Given all the news this week of Russia and Italy’s South Stream deal with Turkey in exchange for a nuclear power plant, I thought I would repost an article written by Robert Amsterdam last fall in Energy Risk on Turkey’s political pipelines.
Turkey’s political pipelines
Turkey’s strategic position at the crossroads of East and West has put it at the centre of a geopolitical tug of war, with energy supply a key driver. Robert Amsterdam examines the energy policies being brought to bear in the region
Turkey’s role in global affairs is defined by its geostrategic importance as the bridge between Europe and the Near East. Following Russia’s invasion and occupation of Georgia in August, which caused considerable energy supply jitters, Turkey was once again thrust into the spotlight as the European Union considers its dwindling options for alternative supply routes beyond the reach of Gazprom, Russia’s natural gas oligopoly.
Akey transit hub of both oil and gas to heavy consumer nations ofwestern Europe, Turkey is a nexus of multiple important pipelineprojects and increasingly desperate negotiations over access to theBosporus Strait. According to a report by the European Commission, thecountry is geographically located in close proximity to 71.8% of theworld’s proven gas and 72.7% of oil reserves, and has thus become “theSilk Road of the 21st Century”.
Although Russia is Turkey’s largest bilateral trade partner ($28billion) and receives more than 68% of its natural gas from Gazprom,Turkey has for many years maintained a fierce independence as thecritical transit country balancing the interests of competing countriesin the region.
However, this balance is becoming less stable amid a domesticpolitical crisis and the opportunistic resurgence of Russia, which maybe driving Ankara away from an energy alliance with the West. If US andEuropean energy companies hope to remain competitive in the future andguarantee energy security for their consumers, some smart diplomacywill have to be marshalled immediately before it’s too late.
The Kremlin’s winning strategy
Events over recent weeks have served as an unpleasant reminder ofhow much more effective the Kremlin’s energy policy in Turkey has beenwhile the US and Europe have been asleep at the wheel – a developmentwith serious implications for companies and investors in this sector.
What needs to be understood by the West in order to rescue Turkeyfrom Gazprom’s monopoly is that Russia has gained a significant voicein Turkish foreign policy thanks to certain pipeline projects; thatTurkey is aggressively pursuing its own regional interests; and thatdomestic political constraints have an impact on the state’s energypreferences.
A smart engagement strategy to keep Turkey plugged into the West’spreferential energy supply routes will require a careful understandingof the country’s interests. So far that’s not what we have seen.Firstly, the West has displayed a frighteningly blase attitude towardsthe new importance of Turkey following the war in Georgia, as well asan ignorance of its national interests.
Before the war in Georgia even started, energy observers werereminded of how vulnerable global markets are to supply disruptions inTurkey when the Kurdish separatist group PKK launched an attack on asection of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, causing aprolonged delay that spiked the price of oil. Then with the invasion ofthe only non-Russian controlled energy transit route from central Asia,several critical infrastructure projects were frozen and financing fornew projects was scared off. Though the pipelines of Georgia were leftundamaged, confidence was deeply eroded by Russia’s aggression, and anew series of diplomatic actions were set in motion.
The BTC, which transports upwards of 850,000 barrels of crude oilfrom central Asia to the Mediterranean sea every day (more than 1% ofglobal supply), is just one of the pipelines covering the East-Westcorridor in Turkey, along with other projected pipelines such as theTrans-Caspian and the Western-backed Nabucco project – both of whichpartially serve political purposes as Gazprom-monopoly killers.
Turkey is also affected by a vitally important North-South energycorridor including the Blue Stream gas pipeline (arguably a foreignpolicy instrument of Russia) and the planned Samsun-Ceyhan oil and gaspipelines designed to relieve the immense amount of traffic goingthrough the Bosporus Straits, a bottleneck that handles about 3.7% ofthe world’s oil supply every day. About 25% of Russia’s oil exports gothrough the Turkish straits, which accounts for Moscow’s activistdiplomacy and numerous agreements with the neighbouring governments ofGreece and Bulgaria, ratcheting up the pressure on Ankara.
Gazprom and the Kremlin have also fought back against theseWestern-backed competing supply routes in Turkey with their own highlypolitical projects (which are accompanied by economically unfeasibleprices tags). To defeat the Nabucco, Gazprom has joined up with theirlargest European customer, Italy’s Eni, to propose the South Streampipeline project, which would be laid straight across the length of theBlack Sea from Russia to Bulgaria in order to cut Turkey (and theUkraine) out of the natural gas distribution infrastructure. To avoidgiving up a quarter of their oil exports to Turkish transit tariffs,Moscow is also pushing the $1 billion Burgas-Alexandroupolis pipelineto bypass the Bosporus.
There is a very important geopolitical element in these energy dealsthat Western governments need to understand in order to be successfulin Eurasia: Turkey views itself as an unparalleled regional leader, andrecognises both the limitations of Russia’s ability to bully such avital country as well as the tremendous opportunity to advance theirinterests. In other words, it would be a mistake to think that Turkeyis simply awaiting its turn to be moved in the US-Russia grand chessgame. It’s playing a game of its very own.
