows including transit ones and of the travel time.