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Dimitris Symeonidis
07.03.2022
Independent energy policy and geopolitical risk analyst (The Hague, Netherlands)
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A new Berdymukhamedov in town? Potential impacts of the transition of power for the geopolitical chessboard of the energy sector

“Ankara and Moscow are constantly engaging in a competition on the energy sector (and not only) of the Caucasus and Central Asia and it will be of great importance to encounter a balance between the two global powers for the president in wait”, – how Serdar Berdimuhamedov’s coming to power will affect the energy sector, writes analyst Dimitris Simeonidis, exclusively for CABAR.asia

On 11 February, Turkmen President Gurbanguly Berdymukhamedov hinted towards his plans to resign, which led elections officials to announce presidential elections on March 12 and to nominate the president’s son, Serdar, as the first candidate. This can hardly come as a surprise, as the president’s heir had previously assumed positions as deputy PM, but also as member of the State Security Council and chair of the Supreme Control Chamber. This raised speculations to the point that virtually all analysts were prompting him as the next president of Turkmenistan. Political shifts in the Central Asian states are not frequent and, considering it is a major energy powerhouse and a neutral state in a region of enormous energy significance, numerous questions are raised regarding how this specific shift might affect the energy landscape. The first questions that ought to be answered, nonetheless, is how each global player will be affected by this transition. Based on observations, insightful conclusions were made.

The effects of the Russian invasion on Ukraine

On 24 February, Russia launched a full-scale military attack on Ukraine after the escalation of the already tense relations that succeeded the annexation of Crimea in 2014. This is projected to bring changes on several sectors, among which the energy landscape, in both Central Asia and South Caucasus and Turkmenistan is no exception here. From a military perspective, Ashgabat prides on its neutrality status and that is not projected to change. Reflecting on the consequences that a pro-western stance of Ukraine had for it, Serdar Berdymukhamedov will not pursue partnership with NATO. On the energy sector, Russian state-controlled companies are expected to face major financial issues because of the numerous sanctions that have been rolled out against Moscow. This will make the role of Moscow as financial guarantor of TAPI or the Trans-Caspian pipeline very difficult to live up to. In this new geopolitical chessboard that unfolds, a new opportunity for Ankara might emerge, as Turkey is still cooperating in virtually all sectors with Turkmenistan. President Erdogan might see this as a great chance for further integration of all Turkic nations under the Turkic Council and Serdar Berdymukhamedov will probably see that, at least for now, it is the best chance he gets for a stable partnership.

Geopolitical winners and losers

Serdar Berdymukhamedov is the clear favourite for the presidency of Turkmenistan and that is a good enough reason for optimism in Moscow. More specifically, straight after his promotion to deputy PM in February 2021, the president’s son scheduled all his primary visits to Moscow, where he attended the ministerial meeting for the Commonwealth of Independent States on April 2, followed by the Eurasian Economic Union forum in April 30 and a business forum on May 23.

To the face of Serdar, the Kremlin sees an ally on the energy sector that will help it secure an even bigger portion of the world’s gas reserves and strengthen its position in the resource dependence index.
In addition, of equal importance is the fact that, with a potential Moscow-Ashgabat alliance, Russia will gain full security guarantor status in a region of great importance for the energy transition. Central Asia is rich in rare earth metals, as well as space for deployment of renewables. It is also neighbouring one of the most resource-rich countries when it comes to the aforementioned metals, such as Afghanistan, which is characterized by full political instability and is in need of security partners in the neighbourhood.

Another potential winner could be the United Arab Emirates.
On July 19 2021, the Turkmen president signed an agreement for a 10MW hybrid solar-wind park near the Altyn Asyr lake of the Balkan region, under the Abu Dhabi Development Fund (ADDF) financing scheme. What is more striking is that this agreement, together with a series of agreements that included a 15-year loan, was negotiated by the president’s son and presumably next Turkmen president. The Emirati leadership has depicted its willingness to pursue renewable energy projects in Central Asia, as it was UAE’s Masdar again who won the bid to build two solar PV projects of 220MW in the Jizzakh and Samarkand regions of Uzbekistan. Reflecting on the significantly ameliorating UAE-Turkmen relations that are expected to grow even closer, there are serious grounds to assume that the Emirati will exploit the enormous technical solar potential of the Karakum desert and other Turkmen “solar goldmines”.

