By Ruslan Tukhbatullin
On 10 January the Iranian news agency IRNA reported that the dispute between Iran and Turkmenistan over a natural gas deal had reached its peak and the case would most probably be referred to the International Court of Arbitration.
According to the news outlet, Turkmenistan will be the loser of the dispute in any case since it needs Iran as an export gateway.
“First, it lost its biggest buyer Iran.Second, gas export from the country is very costly because it needs long expensive pipelines to send its gas to its new customers, namely China, Europe and Pakistan, while Turkmenistan gas is exported to Iran with the lowest transfer cost: the two countries are neighbors.
And third, Turkmenistan, as one of the biggest gas reserves in the world, needs Iran as its export gateway”.
For the time being Turkmenistan, which exports gas solely to China, is looking for opportunities to diversify its hydrocarbon exports. Works are underway in two directions: south-eastern (TAPI gas pipeline) and western (TANAP).
There are unresolved problems in both projects.In the case of the TAPI pipeline, these are the dangerous situation in Afghanistan and risks of pipeline sabotage by numerous terrorist groups.
The problem with the Trans-Caspian gas pipeline is the undetermined status of the Caspian Sea, which generates legal problems during the pipeline construction on the sea bottom.
The solution to both problems, as the Iranian side explicitly hints, could be the transit of Turkmen gas through the territory of Iran, which borders with Turkey bypassing the Caspian Sea, and with Pakistan, which would provide the opportunity to build the pipeline bypassing Afghanistan.
In Tehran’s opinion, by insisting on the debt repayment, Ashgabat runs the risk of being deprived of this opportunity.
However, even if Turkmenistan refuses to take the case to court, the proposal to transit Turkmen gas through the territory of Iran seems doubtful.Firstly, the gas pipeline system in the north of Iran is poorly developed, which was the reason for Iran purchasing Turkmen gas for its northern provinces.
It is unlikely that Iran would develop pipelines in these regions to transit another country’s gas.Secondly, Iran is also developing these two routes to export its own gas.
In May 2017 Azerbaijan invited Iran to join the Trans-Anatolian gas pipeline project, and in November 2017, during the visit of Russia’s President Vladimir Putin to Tehran, both sides agreed to launch a feasibility study for a gas pipeline Iran-Pakistan-India.
It appears that Tehran could propose to Ashgabat joint exports to have the opportunity to fully use the potential capacities of both projects, but in this case Ashgabat would be dependent on Tehran which, following the development of its own gas fields, might replace the Turkmen gas.
As the case of the forthcoming litigation in the Court of Arbitration suggests, even signed long-term contracts could be interpreted by the parties in their own way, depending on the situation.
Another important factor, which should be taken into consideration while analyzing the debts for gas exports, is the serious economic problem in both countries.Civil unrest in Iran was sparked by a deficit of eggs and food products.
Eggs also occasionally disappear from stores in Turkmenistan where the situation is relatively quiet for the time being.Both Turkmenistan or Iran could make use of $2 billion.
Furthermore, Turkmenistan, represented by “Turkmengas”, is likely to invest these funds in the construction of the TAPI gas pipeline, which, as the Turkmen media outlets report but has not broadcast yet, is approaching the border with Afghanistan but is experiencing some financial constraints.
As of today the Iran-Pakistan-India project is at the initial design stage.A lengthy, as it appears, court proceeding might to some extent slow down or, depending on the viewpoint, prevent additional cash flow from developing the TAPI project.