Energy Wealth, Development, and Stability in Turkmenistan

Energy Wealth, Development, and Stability in Turkmenistan

by Nancy Lubin
August 1, 1999

This NBR Analysis contains case studies of energy development and the sources of potential conflict in the three primary energy-producing states of Central Asia and the Caucasus—Azerbaijan, Kazakhstan, and Turkmenistan.

While home to vast reserves of oil and gas, Turkmenistan’s export of these reserves to foreign markets has been complicated by the geopolitics of pipeline construction. To tap its export potential, Turkmenistan has focused on development of the energy industry. At the same time other sectors of the economy have lagged. Growing poverty, declining living standards, the expansion of organized crime and narcotics trafficking, and ethnic and tribal divisions are all potential sources of instability. The Niyazov government has responded to these problems with a variety of reform measures, but inconsistent policies, arbitrary regulations, and the absence of legal mechanisms for the enforcement of contracts have discouraged foreign investment and slowed economic growth. In this atmosphere, expected energy revenues could lead to turmoil and conflict, rather than providing broad benefits to the population.

The situation in Turkmenistan presents opportunities and dangers for the United States. To date, the focus of U.S. activities has been on tapping into Turkmenistan’s energy reserves, but given the potential for instability and a possible change of government in the near future, more attention should be paid to understanding the internal workings of Turkmenistani society; and greater efforts should be made to enhance ties not only with registered institutions, but with all levels of the population.

The outwardly extravagant hotels that seem to emerge from nowhere in the desert outside of Turkmenistan’s capital city, Ashgabat, remain a vivid reflection of the hopes and realities of Turkmenistan today. Built ostensibly to attract western investment primarily in Turkmenistan’s rich energy sector, today, they are often devoid of energy executives; instead, they are widely viewed, at least in part, as havens for money launderers, smugglers, and other criminal elements. Their fine wines and liqueurs seem to be shared among the hotel executives themselves, who often seem uninterested in whether there are guests at their hotels to consume these luxury items instead.

In some ways, this image reflects Turkmenistan’s hopes for a better future through the enormous wealth they anticipate from future exports of oil and gas. But it also reflects the more sinister, current realities of waste, crime, hardship, and potential instability that may engulf Turkmenistan well before energy revenues begin to flow.

What kind of wealth is Turkmenistan likely to see from its vast energy resources, and to what effect? What are the key sources of potential instability today—and to what extent is energy wealth likely to…