Outlook for Turkmenistan as Eurasia’s Transport Hub

Turkmenistan’s ambitious project of a transport corridor to Turkey via Iran and Iraq fits logically into the national leadership’s chosen strategy of getting involved in international logistics projects. It should become part of the more ambitious East-West project to deliver Chinese freights to Europe.

Connecting Turkmenistan to new transportation and logistics projects will allow the Turkmen government to attract foreign investors and thus whip up domestic development and business activity. The creation of new jobs will generally revitalize the national economy. This is extremely important for Turkmenistan, given the negative consequences still observed in the nation after the recent major economic and food crises since independence had been acquired.

However, there are several factors likely to limit Turkmenistan’s full-scale integration into existing and future transport and logistics projects. First, given the persistently closed nature of the system, foreign investors will continue to invest in Turkmen projects in small increments. Moreover, if we talk about the modernization of infrastructure within the framework of the corridor to Turkey announced by Turkmenistan, and we should not expect impressive investments from the countries participating in the project. So far, only Russia has announced its willingness to invest in Turkmenistan in a big way.

Second, such ambitious projects presuppose the availability of developed transportation and transshipment infrastructure, but on the right bank of the Caspian Sea, including in Turkmenistan, there is a noticeable lag behind the similar infrastructure development on the opposite bank. This is also likely to encourage the industry to choose routes where infrastructure is either in place or will be built in a short period of time. The low level of trade turnover between the countries participating in the Turkmen initiative does not contribute to the accelerated upgrading of transport infrastructure either, while far from fundamentally increasing the project’s profitability.

By getting integrated into international transit corridors, Turkmenistan can become an important transport hub in Central Asia, boosting its political weight in the region. Besides, Turkmenistan’s neutral status allows it to maneuver between the interests of other conflicting industry players, which helps it stay out of the fray.

In May 2023, President Serdar Berdimuhamedov of Turkmenistan has announced the country’s readiness to launch an international transit corridor to Iran, Iraq and Turkey as part of the major East-West international transport corridor (ITC). According to the Turkmen leader, Turkmenistan, with its favorable geographical location, is turning into one of the hubs where regional transport routes meet. The country’s advantages include access to sea, improved railroad and other specialized infrastructure, enthusiastic policy to attract investment.

Background

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After the break-up of the Soviet Union, new players appeared on the map of Eurasia, which were actively involved by Western countries in their transportation and logistics projects bypassing Russia. Central Asia and South Caucasus were drawn in as potential participants of various logistics projects in the sphere of energy supplies to Europe, while the European Union, in its turn, worked out the issues of expanding economic ties with the states in these regions, also without Russia. For example, one of the major transport and logistics projects was the TRACECA project (Transport Corridor Europe-Caucasus-Asia), oriented toward trade routes of the Black Sea, the Caucasus and the Caspian Sea in the transportation of goods from Europe to Central Asia and the Caucasus. The project of multimodal Trans-Caspian International Transport Route (TMTM) was put forward to deliver cargoes from China to Europe via Kazakhstan, the Caspian Sea and South Caucasus, bypassing Russia.

The U.S., in turn, promoted the idea of the New Silk Road as a modern version of the ancient trade route. In the geopolitical realities of the 1990s and early 2000s, diversification of transport flows was recognized as a necessary step to strengthen the political sovereignty of the new states through economic projects, reducing their dependence on Russia.

In the meantime, Western nations were simultaneously developing transportation routes via Russia, taking into account the well-established infrastructure and the intention to draw the country into the orbit of their economic projects and interests. They thus considered connections from Europe to the Trans-Siberian Railway, as well as to Iran via the Caspian Sea.

In 2013, Chinese President Xi Jinping announced a major transportation initiative known as “Belt and Road”. Several routes were envisioned for cargo deliveries from China to the West, both by sea, including the Northern Sea Route infrastructure, as well as by road and rail. Central Asia and South Caucasus, whose location seems favorable to the Chinese leadership, are also among the priority transit routes.

Bearing in mind intensified projects in international logistics that did not always involve Russia, while seeking to bypass it in most cases, the Russian leadership also joined the race of international transport corridors (ITCs), and an intergovernmental agreement was signed in 2000 between Moscow, Tehran and New Delhi on creating the North-South transport corridor. The plans envisioned that this route would bypass sea routes, which would, first and foremost, cut the cost of freight transportation by rail, and second, shorten the delivery timelines.

