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Kremlin: views toward the east. Russia and Turkmenistan enhance their economic interaction

photo: kremlin.ru
11 March 2023
Victoria MagdaVictoria Magda

Victoria Magda

CISS expert

If we try to imagine the Russian-Turkmen relations over the thirty years after separation upon the USSR disintegration in a graph format, it will look similar to the irregular cardiogram: upswings alternate with slumps. At the current stage, the bilateral interaction has entered into the period of another «Renaissance».

Attractive gas atmosphere

New opportunities for cooperation of Moscow and Ashkhabad emerged back in 2019, after Russian Gazprom resumed the imports of Turkmen gas signing the 5-year contract for rather modest volumes of 5.5 bcm. However, already in 2021 the gas supplies into the RF doubled. The decision to import Turkmen gas may be explained not only by the business interests of Russia. In such a way Moscow tried to block the plans of the third countries to improve their positions in Central Asia. They were aspiring in the Russian Federation, that this project would increase the level of allegiance on behalf of official Ashkhabad, motivate it for certain concessions both in economy and in foreign policy.

Let us say right away: the achieving of the latter task does not look easy, as from the moment of gaining independence Turkmenistan accepted the neutral state status, which in some cases is a barrier for unreserved support of partners on the global arena. However, Russia has all the grounds to agree its supplies of natural gas to the immense market of South-East Asia.

Turkmenistan belongs to the top-three countries in the world with the biggest natural gas reserves. According to British Petroleum, the proven reserves of the blue flame gas are estimated at the level of 13.95 tln cubic meters. In 2021, the production was record-high: 83.8 bcm, of which 45 bcm were exported to China, Russia, Azerbaijan (via swap supplies with Iran), and some small volumes to Uzbekistan. The future outlook is to increase the gas export by way of building the fourth line of the trunk gas pipeline Central Asia Ц China and TAPI. TurkmenistanТs participation in the Turkish gas hub project so far remains open, even though the Turkish President Recep Tayyip Erdogan is lobbying for supplies of natural gas from Turkmenistan to Europe via Azerbaijan. However, the Trans-Caspian pipeline still needs to be built for that. So far there are no willing investors into this pipe, and Ashkhabad today is more inclined towards Moscow. The Turkmenistan party does not look especially interested in the European destination, as Russia is ready to participate in the construction of TAPI, and Turkmenistan is not hiding its interest in this old, but updated project.

The intent is to use TAPI pipeline to supply gas to the bottomless Indian market via Afghanistan and Pakistan. By the way, Taliban (the terrorist organization prohibited in the RF) has promised to assure the security along the route and even to establish a specialized security squad for that purpose. Mullah Baradar, the Vice-Premier of the Afghanistan Government for Economic Issues, announced that.

Naturally, the Russian companies are extremely interested in this entire complex of circumstances and intents, as they are ready to participate in the joint gas projects in Turkmenistan.

The negotiations in Ashkhabad resulted in Russian companies making statements of intent to participate in building the underground gas storage (UGS) facilities. This is a very important issue, especially if we take into account that so far there are no such facilities in Turkmenistan, which sometimes leads to emergency situations. In particular, we may remember the recent force-majeure with gas supplies to Uzbekistan, when due to abnormally low temperatures hydrate plugs appeared in the pipelines, and there were no capabilities for supporting the supplies until remediation of the situation.

Aspiring to make the interaction easier and smooth, Moscow is attempting to assure rapprochement of Turkmenistan with the EAEU offering a status of observer with the organization. Ashkhabad is delaying the final decision once again demonstrating that they are rather difficult partners.

Not by gas alone

After the attractiveness of the gas deal became obvious, things started to go faster along other lines, as well. First of all, in the sphere of developing and setting up international transportation routes. This is extremely relevant in the current environment, both for Moscow and for Ashkhabad.

Naturally, the top-level meetings became more frequent in 2022. Vladimir Putin, the President of the Russian Federation, visited Ashkhabad in June, and after that father and son Berdimuhamedov visited Moscow (Serdar Berdimuhamedov was elected the President of Turkmenistan last March, and his father, Gurbanguly Berdimuhamedov, having passed the «throne» to his son, at first headed the upper house of parliament, and then re-established the long-forgotten supra-national body PeopleТs Council of Turkmenistan, which he headed upon receiving the status of the Leader of the Nation). In Moscow they signed the Declaration on deepening the strategic partnership and 14 new agreements, including on joint projects in agriculture and trade, banking, information and transportation spheres, as well as on strengthening inter-regional cooperation.

