December 31, 2016
Turkmenistan has managed to avert the loss of one of its only two buyers of natural gas with some desperate, last-gasp negotiations.
Iran’s Mehr news agency reported on December 30 that Turkmenistan has signed a new gas deal despite demands from Ashgabat for Tehran to pay $1.8 billion in alleged unpaid arrears for historic gas deliveries.
Negotiations went right down to the wire, as Mehr news agency revealed.
“Due to Turkmens’ persistence on [threatening] to cut gas exports to Iran over claims of a $2 billion debt, the Iranian delegation left the negotiating table to return home. At the airport, Turkmenistan’s officials persuaded the Iranian delegation to come back to the negotiating table in hopes for reaching an agreement on gas delivery to Iran,” the news agency reported.
In the run-up to the agreement, a senior official with the National Iranian Gas Company (NIGC) signaled that Tehran was willing to adopt an intransigent position over the matter, leaving Turkmenistan with few options ahead of a Saturday deadline.
ILNA news agency cited senior NIGC representative Saeed Momeni as saying that Turkmenistan only provides three percent of Iran’s gas needs and that the shortfall could be addressed by drawing in internal resources if necessary. Iran has substantial gas reserves of its own, but has relied on Turkmenistan to supply areas in the north not connected to the national pipeline grid.
Turkmenistan is seeking payment for $1.8 billion it say it is owed for fuel it supplied in the cold winter of 2007-2008. Iran’s state-run Press TV claims Turkmenistan exploited that cold snap to demand an eye-watering increase in the price of its gas to $360 per 1,000 cubic meters of gas, up from the previous $40.
Provided this is even an accurate account of events, the inference is that Tehran agreed to this tariff, so it is not immediately obvious what grounds it later found for reneging on payments. Turkmenistan never officially reveals the details of its gas supply deals.
It is not clear where this new deal leaves the countries over the disagreement on that unpaid debt.
Iran’s Mehr news agency cited an unnamed official as saying that the deliveries of gas could have stopped as soon as December 31, when the current sales agreement expires.
“If the two sides do not reach an agreement today, Turkmenistan will likely stop gas delivery to Iran from Saturday,” the official was cited as saying.
Privately run Azerbaijan news agency Trend reported earlier this month that from in the year-long period running up to March 2016 (which is when the Persian New Year was marked), Iran imported 9 billion cubic meters of gas from Turkmenistan, a twofold increase on the year before. But import volumes have been dropping since.
As Trend noted, citing its interview in August with Iran’s Deputy Oil Minister for International Affairs Amir Hossein Zamaninia, Tehran accepts that it is in debt to Turkmenistan. Zamaninia estimated that the size of the amount due might be between $600 million and $1.5 billion, but that the definitive sum was subject to further negotiations.
ILNA has reported that a top NIGC official is in Ashgabat ahead of the New Year to discuss possible solutions to the impasse.
This may be seasonal hardball gameplay on Iran’s part as it tries to negotiate lower prices for Turkmenistan’s gas. Tehran was threatening a similar outcome in 2014, when Oil Minister Bijan Namdar Zanganeh announced Iran no longer needed Turkmen gas since it was upping domestic production.
But things have got even more grievous for Turkmenistan since those days. Russia’s Gazprom backed out a gas supply agreement with Ashgabat earlier this year, leaving just China and Iran as buyers for Turkmen fuel.
If reports are to be believed, China buys its gas from Turkmenistan at highly advantageous rates, so even this arrangement is far from lucrative to Ashgabat.
This all represents a spectacular failure of Turkmenistan’s abilities to negotiate favorable terms and ensure a diverse client base. The results are clear to see in what seems, from the little information that is trickling out of the country, to be an economic crisis unlike anything seen since the early years of independence. Countless reports of scarcity of numerous basic goods in the stores has prompted the Russian edition of Forbes to remark in one recent piece that Turkmenistan has gone from promising to turn into a second Kuwait to becoming a new Venezuela.