While until recently, traditional transportation corridors were still the most attractive option due, above all, to the smoothly running infrastructure, the situation has dramatically changed after Russia launched its special military operation in Ukraine. Geopolitical tensions caused by the hostilities and sanctions pressure from the West led to the weakening and, in some cases, to the rupture of decades-old transport and logistics links between East and West, where Russia played a more than significant role, courtesy of its favorable geographical location. The attempts to impose customs restrictions on the border with Belarus, made by European nations, have also taken a toll.

Against this background, the transit countries of Eurasia, which previously used the Russian corridor as an optimal route to the world markets, are now forced to look for alternative ways of trading with the West. This leads to revitalization of contacts between the transit countries within the framework of already existing projects, such as TRACECA and TMTM.

Turkmenistan and its role in contemporary projects

Turkmenistan is becoming one of the notable players in the transport and logistics sector. By the end of 2023, the country plans to fully join the TRACECA project, while its contacts with the existing TMTM participants – Azerbaijan and Turkey – have stepped up. In 2022, the first trilateral summit with the heads of Turkmenistan, Azerbaijan and Turkey involved was held in Ashgabat. Among other things, the prospects of commercial and economic cooperation between the three nations were discussed there. In addition, there is talk under way now about connecting Turkmenistan to the North-South project with an entry point to Russia via Kazakhstan. Especially since Turkmenistan has the relevant motorway and railroad infrastructure in place – in particular, the Zhanaozen-Bereket railway.

In 2022, Russian Railways Logistics and the Transport and Logistics Center of Turkmenistan agreed to cooperate in international and transit cargo transportation. According to the Memorandum signed, the parties pledged to facilitate an accelerated passage of container trains over the North-South corridor via Kazakhstan and Turkmenistan, further to Iran and India. During his visit to Ashgabat in January 2023, Russian Prime Minister Mikhail Mishustin noted that one of the tasks facing the two governments is the full-scale launching of the eastern route within the framework of the North-South corridor, as well as ramping up mutual trade turnover and attracting Turkmen business to the empty niches in Russia, vacated after the exodus of Western companies.

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Turkmenistan’s ambitious project of a transport corridor to Turkey via Iran and Iraq fits logically into the national leadership’s chosen strategy of getting involved in international logistics projects. It should become part of the more ambitious East-West project to deliver Chinese freights to Europe. The southern “offshoot” through the Middle East is to be developed. Mr. Berdimuhamedov’s initiative to include Iran and Iraq in the East-West project to Turkey can be explained by several reasons. The first is a normalization of relations between Turkmenistan and Iran. In 2016, their relations were severed after a clamorous scandal caused by Iran’s failure to pay its debt for the natural gas supplied by Turkmenistan. Yet now the relations have been elevated to a new level, and the importance of the Iranian track for Turkmen foreign policy was emphasized during the second official visit of Berdimuhamedov to Iran. Turkmenistan is facing an acute issue with food supplies, and it is Iran that satisfies a significant part of the country’s needs in agricultural products. According to official data, volumes of non-energy trade between Turkmenistan and Iran keep growing.

Iran, for its part, is also interested in maintaining constructive relations with its neighbor, given that the two nations share the longest land border and access to the Caspian Sea. Furthermore, Turkmenistan is Iran’s closest overland entry point to Central Asia, Russia and China. Turkmenistan emphasizes its neutrality, not joining any international associations and trying not to take sides in regional conflicts. In the energy sector, Turkmenistan and Iran participate in swap deliveries of Turkmen natural gas to Azerbaijan, and, judging by the growing demand for “non-Russian” gas in Europe, Turkmen gas supplies from Azerbaijan through swap operations with Iran will keep growing. The development of this route would spur trade in Central Asia, develop business cooperation and address one of the key problems in the region, which is an accelerating demographic growth amid serious economic problems and the shortage of jobs.

Meanwhile, the southern route of the East-West corridor has its own significant limitations. The route from Iraq to Turkey announced by Berdimuhamedov will presumably go through the territory densely populated by the Kurds, where it is very difficult to guarantee the safety and reliability of cargo transportation. This factor significantly raises the costs of the project, as it does not guarantee a high speed of freights transported across the border. In January 2023, Iraq deployed more than 6,000 servicemen from its Ministry of the Interior along the Iranian and Turkish borders. Obviously, it is difficult to successfully implement any transportation and logistics project in this challenging environment. What’s more, the terrain in the area of the Turkish-Iraqi border does not allow for the construction of high-speed highways, which is another important factor of choosing cargo transportation routes by carriers, and under tough competition.

Initially, the East-West project did not envision the inclusion of either Russia or Iran. In fact, this is the main reason why it may not receive sufficient funding from major investors, while it is apparently imperative for the Turkmen leadership to draw international attention to this transportation corridor. Accordingly, in terms of Russia’s interests, this project can be attractive only if the Russian side is involved.