After that, more detailed negotiations followed at the level of Mikhail Mishustin, the RF Prime Minister, who visited Turkmenistan on 19-20 January 2023 and took part in the first Russia-Turkmenistan business forum resulting in signing different agreements for more than USD 150 bn.

As of today, almost 300 international documents have been signed between Turkmenistan and Russia. Almost 200 joint ventures with participation of Russian businesses are operating in Turkmenistan. Even though energy sphere is the priority vector of the bilateral economic relations, other areas are also actively developing, such as agriculture, textile industry. Russia is ready to intensify the mechanical engineering products supplies, and experts also emphasize the promising prospects of cooperation in shipbuilding.

«Partnerships with Russian regions are very important for our bilateral cooperation. Saint-Petersburg is maintaining close contacts with Ashkhabad. The Republic of Tatarstan is demonstrating a steadily positive dynamics of cooperation. There are many ambitious plans and projects in the Astrakhan Region including setting up regular јстраханской области много планов и проектов, в том числе в части налаживани€ maritime traffic between Olya and Turkmenbashi ports on the Caspian Sea. Overall. about 60 Russian regions are actively interacting with Turkmenistan», the Russian Preme-Minister noted.

Roads leading to the future

In general, there are a lot of projects within the bilateral cooperation. And those related to transportation are the most relevant and promising ones. Recently, many efforts are invested by both countries into the project of developing the North-South International Transportation Corridor (ITC) and bringing it fully on stream. The pilot launch of MTC showed that the cargos were delivered 3 days faster versus the traditional sea route. Almost 62 kt of cargos and 220 containers were transported via Turkmenistan to and from Iran, the countries of South Asia and Persian Gulf during 11 months of 2022. The total ITC transported volumes in 2021 made only 700 t. Just feel the difference! Almost 100-fold growth of transported volumes was achieved! Right now, this project is being brought on stream to its full rated throughput.

For Russia, the North-South ITC means access to the markets of South and South-East Asia and the Middle East. For business it means new opportunities associated with building infrastructure, servicing and logistic centers, sea ports retrofit.

The options of supplying various goods via Turkmenistan and Iran to the UAE, Turkey, India and other countries are being explored today. Obviously, there are a lot of benefits in it for Turkmenistan as well, because the country is becoming an important hub on the map of the restructured international logistics.

To elaborate on such plans, the MOU has been signed with respect of setting up the Turkmenistan logistic center in the seaport special economic zone (SEZ) in the Astrakhan Region, the Lotos SEZ press-service reports. Regular maritime traffic will be organized between Olya seaport in Russia and Turkmenbashi port (former Krasnovodsk).

According to Sergey Milushkin, the Lotos SEZ CEO, it necessary to study all the technical and organizational issues with respect to setting up the logistic center, which will become «the first-of-its-kind and serve an example for our other partners from the Caspian countries». It will also be an attractive demonstration of the growing international connections of Turkmenistan with a number of Russian regions, especially taking into account that this will be a multi-functional cluster capable of handling various cargos Ц from food to industrial goods. 

Hence, the Caspian Region is becoming one of the key resorts of Russia in breaking the blockade imposed by the West. Anti-Russian sanctions have in fact broken all the previously existing logistics. «Today, we are forced to search for new logistic corridors», Vitaly Savelyev, the RF Minister of Transport stated. And the North-South ITC is the key resort in this regards, which includes three Caspian seaports, two of which Ц Astrakhan and Olya Ц belong to our region.

Let us remind here, that the agreement on ITC was signed back in 1999, when very few people could assume that this corridor will become a true «Road of Life» for the economy of the Russian Federation.

Originally, the North-South ITC was conceived as the containersТ transportation route between Sri Lanka, India, Iran, the Caspian Sea and Russia. One can easily see that the partners mentioned here were not key for the Russian Federation back then, but now the situation has changed drastically. So, if the attitude to this project in the past was rather indifferent, now it is in the focus of the agenda.

The North-South ITC is meant to connect the Baltic seaport with India via Iran. Compared to the route via the Suez Canal, it may decrease the delivery time two times and minimize the transportation costs. The length of the North-South ITC will be 7.2 thou km.

The project looks so promising and attractive that other participants started joining it: Azerbaijan, Armenia, Belarus, Kazakhstan, Oman, and Syria. Today, all these countries are actively competing for taking a certain position along the transportation route. Each of them is offering its specific transit conditions; but the Astrakhan Region whose social and economic situation could not be called enviable, received the Уgolden chanceФ for its growth and development due to its beneficial geographical location. To understand this, it is enough just to take a look at the map: this is where the Volga River flows into the Caspian Sea, and on the East this region has a border with Kazakhstan, who is interested in organizing its grain export via ITC.

