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over the weekend, it is apparent that the great game over Caspian
energy has taken a dramatic turn. In the geopolitics of energy
security, nothing like this has happened before. The United States has
suffered a huge defeat in the race for Caspian gas. The question now
is how much longer Washington could afford to keep Iran out of the
energy market.

Gazprom, Russia's energy leviathan, signed two major agreements in
Ashgabat on Friday outlining a new scheme for purchase of Turkmen gas.
The first one elaborates the price formation principles that will be
guiding the Russian gas purchase from Turkmenistan during the next
20-year period. The second agreement is a unique one, making Gazprom
the donor for local Turkmen energy projects. In essence, the two
agreements ensure that Russia will keep control over Turkmen gas
exports.

The new pricing principle lays out that starting from next year,
Russia has agreed to pay to Turkmenistan a base gas purchasing price
that is a mix of the average wholesale price in Europe and Ukraine. In
effect, as compared to the current price of US$140 per thousand cubic
meters of Turkmen gas, from 2009 onward Russia will be paying $225-295
under the new formula. This works out to an additional annual payment
of something like $9.4 billion to $12.4 billion. But the transition to
market principles of pricing will take place within the framework of a
long-term contract running up to the year 2028.

The second agreement stipulates that Gazprom will finance and build
gas transportation facilities and develop gas fields in Turkmenistan.
Experts have estimated that Gazprom will finance Turkmen projects
costing $4-6 billion. Gazprom chief Alexei Miller said, "We have
reached agreement regarding Gazprom financing and building the new
main gas pipelines from the east of the country, developing gas fields
and boosting the capacity of the Turkmen sector of the Caspian gas
pipeline to 30 billion cubic meters." Interestingly, Gazprom will
provide financing in the form of 0% credits for these local projects.
The net gain for Turkmenistan is estimated to be in the region of
$240-480 million.