In August 2023, Turkmenistan transferred 10 million cubic meters (mcm) of gas to Iran—a shipment signifying a resumption of gas exports between the two nations. Ongoing negotiations have yielded two potential agreement scenarios, currently under discussion for potential long-term and short-term arrangements. 

 The recent resumption of gas imports from Turkmenistan was preceded by a diplomatic visit from Gurbanguly Berdimuhamedov, the Chairman of Turkmenistan's Halk Maslakhaty (People's Council) and former President of Turkmenistan, to Tehran in May. In 2021, Turkmenistan, Iran, and Azerbaijan signed a gas swap deal for the transfer of 1.5 to 2 billion cubic meters (bcm) per year, allowing Iran to receive gas from Turkmenistan to be sent to Azerbaijan, helping Azerbaijan to meet its growing domestic demand amid its increasing exports to Europe. Although a subsequent agreement aimed to double the gas swap volume, the concrete execution of this expansion remains uncertain.

The historical backdrop of economic relations between Iran and Turkmenistan dates back to the early 1990s with a significant natural gas deal negotiated in 1995. However, their recent energy connections have had their share of challenges. The gas trade between Iran and Turkmenistan experienced an abrupt hiatus two years ago, stemming from Iran's significant debt to Ashgabat, which had arisen from long-term bilateral gas agreements. According to Chenegi, the National Iranian Gas Company (NIGC)managed to repay its debts, paving the way for the resumption and the potential deepening of gas trade agreements.

The geopolitical context adds further significance to these energy dynamics. With the ongoing Ukraine conflict casting uncertainty on European energy security, the region is actively exploring alternative energy sources. In July 2022, Baku and the European Union (EU) signed a memorandum of understanding stating plans to double the volume of gas shipments to Europe to 20 bcm via the Southern Gas Corridor by 2027, making gas transfers between Iran, Turkmenistan, and Azerbaijan even more critical to meet domestic and international demand. The reverberations of Russia's actions in Ukraine continue to ripple through energy geopolitics, potentially leaving the Europe and the Caspian regions energy security in flux.

The elevated energy demands of Europe and Azerbaijan's quest for increased domestic gas supply add complexity to the region's energy dynamics—a shift in the energy landscape and geopolitical tensions that will continue to shape the course of energy agreements. 

Iran and Turkmenistan hold the second and fourth largest natural gas reserves globally, granting them significant roles in the global energy market. However, despite its substantial reserves, Iran's inability to meet its gas production requirements is due to long-standing infrastructure problems that have been aggravated by limited access to foreign equipment and capital due to international sanctions. With surging domestic gasoline consumption, reaching an estimated 20% increase from 2022 to 2023, Iran’s gas production is still short of its consumption needs. For years, Iran has sourced gas from Turkmenistan to fulfill its northern region's needs. Both countries recognize the mutual benefits of collaboration on energy matters. Iran seeks to cater to its northern provinces' demands, while Turkmenistan aims to diversify its energy strategy.

Moreover, Iran's international isolation due to isolationist religious positions as well as to its nuclear program has pushed it to attempt to forge closer ties with regional partners. Iran’s trade with Turkmenistan and neighboring countries has increased in the last two years. In the first half of 2022, trade between Iran and Turkmenistan amounted to $233 million, in comparison to $227 million in all of 2021. In meetings last year, Tehran and Ashgabat discussed the potential for an increase in other sectors including agriculture and electricity, indicating that the relationship between the two countries might diversify further in coming years. In the meantime, gas deals serve as a lucrative avenue for Iran to counterbalance its isolation by fostering closer connections with neighboring countries. Europe's reliance on this energy partnership, while maintaining sanctions against Iran, creates a paradoxical strategic distancing, allowing Europe to benefit while maintaining a symbolic separation from Iran.

Looking back a decade, China's ascendancy as Turkmenistan's primary gas purchaser has also signaled a strategic shift. This diversification strategy works against Russia's more recent attempts to mend gas alliances lost in the wake of the Ukraine conflict. Amidst this backdrop of changes, Turkmenistan's evolving energy strategies and partnerships form the base that will inevitably shape the region's energy landscape.