We need to mention that Makhachkala is at the other ITC offshoot. It means that in future this transportation corridor may provide a new stimulus for economic development of the entire Northern Caucasus. 

Of course, the ambitious plans of ITC development require significant CAPEX. For example, the dredging operations in the Volga Ц Don Canal will be quite expensive. Experts believe that the Canal needs to be deepened down to 4.5 meters, otherwise major vessels will not be able to pass it. And more dredging operations will be needed in the Volga estuary, because the Caspian Sea is getting shallow receding from its traditional shoreline. However, all the investment look promising from the standpoint of pay-back.

According to Igor Babushkin, the Governor of the Astrakhan Region, the contractor promises to complete the dredging operations in the Volga Ц Don Canal by the end of 2023. 

The Governor also talked about the long-going plans to build a northern by-pass around Astrakhan city. This is also a section of the North-South corridor. The by-pass will  make the way via the Volga River two times shorter. The Russian-Turkmen construction project along the eastern coast of the Caspian Sea is currently under discussion. Rashid Memedov, the Vice-Premier of the Government of Turkmenistan and the Foreign Affairs Minister, emphasized the importance of this vector for enhancing the transit capabilities of Turkmenistan, specifying that even today the transit via the countryТs territory had tripled.

Experts are convinced: restoration of the eastern and southern gateways to Russia is an urgent need for the country being under hostile sanctions. In particular, Mikail Blinkin, the Director of the Institute of Trasport Economics and Policies with the Higher School of Economics, noted that earlier 75% of all the imported goods arrived to Russia via its western borders and other ways played a subordinate role, now the importance of the eastern gateway had increased.

At the same time, working with Ashkhabad is a persistent and simultaneously sensitive task with account that «the East is tricky», and the Turkmen side dos not want to position itself as a competitor to China, because the PRC today is the key customer of Turkmen energy sources, and they always remember that in Ashkhabad.

Nevertheless, the already commenced re-formatting of the global logistics will be only snowballing. New transportation routes will emerge becoming the roads to the future.

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Caspian Institute for Strategic Studies
Publications

Kremlin: views toward the east. Russia and Turkmenistan enhance their economic interaction

photo: kremlin.ru
11 марта 2023
Victoria Magda

Victoria Magda

CISS expert

If we try to imagine the Russian-Turkmen relations over the thirty years after separation upon the USSR disintegration in a graph format, it will look similar to the irregular cardiogram: upswings alternate with slumps. At the current stage, the bilateral interaction has entered into the period of another «Renaissance».

Attractive gas atmosphere

New opportunities for cooperation of Moscow and Ashkhabad emerged back in 2019, after Russian Gazprom resumed the imports of Turkmen gas signing the 5-year contract for rather modest volumes of 5.5 bcm. However, already in 2021 the gas supplies into the RF doubled. The decision to import Turkmen gas may be explained not only by the business interests of Russia. In such a way Moscow tried to block the plans of the third countries to improve their positions in Central Asia. They were aspiring in the Russian Federation, that this project would increase the level of allegiance on behalf of official Ashkhabad, motivate it for certain concessions both in economy and in foreign policy.

Let us say right away: the achieving of the latter task does not look easy, as from the moment of gaining independence Turkmenistan accepted the neutral state status, which in some cases is a barrier for unreserved support of partners on the global arena. However, Russia has all the grounds to agree its supplies of natural gas to the immense market of South-East Asia.

Turkmenistan belongs to the top-three countries in the world with the biggest natural gas reserves. According to British Petroleum, the proven reserves of the blue flame gas are estimated at the level of 13.95 tln cubic meters. In 2021, the production was record-high: 83.8 bcm, of which 45 bcm were exported to China, Russia, Azerbaijan (via swap supplies with Iran), and some small volumes to Uzbekistan. The future outlook is to increase the gas export by way of building the fourth line of the trunk gas pipeline Central Asia Ц China and TAPI. TurkmenistanТs participation in the Turkish gas hub project so far remains open, even though the Turkish President Recep Tayyip Erdogan is lobbying for supplies of natural gas from Turkmenistan to Europe via Azerbaijan. However, the Trans-Caspian pipeline still needs to be built for that. So far there are no willing investors into this pipe, and Ashkhabad today is more inclined towards Moscow. The Turkmenistan party does not look especially interested in the European destination, as Russia is ready to participate in the construction of TAPI, and Turkmenistan is not hiding its interest in this old, but updated project.