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Today, Turkmenistan is indeed working towards an active development of its transit potential, which was previously not fully utilized for several reasons. First, the closed nature of Turkmenistan’s political processes, limited access of outsiders to information about events in the country and distrust of official statistics had a chilling effect upon investors who were reluctant to invest in projects promoted by the state with a non-transparent legislative system, as well as high rates of poverty and corruption. Foreign investors are present in the Turkmen market on a very limited scale, the bulk of investments flowing into the gas production and construction sectors. Low investment activity causes an imbalance in export-import indicators, as foreign companies are not in a hurry to invest in promising sectors, preferring to see Turkmenistan as a market for their products. According to the information from open sources, the trade balance has been negative for a long time, and exports began to trump imports only in 2022. However, the structure of export-import operations remains unchanged – Turkmenistan exports mainly energy resources, partly petroleum products, textiles and agricultural produce.

Second, the state actually regulates all large and medium-sized businesses in Turkmenistan, except for the oil and gas sector. Moreover, foreign companies have access to fields only along the Caspian Sea shelf, while the land remains under the control of Turkmen government. Other factors include low efficiency of the judicial system and inconsistent rules of the game for investors. All of these taken together has long been discouraging investors from investing in Turkmen projects, including those in the transportation and logistics sector. Yet now, judging by the activity demonstrated by the Turkmen leadership, the task has been set to integrate the Turkmen economy into the new geopolitical landscape and occupy a vacant niche in one of the promising sectors – transport and logistics – especially since Turkmenistan in some cases can offer more favorable transit conditions than its neighbors.

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For example, in June 2023, it was announced that another multimodal logistics project, the Southern Transport Corridor, would be launched, which would run from Kyrgyzstan through Uzbekistan to the Turkmen port of Turkmenbashi and from there across the Caspian Sea to the city of Astrakhan, Russia. This project will supposedly reduce the time of container vans moving across Central Asia due to their bypassing of Kazakhstan, where there was congestion at Kazakh-Kyrgyz checkpoints that lasted many days. Such hindrances can potentially cause a decay of certain goods and foods, which is why their transportation via Kazakhstan is a no go.

In 2018, large-scale upgrading was already carried out in the port of Turkmenbashi on the Caspian. According to the Turkmen leadership, this port should become a regional hub connecting the Eastern and Western coasts of the Caspian Sea. Even earlier, in 2011, the Ashgabat agreement was signed between the governments of Turkmenistan, Uzbekistan, Oman and Qatar to create an international transportation corridor for goods to be delivered from Central Asia to the Sea of Oman and the Persian Gulf. Qatar later withdrew from the agreement, which did not enter into force until 2016, as a matter of fact.

Therefore, Turkmenistan’s transit corridor is of material importance for the transport and logistics sector in Central Asia and Eurasia in a broader sense. The suspension of traditional trade routes from East to West via Russia, Belarus and Ukraine encourages major regional players to develop alternative commercial routes, whereas transit countries have the incentive for an active engagement in new initiatives, especially as competition for transportation routes is stiffening. Turkmenistan has firm intentions to become an active player in this race of routes.

Connecting Turkmenistan to new transportation and logistics projects will allow the Turkmen government to attract foreign investors and thus whip up domestic development and business activity. The creation of new jobs will generally revitalize the national economy. This is extremely important for Turkmenistan, given the negative consequences still observed in the nation after the recent major economic and food crises since independence had been acquired.

However, there are several factors likely to limit Turkmenistan’s full-scale integration into existing and future transport and logistics projects. First of all, given the persistently closed nature of the system, foreign investors will continue to invest in Turkmen projects in small increments. Moreover, if we talk about the modernization of infrastructure within the framework of the corridor to Turkey announced by Turkmenistan, and we should not expect impressive investments from the countries participating in the project. So far, only Russia has announced its willingness to invest in Turkmenistan in a big way.

Second, such ambitious projects presuppose the availability of developed transportation and transshipment infrastructure, but on the right bank of the Caspian Sea, including in Turkmenistan, there is a noticeable lag behind the similar infrastructure development on the opposite bank. This is also likely to encourage the industry to choose routes where infrastructure is either in place or will be built in a short period of time. The low level of trade turnover between the countries participating in the Turkmen initiative does not contribute to the accelerated upgrading of transport infrastructure either, while far from fundamentally increasing the project’s profitability.

By getting integrated into international transit corridors, Turkmenistan can become an important transport hub in Central Asia, boosting its political weight in the region. Besides, Turkmenistan’s neutral status allows it to maneuver between the interests of other conflicting industry players, which helps it stay out of the fray.