Why Iran and Turkmenistan need to solve their gas dispute amicably

Observer Research Foundation | SANKET SUDHIR KULKARNI: Since the last few months, Iran and Turkmenistan have got embroiled in a bitter dispute. The dispute had started brewing last year when Turkmenistan accused Iran of faltering on payments that Iran was obliged to pay for receiving natural gas from Turkmenistan. In turn, Turkmenistan decided to cut-off gas supplies to Iran.

Now, as reports suggest, the two countries have decided to move an arbitration court to resolve the matter. It needs to be clearly understood that what seems like an isolated, bilateral dispute between two neighbouring countries, has a larger ramification for the future global energy trade. If not resolved amicably and the dispute graduates to another level, then it could affect countries such as India who envisage importing energy resources from Central Asia at some point of time in the future.

When seen from their respective positions, the stance adopted by both Iran and Turkmenistan against each other seems convincing. For a land-locked country such as Turkmenistan, natural gas is the only viable export commodity that leads to revenue generation. Traditionally, Turkmenistan exported its natural gas to Russia till 2016. But the energy trade came to a halt following a dispute over gas prices. It was accused that Russia purchased natural gas at lower rates from Turkmenistan to satiate its domestic demand and sell Russian produced gas to European Union countries at substantially higher rates. Turkmenistan then turned to energy-hungry China, with which it has a fully functioning gas pipeline supplying between 30-40 billion cubic meters of natural gas annually.

Iran, on its part, seems to be running into its own set of troubles. After painstaking negotiations, Iran and the US had reached some sort of an understanding over the former’s nuclear programme. Subsequently, Iran was looking forward to opening up its economy to foreign investments. However, the tide turned against Iran once again, when US President Donald Trump reintroduced sanctions against it, compounding Iran’s economic problems.

A perusal of compulsions on both sides provides a picture wherein it seems that both the countries are bound by their respective domestic economic compulsions. For an economy of the size of Turkmenistan, cutting off gas supplies to northern Iran perhaps seemed necessary, given the non-payment of dues by Iran. On its part, for Iran, given its economic challenges it has run into recently, the delay in payment seemed inevitable.

The decision of the two countries to take the matter at an arbitration court may yield a possible solution to the dispute. On the other hand, taking the dispute to the arbitration court also raises the possibility of creating more acrimony in the already embittered bilateral relationship. Second, taking disputes to an arbitration court or an independent third party works only if the parties to the dispute are willing to honour its verdict. For instance, in case of India and Bangladesh and Myanmar, the three countries were entangled in a maritime dispute. After the decision was given by the Permanent Court of Attribution at The Hague, India decided to honour the verdict.

Before the Iran–Turkmenistan bilateral atmosphere vitiates further, there is a need for both parties to recognise the problem and strive to resolve the matter in a mutually acceptable manner. For Turkmenistan, it is essential to diversify its gas exports to different regions in the world. TAPI provided a glimmer of hope, serving as an outlet for Turkmen gas to markets in the east. But the prevailing security situation in Pakistan and the strained India-Pakistan relations perhaps seems to have stalled the ambitious multi-billion dollar pipeline project.

The only alternative to TAPI gas pipeline was the International North-South Transport corridor (INSTC) proposed by India that envisaged connecting India with Central Asia and Russia via Iran. Reportedly, India has received a waiver from the US-sponsored sanctions to continue to pursue the development of the Chabahar port in Iran. Once functional, this corridor is capable of changing the geo-economic landscape of the whole region and particularly of the resource-rich Central Asian countries, which would then be able to export its energy resources hopefully via Chabahar to the rest of the world. The operationalisation of this corridor and Chabahar port in particular will be critical to Iran from the geo-economic perspective. If dedicated efforts are indeed made to develop Chabahar as an energy transit hub, the economic value of this port for Iran as well as to major stakeholders in global energy trade increases substantially. Unlike Pakistan, which was once being portrayed initially as the transit hub for natural resources from Central Asia to the rest of the world, as narrated in Ahmed Rashid’s book Taliban: The Power of Militant Islam in Afghanistan and Beyond, it now seems that Iran is better suited to play that role. For Iran, operationalisation of this corridor will fundamentally change its economic profile. The country will become a global trade transit hub, a sort of a confluence for trade between Central Asia and the rest of the world.

It is therefore important that both Iran and Turkmenistan bury their hatchet and come to a mutually acceptable solution to this ongoing gas dispute. If anything, the two parties can take cue from a recent example. After filing a lawsuit against Turkmenistan in the Arbitration court over a gas dispute, Russia decided to not pursue the matter and came at a mutually acceptable solution with Turkmenistan. Russia has recently offered to import gas from Turkmenistan yet again. It would perhaps make sense for both Iran and Turkmenistan to learn from this example.