The intent is to use TAPI pipeline to supply gas to the bottomless Indian market via Afghanistan and Pakistan. By the way, Taliban (the terrorist organization prohibited in the RF) has promised to assure the security along the route and even to establish a specialized security squad for that purpose. Mullah Baradar, the Vice-Premier of the Afghanistan Government for Economic Issues, announced that.

Naturally, the Russian companies are extremely interested in this entire complex of circumstances and intents, as they are ready to participate in the joint gas projects in Turkmenistan.

The negotiations in Ashkhabad resulted in Russian companies making statements of intent to participate in building the underground gas storage (UGS) facilities. This is a very important issue, especially if we take into account that so far there are no such facilities in Turkmenistan, which sometimes leads to emergency situations. In particular, we may remember the recent force-majeure with gas supplies to Uzbekistan, when due to abnormally low temperatures hydrate plugs appeared in the pipelines, and there were no capabilities for supporting the supplies until remediation of the situation.

Aspiring to make the interaction easier and smooth, Moscow is attempting to assure rapprochement of Turkmenistan with the EAEU offering a status of observer with the organization. Ashkhabad is delaying the final decision once again demonstrating that they are rather difficult partners.

Not by gas alone

After the attractiveness of the gas deal became obvious, things started to go faster along other lines, as well. First of all, in the sphere of developing and setting up international transportation routes. This is extremely relevant in the current environment, both for Moscow and for Ashkhabad.

Naturally, the top-level meetings became more frequent in 2022. Vladimir Putin, the President of the Russian Federation, visited Ashkhabad in June, and after that father and son Berdimuhamedov visited Moscow (Serdar Berdimuhamedov was elected the President of Turkmenistan last March, and his father, Gurbanguly Berdimuhamedov, having passed the «throne» to his son, at first headed the upper house of parliament, and then re-established the long-forgotten supra-national body PeopleТs Council of Turkmenistan, which he headed upon receiving the status of the Leader of the Nation). In Moscow they signed the Declaration on deepening the strategic partnership and 14 new agreements, including on joint projects in agriculture and trade, banking, information and transportation spheres, as well as on strengthening inter-regional cooperation.

After that, more detailed negotiations followed at the level of Mikhail Mishustin, the RF Prime Minister, who visited Turkmenistan on 19-20 January 2023 and took part in the first Russia-Turkmenistan business forum resulting in signing different agreements for more than USD 150 bn.

As of today, almost 300 international documents have been signed between Turkmenistan and Russia. Almost 200 joint ventures with participation of Russian businesses are operating in Turkmenistan. Even though energy sphere is the priority vector of the bilateral economic relations, other areas are also actively developing, such as agriculture, textile industry. Russia is ready to intensify the mechanical engineering products supplies, and experts also emphasize the promising prospects of cooperation in shipbuilding.

«Partnerships with Russian regions are very important for our bilateral cooperation. Saint-Petersburg is maintaining close contacts with Ashkhabad. The Republic of Tatarstan is demonstrating a steadily positive dynamics of cooperation. There are many ambitious plans and projects in the Astrakhan Region including setting up regular јстраханской области много планов и проектов, в том числе в части налаживани€ maritime traffic between Olya and Turkmenbashi ports on the Caspian Sea. Overall. about 60 Russian regions are actively interacting with Turkmenistan», the Russian Preme-Minister noted.

Roads leading to the future

In general, there are a lot of projects within the bilateral cooperation. And those related to transportation are the most relevant and promising ones. Recently, many efforts are invested by both countries into the project of developing the North-South International Transportation Corridor (ITC) and bringing it fully on stream. The pilot launch of MTC showed that the cargos were delivered 3 days faster versus the traditional sea route. Almost 62 kt of cargos and 220 containers were transported via Turkmenistan to and from Iran, the countries of South Asia and Persian Gulf during 11 months of 2022. The total ITC transported volumes in 2021 made only 700 t. Just feel the difference! Almost 100-fold growth of transported volumes was achieved! Right now, this project is being brought on stream to its full rated throughput.

For Russia, the North-South ITC means access to the markets of South and South-East Asia and the Middle East. For business it means new opportunities associated with building infrastructure, servicing and logistic centers, sea ports retrofit.

The options of supplying various goods via Turkmenistan and Iran to the UAE, Turkey, India and other countries are being explored today. Obviously, there are a lot of benefits in it for Turkmenistan as well, because the country is becoming an important hub on the map of the restructured international logistics.

