BACKGROUND: We should remember that the creation of a Russian-dominated gas cartel spanning all of Central Asia, and especially Turkmenistan, has been a major priority of the Putin regime since 2002. Russia aims to keep Central Asian energy in general and especially gas off the world market and confined to those pipelines which Russia controls so that Russia can divert that energy into cheaper Russian markets while reserving contracts at world prices for its customers. By doing so Gazprom preserves its monopoly, avoids high taxes based on low domestic profit margins, and dominates gas exports to Europe free from Central Asian competition while Russian consumers can keep relying on cheap subsidized energy and Central Asian gas regimes remain dependent on Russia. At the same time Central Asian suppliers are essentially cheated and kept in a state of perpetual neo-colonial dependence upon Moscow. However, thanks to the crisis with Ukraine, Turkmenistan has decided that it is not going to settle for selling to Moscow below market prices of gas and thus subsidize Russian monopoly and consumers. Instead, President Sapirmurad Niyazov has announced that he intends to raise the price for gas from $65/1000bcm to $100/1000bcm. This move will obviously undermine the existing deal between Russia and Ukraine, which in any case was under enormous political pressure in Kyiv, and again introduce instability into CIS gas relations. But its consequences go beyond these factors. In 2003 Russia negotiated an incredibly one-sided deal with Ashgabat. At the time, it stated that it would buy up to 6bcm of Turkmen gas by 2004, 10bcm by 2006 and by 2009, 80bcm. Russia received a quite unbelievable price for its purchases, namely $44 per 1000bcm of gas of which $22 would be paid in supplies of Russian goods and technology. This deal rendered Turkmenistan wholly dependent on Russian gas pipelines and purchases at ridiculously low prices far below world market standards. Thus this deal greatly facilitated Russia\'s pursuit of its larger objective of a gas cartel under its leadership embracing all of Central Asia. By 2004 this deal also revealed that the Gazprom offshoot RosUkrEnergoprom, a joint venture among Gazprom, Austria’s Raffeisen Bank, and unnamed Ukrainian and Russian stockholders would replace the criminally led firm Trans-Ural that was originally supposed to buy Turkmen gas and transport it to Ukraine, further reinforcing Russia\'s monopoly on Turkmen gas. However, this fact did not introduce greater legality or transparency into the equation. RosUkrEnergoProm has been called a criminal enterprise by then Prime Minister Yulia Tymoshenko of Ukraine in 2005 and is under investigation by the FBI, so its bona fides are open to considerable question. Meanwhile, Moscow had also made deals in 2005 with all the other Central Asian gas producers to complete its cartel. As the American forecasting firm, www.stratfor.com observed, the upshot of this was that Gazprom – and by extension the Kremlin – now owns all of that gas. Any state wishing to use Central Asian gas in order to get energy independence from Russia is now out of luck. This is particularly worrisome for states such as Ukraine and the Baltic states who now have no reasonable alternative to Russian based natural gas.

