BRI as a stabilizer of foreign crisis

As we said in previous posts, BRI has many different reasons and goals. One of them can be summarized as a “stabilizer” of foreign crisis and conflicts, for example, the case of Turkmenistan.

According to the Centre for Eastern Studies Turkmenistan is facing a severe economic crisis (caused by the collapse in gas prices and the consequent currency crisis), which may force China to take a decision to intervene somehow and stabilize the economy and the political regime. Why? China is the sole recipient of Turkmenistan’s gas, receiving more than 90% of total gas exports. Hence, if the country collapses, it could create a sudden halt of gas supplies from Turkmenistan. This could also negatively affect the Chinese economy and its energy security.

Here is when the BRI comes into the scene, since “one possible scenario would be for Chinese banks to offer loans to stabilize the manat (local currency). Beijing could also reduce the burden arising from the repayments by acquiring the Turkmen assets (the gas deposit infrastructure) which those repayments funded”. Hence, China could increase its investments in the country, to stabilize the economy and the political system, in order to secure the import of Turkmenistan’s gas. It should be remarked that the gas coming from Turkmenistan represents 13% of Chinese gas consumption.

This hypothesis states that the BRI’s investment flows can not only stabilize the Asian region but also -at the same time- secure China’s energy supply.

One could argue that this would be an example of the so-called “win-win” approach of the Chinese BRI. However, would Turkmenistan really benefit from a Chinese “intervention” or action? According to the cited article, “China is now Turkmenistan’s largest creditor (…). Moreover, a part of the fixed repayment tranches denominated in US dollars is likely being repaid in gas in current prices, in the so-called credit-for-resources formula that China has also used in its dealings with Venezuela and Angola. These contracts were concluded in times of high prices for oil and gas, and after those prices fell, the states bound by them were forced to supply more of their raw materials. In Turkmenistan’s case, this model has meant a further drain on local resources, with a clearly reduced inflow of foreign exchange”.

Also, “the [Chinese] loans are being partially repaid in kind (gas), and the price of gas supplies is linked with current global gas markets, which exacerbates Turkmenistan’s balance of payments problems. Beijing took advantage of its strong negotiating position, which in part resulted from Ashgabat’s conflicts with its other partners, to transfer the long-term economic risk onto Turkmenistan. This has translated into the country’s current socio-economic crisis”.

What can be concluded is that it is not clear what would be the exact benefits of a Chinese-BRI intervention in Turkmenistan. It may help to equilibrate the economic and political crisis, but in the long-run, it may imply unfair conditions to repay Chinese loans and a loss in control of key natural resources for Turkmenistan.