Previous Quarterly Editions
Expropriation Risk: 74 78 78 79 ►Political Violence Risk:51 51 50 51 ►Terrorism Risk:42 43 45 48 ▲Exchange Transfer and Trade Sanction Risk: 64 64 64 73 ▲Sovereign Default Risk:47 57 47 56 ▲
TREND ▲
Geopolitical alignmentEast 1 2 3 4 5 Strongest
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
In March, the presidency passed from Gurbanguly Berdymukhamedov to his son, Serdar. The change of power has brought no discernible change in foreign policy. The centrepiece of Turkmenistan’s foreign policy is official neutrality, and it is an insular, isolationist state. Nonetheless, like its Central Asian neighbours, Turkmenistan can be said to pursue a ‘multi-vector’ foreign policy, balancing the influence of external powers in an attempt to prevent dominance by any. Turkmenistan’s primary partners are Russia and China.
China’s influence is vast though primarily economic, is vast. Relations with Russia, which takes the lead in the security sphere, are warmer. China has an unassailable lead in the economic sphere, accounting for almost all of Turkmenistan’s export revenue and a substantial proportion of foreign investment. Trade with Russia has increased in recent years but will not challenge China’s position.
Russia has traditionally taken the lead in security matters, a major concern for Turkmenistan which has a long border with Afghanistan. The new president’s first official trip abroad, in June, was to Moscow to meet with Russian President Vladimir Putin. Russia’s poor military performance in Ukraine
raises questions about its capacity to continue in this role, but, for now, China does not appear willing to take over.
Turkmenistan has not supported or condemned Russia’s invasion of Ukraine in February 2022, but this is unlikely to have strained relations given how rarely the government in Ashgabat comments on developments outside its borders. There are signs Russia, feeling the costs of increasing international isolation, is seeking a closer relationship with Turkmenistan. In April, Russia’s deputy prime minister visited Ashgabat to give a presentation on the development of the Eurasian Economic Union, a Russian-led free trade bloc. This suggests increasing pressure on Turkmenistan to join.
Ashgabat appears keen to develop relationships with alternative partners, primarily similarly authoritarian states, to balance against China’s growing dominance. In particular, Turkey, Saudi Arabia, and Iran’s relationships with Turkmenistan are small but growing. Turkmenistan is one of Turkey’s leading arms buyers and, in June, the presidents of Turkmenistan and Iran signed a cooperation agreement.
Turkmenistan has little to do with the West – the country’s extreme form of authoritarianism and disinterest in reform makes serious engagement difficult. Nonetheless, there are areas of small-scale cooperation. One area where the West could play a role is in gas
exports. Turkmenistan is very keen to diversify export partners and reduce its dependence on China. This, however, will require new pipelines.
The government, and the Taliban, continue to maintain the trans-Afghan TAPI pipeline is viable, but the security situation in Afghanistan makes this unlikely. The European Union and Turkey, both of which have expressed an interest in buying Turkmen gas, are better prospects, with a putative export route via Azerbaijan. This, to, will take time to set up. For the foreseeable future, China will remain Turkmenistan’s only major customer.
TREND ►
Despite increased efforts to engage with international financial institutions and to attract foreign investment, the investment climate in Turkmenistan remains extremely challenging. The public sector and state-owned monopolies continue to play a dominant role in the economy, hindering private sector development. Foreign investors face endemic corruption and a weak commercial law and regulatory regime. Law enforcement can be arbitrary. Investors without a strong relationship with the state are likely to face considerable difficulties.
However, there are indications the situation may improve in future. Turkmenistan was granted applicant status to the World Trade Organization in February and is continuing the formal accession process. In May, the country acceded to the New York Convention along with two other UN agreements. If the government follows through, these processes will improve the business climate, but they will also require significant domestic reforms.
Turkmenistan continues to face economic crisis and food shortages. The government has suggested it will end fixed and subsidised prices for staple goods at state-run shops, which are a lifeline for many. On top of the economic pain, there has been a significant deterioration in women’s rights in recent months, including a ban on abortion.
There are occasional protests over socioeconomic conditions, but these tend to be small and spontaneous. High levels of political repression and controls of the media make political organising very difficult and limit the risk of major protests. There is no organised opposition.
There is a significant and growing risk of cross-border attacks from Islamic State Khorasan Province (ISKP) in Afghanistan. The group’s presence and operational capacity in northern Afghanistan is growing, with ISKP claiming three rocket attacks on Tajik and Uzbek territory in recent months. However, the group’s propaganda efforts have primarily targeted Uzbek and Tajik speakers. Turkmenistan maintains a friendly relationship with the Taliban regime and is keen to increase economic integration with Afghanistan.
The national currency, the manat, is highly regulated by the government and the official U.S. dollar exchange rate does not reflect its true value. The black-market rate within Turkmenistan, according to independent media outlets, is experiencing increased volatility and was fluctuating between 17 and 20 manats to the U.S. dollar in June.
Turkmenistan was the only Central Asian republic that did not appear on a U.S. list of potential ‘transhipment’ countries that could be used to help Russia evade sanctions. However, Turkmenistan’s increasing energy relationship with Iran may raise concerns in future.
The government in Ashgabat does not provide reliable economic statistics, so the true state of Turkmenistan’s finances is unknown. The International Monetary Fund projects growth rates of 1.6% in 2022, considerably lower than the figure of more than 6% offered by the government.
Around 70% of Turkmenistan’s gas exports go to China, which provides almost all the government’s hard currency. Turkmenistan has substantial debts to China and much of its export revenues may go to servicing this debt. A fourth branch of the Turkmenistan/China pipeline is due to be built, probably with more Chinese money. Despite having the world’s fourth largest gas reserves, reliance on China limits Turkmenistan’s ability to take advantage of high global gas prices.
Turkmenistan is edging towards new markets for its gas, but it is likely to see little improvement in the short-to-medium term. The government remains enthusiastic about the trans-Afghan TAPI pipeline, but its chances are slim unless the security situation in Afghanistan improves dramatically. Turkmenistan has made progress towards selling its gas to the European Union and Turkey via Azerbaijan, but significant export volumes will take time to develop. Exports to Russia have resumed, though at lower than previous levels.
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