IMPLICATIONS: Russia has been bandying the threat of sharply higher energy prices around for years. Now it has finally taken the concrete step necessary to make that an arbitrary reality. However on November 30, 2005, Niyazov announced his intention to renegotiate the contract with Moscow, calling it ‘a mere political document’ that specifies neither prices nor volumes. Therefore ‘the Russians will come here to negotiate with us’. This followed an earlier announcement that Turkmenistan would raise all export prices for every customer to $60 per 1000cm, greatly increasing Russia\'s payments and threatening its control over both Turkmenistan and Ukraine. In December Niyazov and Ukrainian President Viktor Yushchenko announced that Ukraine would buy 40bcm at $50 per 1000cm beginning in January, 2006, a deal that undercut Russia\'s monopoly on Turkmen and Ukrainian gas and raised the price well above the $44 per 1000cm that Russia was paying Ashgabat. While Moscow had been stalling throughout 2005 in the negotiations with Kyiv to force it to surrender to Moscow both its political independence and gas transit system, Niyazov’s announcement may have prompted Russia to act decisively and quickly to head off Ukraine\'s and Turkmenistan.s resistance and visible collusion to avoid exclusive dependence upon Moscow. This may be one reason for the advent of the crisis when Moscow shut off pipelines to Ukraine on January 1, 2006. It may also be a reason for other actions of Gazprom connected with the Ukrainian crisis. Just before that crisis broke, Gazprom bought 30bcm in 2006 at $65 per 1000cm, clearly a move to forestall Ukraine\'s ability to obtain Turkmen gas and to retain Russia’s monopoly over virtually all of Turkmenistan’s gas production in 2006 at still low prices. All these moves do show, however, a growing awareness in Turkmenistan of its ability to charge and receive higher prices for its energy now that both Kyiv and Moscow were knocking at its door. Once the crisis began, all attention was riveted on Moscow and Kyiv and when a settlement was reached on January 4 the role of RosUkrEnergoProm and the importance of Turkmenistan faded from view. This firm will be the middleman for Ukrainian purchases of gas from Russia and Central Asia. While Gazprom will sell it gas at $230 per 1000cm, Ukraine will buy it from RosUkrEnergoProm at $95 per 1000cm. On the face of it, it looks like Gazprom loses quite a bit here, but when one considers that Gazprom and shadowy Russian and Ukrainian elements control this company, that original conclusion becomes shaky. Moreover, it appeared that Russia and Ukraine had made a deal at Turkmenistan’s expense. Turkmenistan loses out. Graham Weale of the London based Global Insight think tank observed that in the long run, on the basis of a preliminary assessment of the deal, it appears that Ukraine will only be paying Turkmenistan $30 per 1000bcm, a price that is obviously unsustainable and which would bring Turkmenistan back into Moscow’s clutches. Moreover, by transferring control over all exports to Ukraine from Central Asia, i.e. from Turkmen, Kazakh and other gas firms, to a single firm dominated by Gazprom and its cronies, Moscow retained its prized control over Turkmen and Central Asian gas at below market prices which it can still use to accomplish the same goals listed above. Thus at the end of the day, Turkmenistan’s gas exports still depended on shadowy connections between organized crime, corrupt Ukrainian, and Russian energy and political figures, Gazprom and the Russian government. Even if Ukraine\'s claims of receiving 34bcm at $95 per 1000cm from Turkmenistan in 2006 are true and Turkmenistan receives its $60 per 1000bcm from RosUkrEnergoProm, it still is utterly dependent upon an enterprise of the Russian government with alleged ties to organized crime and has no independent means of selling its gas to Ukraine or elsewhere for that matter. So it is not surprising that Turkmenistan has now begun negotiating with china to sell it natural gas, thus creating the possibility of another customer who wants its product and who can serve as a kind of bidding rival to Moscow. While Russia still tries to preserve its gas monopoly over Central Asia so that neither Turkmenistan nor any other exporter can deal directly with Ukraine but must go through Gazprom or its subsidiary RosUkrEnergoProm; Turkmenistan is now trying to demand a more reasonable price and seek alternative customers. If Russia were to succeed, of course, all the gas that goes through Russia and Ukraine to Europe also will be controlled by that firm and its masters in Moscow. So if one motive for precipitating this crisis with Ukraine was to forestall Central Asian gas independence and direct ties to Ukraine, that objective has been called into question even as the deal with Ukraine and Russo-Ukrainian relations are unraveling.

CONCLUSIONS: The Central Asian gas producers’ struggles for more independence and visibility on world markets has direct consequences for members of the CIS and beyond. As long as Russia can maintain its gas cartel, Ukraine remains at risk for gas supplies along with European consumers who depend on the pipeline through Ukraine. But Central Asian producers also suffer greatly form their ensuing inability to sell abroad on the open market. This crisis is still continuing as tensions between Russia and Ukraine grow. But Turkmenistan’s move to raise prices will further affect those strained ties and may strain its ties to Moscow and Kyiv. Inasmuch as Niyazov is a notoriously autocratic and unstable negotiator, his unilateral moves might have repercussions beyond Central Asia. But what his autocratic decisions also shows is that Russia remains a highly unstable and unpredictable gas supplier in its own right. This fact undoubtedly will have implications abroad that go beyond whatever Turkmenistan decides and can implement on its own.

AUTHOR’S BIO: Professor Stephen Blank, Strategic Studies Institute, U.S. Army War College, Carlisle Barracks, PA 17013. The views expressed here do not represent those of the U.S. Army, Defense Department, or the U.S. Government.