For Beijing, there might be two sides in this coin.
Under Gurbanguly Berdymukhamedov, China became the biggest export partner for Turkmenistan, benefiting from cheap gas to fuel its galloping development. Considering that finalization of Line D, which will increase gas output from the Galkynysh gas field to China is still under discussion and the financial part is yet to be agreed upon, there is a slight chance that resuming negotiations with a fresh face might not yield the same outcome. On the other hand, if Moscow assumes the role of the main strategic partner of Ashgabat, combined with the joint agreement between Vladimir Putin and Xi Jinping on February 4, it might encompass a three-party collaboration on energy in the region, which increases the available funds and technology. This, in turn, might entail further exploitation of the untapped Turkmen gas reserves, such as the ones in the Galkynysh gas field (the presumably richest gas field in the world) in the Mary province, as well as the Malai gas field in the Lebap province.

A change in Turkmen leadership will not necessarily yield the desired outcome for Turkey. The end of 2021 saw the Central Asian state join the Turkic Council as an observer, something that has been Ankara’s wish for years. President Recep Tayyip Erdogan sees numerous benefits from cooperation with Ashgabat, primarily in the energy sector. The approach seemed to be similar from President Gurbanguly Berdymukhamedov. This was expressed through, initially agreeing, on a broader context, for the construction of the Trans-Caspian pipeline. This agreement was translated to a signing of eight in total cooperation agreements. These agreements encompassed cooperation on new transit corridors through the port town of Turkmenbashi, which is strongly connected to the energy sector. In addition, agreements on broader collaboration to create new energy supply routes for the international markets was reached. Another very encouraging fact was that the trade targets for the two countries, estimated at $5bln, were achieved in 2021. During the bulk of these agreements and statements, Serdar Berdymukhamedov was not present. This creates serious grounds to doubt that the continuation of the Turkey-Turkmenistan collaboration will not be as fruitful.

Impact for the energy landscape

Energy prices

The transition of power in Turkmenistan is coming amidst an enormous ongoing energy crisis in Europe. One of the lessons learnt in the aforementioned crisis is that exaggerated energy supply dependence can lead to frequent price spikes, especially during the energy transition. This can be an insightful indicator for a future where Russian companies take control of gas projects in Turkmenistan. Controlling the vast majority of gas reserves in the Eurasian region can lead to even higher prices, both in the European and the Chinese markets. It will be even more challenging for these markets to find ways to diversify their supply.

Concerning price volatility, in a scenario where Russian companies become responsible for the energy project deployment within the country, considering the fact that they are notorious for their long-term gas contracts at fixed prices, there is a high chance that this will reduce price uncertainty. This would be very welcoming both in Europe and in China, where the affects of the energy transition and of climate change are pointing towards increased price volatility over the coming years.

The Trans Caspian and the TAPI pipelines

What could be considered good news concern the pipeline projects in Central Asia.

The Trans-Caspian pipeline is a project that aims to transfer 30bln cubic meters from Turkmenbashi to Baku, Azerbaijan. Despite the high ambitions, the project has been on hold, presumably over high costs of creating the delivery chain, but also processing the gas, given the fact that Turkmen gas is high in sulfur. In addition, estimations in the beginning of the pandemic showed that this gas brought to Europe would not be price competitive. However, increasing interest by Russian energy giant Lukoil at the end of 2021 brought a sign of hope. Initially on October 7, 2021 the company increased its share in the Shah Deniz field of the Caspian Sea, which was followed by a round of discussions between the head of the Lukoil oil sector and Ashgabat. The timing now is great in order to convert the Trans Caspian dream into a reality. This, on the long term, could be benefiting for Turkey as well, as it will be able to provide more gas to Europe through the Southern Gas Corridor(provided the TSC connects with the SGC), increasing leverage over the EU. This is very much needed especially during the past years that saw the EU-Turkey relations being challenged.

