Russia’s Capture of Central Asian Energy

Russian Energy Vladimir Putin and Turkmenistan President Gurbanguly Berdymukhammedov together for the groundbreaking ceremony for the Alexander Pushkin Russian-Turkmen School. Here Putin decides in which direction the cement (and natural gas) will flow. (Photo by Sergey Guneev)

Coordination of competing energy suppliers is a key aspect of Russia’s strategy to maintain and build upon its dominant position as an energy empire vis-à-vis Europe. No where is this more apparent than its stranglehold on Central Asia’s export routes for its vast energy supplies, which, if at once unleashed in free and fair competition with Russia, would arguably reduce Moscow’s ability to deploy the energy weapon as a foreign policy tool, and would significantly increase energy security not only for Europe, but also for China. Despite the high stakes and a demonstrated awareness of the region’s importance from both the EU and the United States, Russia has so far managed to outmaneuver the West with its energy diplomacy in Central Asia. But a number of recent events show that their grip may be slipping. The results from Vladimir Putin’s trip to Central Asia this week have been the following: Kazakhstan’s president called for a an expansion of the Caspian Pipeline Consortium’s (CPC) oil pipeline to Black Sea, the new president of Turkmenistan reiterated his loyalty to Russia, and agreed to the joint construction of a new gas pipeline along the Caspian coast, and Uzbekistan made a deal with China National Petroleum Corp. (CNPC) to build a gas pipeline. And most recently, the presidents of Poland, Ukraine, Lithuania, Georgia and Azerbaijan (and a personal envoy from Kazakhstan) agreed at a meeting in Krakow on a project to build an oil pipeline bypassing Russia. Btc_pipeline_route.png The United States and Europe want Central Asia’s energy to cross the Caspian to Baku, out of Russia’s political reach – the Russians are prepared to make concessions elsewhere to prevent that The Caspian Challenge At first glance it may seem as though Russia’s dominion over Central Asia is beginning to crack. Not so fast. The Uzbek pipeline will definitely create some undesired competition between Russia and China, but Russia still views Asia as a secondary consumer to Europe. The proposal to expand the CPC, which is majority owned by Chevron and is the only majority privately owned pipeline passing through Russian territory, may seem at first glance like a setback, but indeed Kommersant has scooped a hugely important angle that Kazakhstan is pushing the CPC expansion in exchange for giving up on the Caspian route – which would be a huge blow to Western interests:

It follows from comments made by the Russian side that Russia is offering Kazakhstan the opposite choice – an increase in oil shipments to the EU through Russia. Putin made exactly the same proposal to Nazarbaev concerning gas from the Prikaspiiskoe deposit. In April of this year, during his visit to Moscow, new President of Turkmenistan Gurbanguly Berdymukhammedov proposed that Russia participate in the Transcaspian gas pipeline, an alternative to the Prikaspiisky. There is a principle difference between the two. The Prikaspiisky pipeline, which does not cross the Caspian Sea, would connect to Gazprom export pipelines, while the Transcaspian, which crosses the Caspian but not Russia, would connect to the Baku-Tbilisi-Erzurum line. … Al things considered, the compromise between Russia and Kazakhstan will be for Russia to give in to oil issues and Kazakhstan in gas. But Turkmenistan has to be included in that formula. Berdymukhammedov may let his views be known about how and how much Russia should pay for Turkmenistan not to participate in projects that are unprofitable for Gazprom. The solution to that problem may come today at the summit of CIS and Eastern European leaders in Warsaw. An agreement among Russia, Kazakhstan and Turkmenistan on oil and gas is unprofitable for that group as a whole.

Controlling Turkmenistan’s energy flows is perhaps even more important for Russia than the Kazakhstan and Uzbekistan issues. Turkmenistan has gas reserves of 2.9 trillion cubic metres, according to the BP annual statistical review of world energy. Annual exports are about 60 billion cubic metres. Following the death of the flamboyantly corrupt “Turkenbashi”, Saparmurat Niyazov, near the end of last year, a brief window of opportunity was opened up for Europe to gain direct access to Turkmen gas. However, in the charm offensive, it seems that Russia is for now winning the battle, and will continue to purchase all of Turkmenistan’s gas to ensure that Europe remains dependent on Gazprom. From ISN:

Turkmenistan’s recent commitment to expand energy cooperation with Russia could significantly strengthen Moscow’s position in the struggle for control over Central Asia’s natural resources. Moreover, Russia hopes to negotiate construction of a new pipeline that would carry gas from Turkmenistan into Europe across Russian territory. Undoubtedly, such a deal would cement Moscow’s regional energy supply dominance and deal another blow to Washington’s ongoing attempts to circumvent it. Washington would like to see Turkmen gas delivered through a pipeline across the Caspian Sea to the west, tapping into the gas pipelines that cross the South Caucasus and bypass Russia. That would meet a US and European strategy of securing sources of crude and gas outside the Middle East, and drawing Caspian states away from Russia and closer to the West.

So how is it that Russia is consistently able to outflank Europe and other consumer countries in redirecting Central Asia’s energy flows? For one, there are very clear and sensible security concerns given their geographic position – just ask Georgia how much it costs to not follow Moscow’s orders. Two, Russia is seemingly willing to throw in a lot of quid pro quo infrastructure investments, and also has the advantage of leveraging pressure on countries by offering the tantalizing assistance of nuclear power development through state agencies Rosatom and Atomstroiexport (they just closed a deal for a uranium enrichment center in Kazakhstan – which should help push along Gazprom’s deals). Analysts too often fail to connect the dots and see that nuclear power assistance is just yet another arm of Russian energy imperialism. But perhaps the most compelling motivation for Central Asian leaders to go with the Russians is their tolerance for corruption (see the detailed report by Global Witness on Turkmenistan’s corruption in the energy industry). If we are talking about rational decision making, the smart long-term move for these countries would be to diversify their energy infrastructure, and send oil and gas out to as many sources as possible. After all, why wouldn’t they want more customers for their energy resources? But most of these leaders are only concerned with the short term, and often seek to exploit the resources for personal gain. They also likely fear that close collaboration with the West on energy could come with strings attached, requiring them to loosen their grip on power, respect human rights, and improve social policies. With Russia, they can rest assured the democratic reforms would never be requested, and may in fact be actively discouraged (Estonian President Ilves recently remarked that Russia feels threatened by democracy even at its borders).