* Turkmenistan holds world's fourth-largest gas reserves
* Country has declared itself neutral in global affairs
* Ties with Azerbaijan icy over disputed Caspian resources
By Marat Gurt
DJAFAR, Turkmenistan, Sept 5 (Reuters) - Neutral Turkmenistan flexed its military muscle on Wednesday, holding its first naval exercises in the Caspian Sea to show it can rebuff any attack on the oil and gas riches it hopes to sell to Europe.
Turkmenistan, on the eastern shore of the Caspian Sea, holds the world's fourth-largest natural gas reserves, according to BP data, surpassed only by Russia, Iran and Qatar. The other four littoral nations are Russia, Kazakhstan, Azerbaijan and Iran.
Turkmenistan said this week it could potentially join Azerbaijan in supplying natural gas into a pipeline through Turkey to the EU border, helping Europe become less reliant on Russian gas.
Previously announced plans for such a pipeline have angered Russia, which argues that every Caspian littoral state must agree before such a project can go ahead. Turkmenistan and Azerbaijan have said they need agreement only with each other.
But Turkmen-Azeri relations also soured this year when, in June, Azerbaijan warned Turkmenistan to stop exploration at an offshore oil and gas field. Disputes over how to divide the Caspian Sea have dogged the development of its hydrocarbon riches since the break-up of the Soviet Union in 1991.
The military training exercise, codenamed Hazar-2012 (Caspian-2012), was held jointly by army and police units. Two corvettes opened fire to defend an imitation village and a real oil tanker anchored off the coast of western Turkmenistan.
Russian-built fighter jets flew overhead as special police units rebuffed a mock attack by "armed saboteurs" on a dummy oil refinery on the Caspian shore. An audience including President Kurbanguly Berdymukhamedov responded with rapturous applause.
Turkmenistan, a mainly Muslim country of 5.5 million, was granted official neutral status by the United Nations shortly after the Soviet Union's collapse. The country describes its military doctrine as "exclusively defensive".
Wearing a camouflage jacket, Berdymukhamedov, a 55-year-old trained dentist, made no statement to the assembled crowd that would suggest a potential threat to his gas-rich nation.
Berdymukhamedov enjoys absolute power in his desert nation, where he goes by the state-approved nickname of Arkadag, or The Patron. He won a second five-year term as president in February, with 97 percent of the vote.
A programme for the event read: "We express our gratitude (to Berdymukhamedov) for his help in strengthening the country's defence capability, and ask the Almighty to give sound health and a long life to the esteemed president of Turkmenistan."
Turkmenistan plans to build a naval base on the Caspian Sea, equipped with a radar surveillance system, by 2015. (Writing by Dmitry Solovyov; Editing by Robin Paxton and Jon Hemming)