The Turkmenistan Afghanistan Pakistan India (TAPI) pipeline is another hot potato in the region. The project that promises to transfer 33bln cubic meters passing from Herat to Kandahar, Quetta and Multan has been halted for primarily two reasons. The first one concerns the instability that exists in Afghanistan, whereas the second one has to do with the financing of the project. For the completion of the project at least $10bln will be needed, which is very challenging to obtain, as so far only $1bln was managed to be raised. The recent claims of Russia’s ambassador to Afghanistan, Zamir Kabulov, that the project seems very attractive, have been highly encouraging, and combined with the ascension of a favourable to Moscow person in charge of Turkmenistan might weigh in favour of the project and bring the necessary funding from the Kremlin for its completion. Involvement of Russian capital instead of Chinese could be translated to less geopolitical friction, as the Indo-Chinese relations have faced some serious challenges over the last year.

The curious case of clean energy in Turkmenistan

It has already been mentioned that Turkmenistan is a land of vast renewable potential, with the Karakum desert being considered a “paradise” for solar energy and the Balkan district to have enormous potential for green energy. It might not be a coincidence that the first agreement for a hybrid wind-solar park in Turkmenistan came during negotiations of Serdar Berdymukhamedov with the Abu Dhabi Development Fund, along with negotiations in receiving line of credit. The fact that the president’s son engaged in these specific negotiations could be a hint towards a more diverse set of energy policies for the future, as well as towards a more diverse set of funding partners and geopolitical alliances. With the appropriate technological and regulatory advances, Ashgabat has great potential for renewable energy and it will be interesting to see how this will unfold.

Rare earth metals

Another topic closely related to clean energy is the case of the rare earth elements and the materials needed for the energy transition. Neighboring Afghanistan is estimated to hold up to 1.4million tons of rare earth metal reserves and hence it is paramount to tap on these resources in order to accelerate the energy transition and combat climate change. It is also very significant in a geopolitical manner to assume control of these resources. The Turkmen reserves are practically unknown, since there has been a lack of interest from Ashgabat to support the energy transition. However, given the geological landscape of the region and the two countries’ proximity, there are grounds to presume that Turkmenistan is sitting on top of a good amount of such reserves. Serdar, if he decides to modernize the Turkmen energy policy, might end up formulating a very different geopolitical landscape in the region by adding another source of these very much needed metals.

Conclusion

Usually, political transitions and transfers of power are intense processes that might entail disruptive events in some states. However, this does not seem to be the case for Turkmenistan, as the overall geopolitical landscape, including the energy landscape, is not expected to change significantly. The main alterations in policy that might be observed are, primarily, a shift closer to Moscow, and secondarily an inclusion of the UAE in the country’s energy strategy. This is not expected to have major geopolitical implications, as Russia stands to lose a lot from potential instability in the region. It will be very interesting to monitor how Serdar Berdymukhamedov might approach the Central Asian state’s relations with Turkey, after growing very close during the course of 2021. Ankara and Moscow are constantly engaging in a competition on the energy sector (and not only) of the Caucasus and Central Asia and it will be of great importance to encounter a balance between the two global powers for the president in wait. Equally important will be, for regional energy security, the agenda of the current deputy PM towards the regional energy projects and the modernization of the energy sector in general. The fact that Serdar is significantly younger and that his advisory staff might be as well, there is hope towards that direction, so that he and his team find ways to make the aforementioned projects more attractive to investment and to bring in new ideas about the country’s energy policy. Finally, efforts should be made not only to preserve, but to expand cooperation with Beijing, as it can prove to be a very valuable partner for sectors other than energy, such as agriculture. China can assist in modernizing that sector as well and even linking it with the energy sector, with a great example being biomass to energy production.

The first meetings of the new president will be crucial, as they will hint towards his overall foreign affairs approach, but also to his approach on the energy sector. It will be paramount to examine them carefully to better understand the future trajectory of Turkmenistan.

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Dimitris Symeonidis
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