In September, Turkish Foreign Minister Ali Babacan established thegovernment’s clear intention to seize the role as the regionalpeacemaker, stating that “as a neighbour to the conflict, Turkey has anenormous stake in overcoming the tension between Russia and Georgia”,and proposing a new negotiation framework known as the CaucasusStability and Cooperation Platform (CSCP). Similarly, just three weeksafter Russia and Georgia signed a shaky peace agreement, Turkey’senergy minister made an emergency trip to both Kazakhstan andTurkmenistan to woo these governments into continuing their independentrelations with Turkey.
Turkey: regional peacemaker?
In the summer months leading up to the war, Russia displayed aperfect understanding of Turkey’s aims and their own geopoliticallimitations with this key player. Although energy relations between thetwo countries had been acrimonious in recent years due to Turkey’schoice to back the Nabucco project, Russia suddenly and unexpectedlyrelented in late July, signing agreements for a gas storage hub, ajoint company to run urban gas grids, and an offer to extend the BlueStream all the way to Israel. The message from Gazprom to Turkey: wewill make it worth your while to do business with Russia.
Observing this thaw in Turkish-Russian energy relations, Turkishcommentator Sinan Ogan said that there was a “new period ofco-operation”, and that “the rivalry between South Stream and Nabuccohas been to the detriment of both countries”.
Russia’s pre-war strategy proved to be immensely successful. Whenthe fighting first began, Turkey, a NATO member that had participatedin training exercises with the Georgian military, refused to shareradar data and other military intelligence with Tbilisi, and shared andconsulted on their proposal for the CSCP framework first with Moscow,which deeply insulted the Georgians. Then, once US warships weredispatched to the Black Sea on aid missions to Georgia, Washington wassurprised to find that Turkey would strictly adhere to the tonnagelimits on these ships under the 1936 Montreux Convention.
Turkey also mimicked the Russian Navy in reminding the US that theywould only be able to remain in the Black Sea for 21 days. Lastly,Ankara has also been very lukewarm about the NATO Membership ActionPlans potentially being offered to Georgia and the Ukraine, as Turkeywishes to remain the only NATO power on the Black Sea.
The fact that the Kremlin has been able to produce such successfulforeign policy outcomes in Turkey is impressive, especially consideringthat the invasion, occupation and recognition of the separatist regionsof Abkhazia and South Ossetia is extremely distressing for Ankara, inlight of the destabilising territorial disputes involving Armenia andAzerbaijan at its own borders.
Comparatively, the US diplomatic initiative to sway energy policy inthe region has been considerably less subtle and effective. US VicePresident Dick Cheney arrived in Tbilisi nearly a month after the warstarted, bringing a $1 billion aid package to Georgia and seeking tolock down commitments for Azeri natural gas for both the Nabucco andthe Turkey-Greece-Italy pipeline. Clearly seeing the US-Russiarelationship frozen until the next presidency, the Azeri presidentIlham Aliyev did not receive Cheney with much hospitality – in fact,newspapers reported that neither the president nor the prime ministerbothered to greet him at the airport, and telephoned Russian presidentDmitry Medvedev to share details of the meeting.
Trade trumps ideology
Two important reasons why Russia has been more successful in pushingforward its energy preferences in Turkey than Washington has been thatRussia seems to have grasped that Ankara’s push towards the East ismore about trade ties than ideological alliances, and that the narrowpolitical survival of prime minister Recep Tayyip Erdogan and theJustice and Development Party (AK Party) is mutually antagonistic withwith the type of isolationist policies being pushed by Washington.
Gazprom got a leg up on the Americans and Europeans on thesecritical pipeline projects simply by offering more business and moresupply to go through Turkey. They promised in no uncertain terms thatthey wanted to be part of Turkey’s downstream energy sector at anycost. This strategy plays well into the government’s plans for economicexpansion and their robustly growing trade. A report by the Council onForeign Relations points out that it’s no accident that Ankara islooking to the East following the war in Georgia, as exports to theregion have risen to $15 billion in 2007 from $3.3 billion in 2001,while $1.5 billion in foreign direct investment has been sent toTurkmenistan.
Despite recent failures, there is no reason that US and Europeaninterests in Turkey shouldn’t be successful, they just need to be moreintelligent, taking into account the Turkish aims to play a responsiblerole of regional leadership, their economic and trade agendas, andcareful consideration of how these energy projects can be madepolitically feasible.
There are certainly a number of other carrots and sticks availableto lure Turkey back out of Russia’s embrace and indeed the Kremlin ismindful of what could happen if the West is forced to look aroundTurkey to use other levers of influence in the Middle East. Oddly, theUS could learn a lot from Turkey’s anti-isolationist platform in theregion, as many experts regard the inclusion of Iranian natural gas asthe one piece that would guarantee the success of Nabucco – the lastthing Russia would want to see.
These developments in Turkey’s energy diplomacy must be carefullymonitored by investors and companies seeking to gain an assessment ofthe political risk profile of the country – an infrastructure ortransit project or deal is never as simple as commercial sense, andcould be reversed quite rapidly if one of the regional players locatessufficient leverage.
In the end, projects like the Nabucco are not going to put a halt toRussia’s energy business, but rather offer consumers importantcompeting supply routes that should ideally deliver more efficiency,more affordable prices, and to the surprise of even Gazprom, a morehealthy business environment for future projects. There is a compellingargument that the deepening of energy competition and the building of avibrant trade market in Turkey and the Caucasus would be a win-win forall the players involved.