East and West Scramble for Turkmenistan's Riches

President Gurbanguly Berdymukhamedov

Photo: Dmitry Kstuyukov AFP/Getty

Friday, Nov. 20, 2009
East and West Scramble for Turkmenistan's Riches
By Simon Shuster / Ashgabat

At the crossroads between east and west in the desert nation of Turkmenistan, a quiet battle is under way for natural gas, oil and influence, and the U.S. and Europe are losing out to China and the Muslim world. There's a lot at stake: the Central Asian country has the world's fourth-largest reserves of natural gas and substantial oil reserves, putting it in the same energy league as Saudi Arabia, Russia and Iraq. Plus, its position just north of Afghanistan could be hugely beneficial to NATO as it seeks more reliable supply routes to its troops on the ground there. But the West isn't being welcomed with open arms. "They just don't understand us," one businessman tells TIME in the capital, Ashgabat.

Turkmenistan is open for business like never before. After falling out with its close ally Russia earlier this year, the country has taken unprecedented steps to encourage foreign investment. Last month, the government hosted a landmark investment conference in Ashgabat, inviting hundreds of representatives from oil, gas and other companies to meet with government officials to discuss possible business ventures. It was also the first time in a decade that foreign journalists were permitted to travel freely in the country. (See pictures of Russia celebrating Victory Day.)

All of this would have been unthinkable just a few years ago. After the collapse of the Soviet Union, Turkmenistan became one of the most closed-off places in the world under the helm of Saparmurat Niyazov, who christened himself Turkmenbashi, leader of all Turkmen, and fostered a bizarre personality cult in the country. During his 16-year reign, he renamed the months after himself and his mother, required that all children read his philosophical tome Ruhnama and filled the country with impressive golden statues of himself. Economically, mostly Muslim Turkmenistan remained heavily dependent on its gas sales to Russia, its main source of income.

But the special relationship between Turkmenistan and Russia unraveled in April when a natural gas pipeline suddenly exploded. Earlier in the year, the price of gas in Europe dropped sharply, making it no longer profitable for Russia to buy fuel in Turkmenistan and resell it to Europe. Then, mysteriously, the pipeline that delivers gas from Turkmenistan to Russia blew up. Turkmen officials blamed Russia, claiming it had shut the valve on its end, causing pressure to build up and the pipeline to burst, in order to avoid honoring its gas contracts. Moscow strongly denied responsibility. The cost to Turkmenistan in lost gas revenues has been a staggering $1 billion per month. (Read: "Europe Tries to Break Its Russian Gas Habit.")

For the rest of the world, the dispute presented a golden opportunity. The Middle East didn't waste time, stepping in with loans and development projects — or as one Western observer put it, "a rain of dollars." In June, the Islamic Development Bank — a lender in which Saudi Arabia, Libya and Iran hold the three largest stakes — agreed to build a railroad connecting Turkmenistan and Iran, the first direct rail link between the Islamic Republic and Central Asia. "As of today, our relations with the Islamic bank have really been activated," Tuvakmammed Japarov, the country's deputy prime minister for the economy, tells TIME. In December, he adds, Turkmenistan will meet with other Arab funding institutions "to discuss a range of other projects."

Iran has also stepped in to fill Russia's shoes as a natural gas middleman. A new gas pipeline connecting Iran and Turkmenistan is expected to open in December, nearly doubling the gas trade between the countries to 700 billion cubic feet a year. Because Iran already has one of the world's largest gas reserves, most of the imported Turkmen gas would be resold for profit. Not to be outdone, China signed a 30-year deal with Turkmenistan in June to buy up to 1.1 trillion cubic feet of Turkmen gas annually, starting in 2011. Work is expected to be completed on a 4,300-mile-long pipeline connecting Turkmenistan and western China in December. ("How Badly Would Sanctions on Gas Imports Hurt Iran?")

Meanwhile, the West finds itself standing on the sidelines. Since 2002, U.S. officials have tried to secure the right to truck food and other supplies from Europe to its troops in Afghanistan via Russia and Turkmenistan, but have been consistently rebuffed. The U.S. has only been given permission to fly humanitarian supplies through Turkmen airspace — but no military hardware. Earlier this year, Gen. David Petreaus, chief of the U.S. Central Command, met with Gurbanguly Berdymukhamedov, who became Turkmenistan's new President when Niyazov died in 2006, but was unable to persuade him to open his country even a crack to the U.S. military.

Europe has also had its eyes on Turkmenistan's gas as a way of lessening its dependence on Russian fuel. But a plan by several European countries to build a natural gas pipeline through southeastern Europe and Turkey has been delayed for years by wrangling over financing and the route. The Nabucco pipeline, as it's known, will eventually link up with another planned pipeline connecting Turkmenistan and Azerbaijan beneath the Caspian Sea. But, at the current pace, construction may not be completed for years. (Read: "Why Europe Can't Abandon Russian Gas.")

The West has other problems to contend with, too. At the October investment conference in Ashgabat, several businessmen said a major obstacle was the fact the Turkmen have little time for Western values of democracy and free-market economics. Berdymukhamedov's regime is one of the most dictatorial in the world, keeping tight reins on the media and political opposition and allowing only the barest beginnings of private enterprise. "The reaction to our proposals is always, 'Thanks but no thanks,'" says one Western diplomat, who requested anonymity for fear of hurting his operations in the country. "It comes down to trust, and this is not a society that is used to having discussions around a table." Another Western official compares Turkmenistan to tightly controlled, oil-rich Kuwait. "They don't need our money, and they don't want us meddling here," the official says.

But given how much natural gas and oil Turkmenistan has under its desert sands, the U.S. and Europe look determined to keep trying to get a foot in the door. Just how they can achieve this in a crowded marketplace — and without a warmer welcome from the wary Turkmen — remains to be seen.
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