Iran’s Turn on Turkmenistan’s Gas Dispute Carousel

Iranian Oil Minister Rostam Qasemi announced November 14 that Turkmenistan had halted gas exports to its southern neighbor over a price dispute. Shortly thereafter, a Turkmen official told Reuters there is no price dispute, but that pipeline repairs are to blame for the gas cut.
For now, the gas is back on, Reuters reports, citing a Turkmen official who said Iran requested repairs to the pipeline. But the episode – complete with contradicting reports from the two sides – looked familiar, and suggested a few possible scenarios.
First, Iran has been struggling with balance of payments problems as international sanctions designed to end its nuclear program have crushed its banking system and stifled foreign trade. It is not unlikely that Tehran is struggling to make hard currency payments for the gas, asked for a discount, and Ashgabat started playing hardball.
Second, Iran relies on imports of Turkmen gas to supply its northern regions, particularly in winter, which helps free up excess capacity for its downstream sales to Armenia and Turkey. If Iran can’t make these margins work, it is likely to want to halt purchases.
Third, Ashgabat may be trying to push up Iran’s purchase prices. Turkmen President Gurbanguly Berdymukhamedov seems to think each of his gas clients — Russia, Iran, and China — should pay as much as anyone else is willing to pay.
Considering that Turkmenistan cut exports to Iran in 2008 over prices, and again in early 2012ostensibly over cold weather, Qasemi’s initial claim that Turkmenistan cut supplies seems credible.
Turkmenistan has gotten in the habit of engaging in mutually destructive price wars with its buyers. The most infamous row was the sudden cut in exports to Russia in 2009, leading to a pressure buildup and pipeline explosion for which the two sides blamed each other. Whoever was to blame, Turkmenistan did not get the better of the dispute and ended up exporting a third of its former total to Russia, at a significantly lower price.
When Turkmenistan built and opened a new line to Iran in early 2010, it expanded export capacity to there from 8 to 20 billion cubic meters (bcm). The idea was to replace export revenues lost in the fallout with Russia. But most reports suggest Turkmenistan has not sold much of its 50-bcm pipeline capacity to Russia since then, nor its 20-bcm capacity to Iran. Still, Iran’s an important customer, buying approximately a third of Turkmen exports, according to the Reuters report.
If Ashgabat is playing hardball, it has chosen the right moment. Certainly Tehran would be loathe to allow heating cuts during the winter, when its populace is already restless over economic chaos, and would prefer not to spoil relations with one of its few remaining economic partners.
Turkmenistan’s gas export revenues, on which its entire economy depends, are likely lower than they have been in years, as their three buyers are all purchasing well below pipeline capacity (and China’s purchases go to pay off its soft loan to the country). Ashgabat may be covered in marble, but it may also be short on cash.
If the shutoff was indeed for repairs, it would be because both sides have an interest in the status quo, and may be willing to pay a premium for it. That Turkmenistan’s newish pipelines would require repairs at the start of the high pumping season may be a separate cause for concern in Tehran altogether.

This article was originally published by EurasiaNet.