Since independence, Turkmenistan has sought to advance its sovereignty by entering only bilateral trade agreements. The country's potential prosperity is dependent upon its ability to maintain peace and stability in a possibly volatile region. Thus, its international relations and trade are focused within former Soviet territories of central Asia, Russia, and the Caucasus, while seeking to cultivate new relations with Asia, Europe, and America. Since transportation and export problems have caused problems for Turkmenistan's economy, especially for the international trade of its energy resources, establishing new markets and routes is of crucial importance. Foreign investors are, however, hesitant to work in Turkmenistan, usually because the socioeconomic infrastructure has deteriorated or laws necessary to protect their investments can be violated by presidential decree.
Russia continues to be the most important partner for Turkmenistan's international trade. Russia dominates 50 percent of all trade within the Commonwealth of Independent States (CIS), particularly among natural resources, and appears unlikely to relinquish control in the near future because it commands the transportation grid built during the Soviet era. Thus, for example, with oil and gas, the pipelines run through Russia, which has often punitively regulated the amount of central Asian goods allowed to traverse its territory.
Russia was the only CIS country to export natural gas to the outside world until Turkmenistan signed an agreement with Iran in 1997. A pricing feud over supplies to Ukraine with Russia's state-run petroleum and natural gas company Gazprom severely disrupted Turkmenistan's ability to export any gas. Shipments were halted with the concomitant effect of handicapping all Turkmenistan trade, causing its exports to fall 61 percent in 1997 and GDP tumble 26 percent. Opening an export route through Iran eased some of Turkmenistan's economic woes. A resolution with Gazprom was reached, but the prices were so high that Turkmenistan will realize minimal profits.
Turkmenistan's trade with CIS states hovered around 50 percent in 1997. This was a slight decrease from previous years and represented Turkmenistan's somewhat successful efforts to reduce its dependency on Russia. Nevertheless, its export-import income has fallen significantly since independence. Export trade in 1992 was roughly US$1.5 billion and US$751 million in 1997. Exports have increased slightly since then, but the low volume reflects the country's continuing struggle to sell its natural gas. Imports, however, rose dramatically from the 1992 figure of US$446 million, jumping the next year to US$2.1 billion, but decreasing to US$1.2 billion by 1997. Because trade with the CIS consists mostly of energy resources, rather than manufactured goods, Turkmenistan has generally maintained a positive trade balance, but it has fluctuated widely since 1992. It is the only former Soviet republic to have a consistently positive trade balance since the collapse of the Soviet Union.
Efforts have been made by central Asian leaders to increase trade, but these have generally been rebuffed by Turkmenistan, which prefers bilateral trade agreements. Turkmenistan rejected Kazakhstan's attempt to create a Euroasiatic Union, but Niyazov agreed to join the Economic Cooperation Organization (ECO), which was founded by Turkey, Iran, and Pakistan in 1960. The ECO was designed to coordinate economic policies between these states and was given new life by the inclusion of the 5 central Asian republics. The move strengthened relations between Turkmenistan and Iran, a feature that disturbed Russia. Russia's demand that they choose between membership in the CIS or the ECO was hardly acknowledged.
Outside of the CIS, Turkey is Turkmenistan's most important trading partner and continues to be Turkmenistan's most vital supplier of technical and financial support. In 1993, for example, it provided the Turkmenistan government with credits worth US$92 million. Turkey further regards Turkmenistan as a country of transit to central Asian markets. Moreover, Turkmenistan is valued by Turkey essentially as a seller of natural gas. In a basic accord signed in October 1994, Turkey agreed to purchase natural gas from Turkmenistan for the next 30 years.
Turkmenistan has signed natural gas export agreements with Iran, believing its southern neighbor to be the most logical conveyor of Turkmenistan resources, even though the United States opposes the arrangement and central Asian leaders have strongly criticized Niyazov's attempts to enhance this relationship. In 1993 Turkmenistan and Iran signed a 25-year accord with the objective of delivering 28 billion cubic meters of natural gas. Delivery will be through a pipeline, jointly built but principally financed by Iran. In order to accelerate the process, in 1995 the countries agreed to transfer 8 billion cubic meters of natural gas annually.