To elaborate on such plans, the MOU has been signed with respect of setting up the Turkmenistan logistic center in the seaport special economic zone (SEZ) in the Astrakhan Region, the Lotos SEZ press-service reports. Regular maritime traffic will be organized between Olya seaport in Russia and Turkmenbashi port (former Krasnovodsk).

According to Sergey Milushkin, the Lotos SEZ CEO, it necessary to study all the technical and organizational issues with respect to setting up the logistic center, which will become «the first-of-its-kind and serve an example for our other partners from the Caspian countries». It will also be an attractive demonstration of the growing international connections of Turkmenistan with a number of Russian regions, especially taking into account that this will be a multi-functional cluster capable of handling various cargos Ц from food to industrial goods. 

Hence, the Caspian Region is becoming one of the key resorts of Russia in breaking the blockade imposed by the West. Anti-Russian sanctions have in fact broken all the previously existing logistics. «Today, we are forced to search for new logistic corridors», Vitaly Savelyev, the RF Minister of Transport stated. And the North-South ITC is the key resort in this regards, which includes three Caspian seaports, two of which Ц Astrakhan and Olya Ц belong to our region.

Let us remind here, that the agreement on ITC was signed back in 1999, when very few people could assume that this corridor will become a true «Road of Life» for the economy of the Russian Federation.

Originally, the North-South ITC was conceived as the containersТ transportation route between Sri Lanka, India, Iran, the Caspian Sea and Russia. One can easily see that the partners mentioned here were not key for the Russian Federation back then, but now the situation has changed drastically. So, if the attitude to this project in the past was rather indifferent, now it is in the focus of the agenda.

The North-South ITC is meant to connect the Baltic seaport with India via Iran. Compared to the route via the Suez Canal, it may decrease the delivery time two times and minimize the transportation costs. The length of the North-South ITC will be 7.2 thou km.

The project looks so promising and attractive that other participants started joining it: Azerbaijan, Armenia, Belarus, Kazakhstan, Oman, and Syria. Today, all these countries are actively competing for taking a certain position along the transportation route. Each of them is offering its specific transit conditions; but the Astrakhan Region whose social and economic situation could not be called enviable, received the Уgolden chanceФ for its growth and development due to its beneficial geographical location. To understand this, it is enough just to take a look at the map: this is where the Volga River flows into the Caspian Sea, and on the East this region has a border with Kazakhstan, who is interested in organizing its grain export via ITC.

We need to mention that Makhachkala is at the other ITC offshoot. It means that in future this transportation corridor may provide a new stimulus for economic development of the entire Northern Caucasus. 

Of course, the ambitious plans of ITC development require significant CAPEX. For example, the dredging operations in the Volga Ц Don Canal will be quite expensive. Experts believe that the Canal needs to be deepened down to 4.5 meters, otherwise major vessels will not be able to pass it. And more dredging operations will be needed in the Volga estuary, because the Caspian Sea is getting shallow receding from its traditional shoreline. However, all the investment look promising from the standpoint of pay-back.

According to Igor Babushkin, the Governor of the Astrakhan Region, the contractor promises to complete the dredging operations in the Volga Ц Don Canal by the end of 2023. 

The Governor also talked about the long-going plans to build a northern by-pass around Astrakhan city. This is also a section of the North-South corridor. The by-pass will  make the way via the Volga River two times shorter. The Russian-Turkmen construction project along the eastern coast of the Caspian Sea is currently under discussion. Rashid Memedov, the Vice-Premier of the Government of Turkmenistan and the Foreign Affairs Minister, emphasized the importance of this vector for enhancing the transit capabilities of Turkmenistan, specifying that even today the transit via the countryТs territory had tripled.

Experts are convinced: restoration of the eastern and southern gateways to Russia is an urgent need for the country being under hostile sanctions. In particular, Mikail Blinkin, the Director of the Institute of Trasport Economics and Policies with the Higher School of Economics, noted that earlier 75% of all the imported goods arrived to Russia via its western borders and other ways played a subordinate role, now the importance of the eastern gateway had increased.

At the same time, working with Ashkhabad is a persistent and simultaneously sensitive task with account that «the East is tricky», and the Turkmen side dos not want to position itself as a competitor to China, because the PRC today is the key customer of Turkmen energy sources, and they always remember that in Ashkhabad.

Nevertheless, the already commenced re-formatting of the global logistics will be only snowballing. New transportation routes will emerge becoming the roads to the future.