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Özertem: Energy Diplomacy has a Critical Stance in Turkey-Russia Relations 17 janvier 2012

Posted by Acturca in Caucasus / Caucase, Energy / Energie, Russia / Russie, Turkey / Turquie.
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Journal of Turkish Weekly (JTW) Tuesday, 17 January 2012

By Betul Buke Karacin, JTW

Journal of Turkish Weekly conducted an exlusive interview with USAK Expert Hasan Selim Ozertem, Energy Studies, USAK.

Q: Turkey and Russia signed a deal on South Stream at the end of 2011. Considering regional strategic balances, how do you assess this event?

A: Actually, this planned agreement had been part of a proposed project which was signed with Russia for 25 years during the Ozal period. This agreement ended in 2011. According to the agreement, the Russian Federation would transport nearly 6 bcm of natural gas through Thrace. However, Turkey has faced some difficulties in this process with Russia, especially on the “take or pay” clause. On the other hand, pricing matters have also accelerated as a conflicting issue between Russia and Turkey. Following the financial crisis in Europe, while the oil prices have been going down and there have been some amendments to Gazprom bills related to arbitration lawsuits, contrastingly, Turkey has been paying huge bills to Russia as a result of accelerating exchange rates and increasing oil prices. At that point, Gazprom did not desire to lower the prices.

The other point is that Turkey, in the beginning of 2000, passed a law which regulates the energy sector. According to this law, the stake of BOTAS in the market was planned to be reduced by 25%. Before this, actually, the doors for BOTAS to make new deals were closed. Considering all these factors, Turkey has many reasons, in both legal and economic term, not to sign a deal with Russia. On the other hand, for the last ten years, Turkey has achieved stable economic growth, become the world’s sixteenth biggest economy and experienced more than 5% annual economic growth in recent years. This performance seems likely to continue in the following years. Moreover, Western economies are trying to overcome the challenges of the economic crisis and face difficulties in development. However, such rapid growth brings certain necessities in Turkey together, such as energy and human resources. In this respect, Turkey does not have difficulties in human resources but in energy supply. As it seems to be that Turkey will continue to grow and regularly pay its bills to Gazprom, what kind of an agreement will Ankara sign with Russia? This point paved the way for different debates and in fall 2011,Turkey declared that it would not extend the period of the agreement which led to several speculations. One of them as remarked by Russian experts was that Turkey wanted to punish Russia for not getting involved in Samsun-Ceyhan. However, Turkey emphasized the necessity of reducing the prices and that it wanted to remove the take or pay clause,and also stated that there was no such amendment from Gazprom’s side. Moreover, Turkey also indicated its desire to sell the given gas to the private sector. In other words, in such a situation, the role of BOTAS would shift from a distributor company to a mediator, as it would sell the gas to other distributor companies. Also, it enabled BOTAS to sign over or give its rights to other companies in the interim period. As Russia opposed these conditions, the agreement was not signed. However, the Russian side insisted on signing the South Stream project which has been a significant part of Russian energy-based policies. Since the 2000s, Russia has effectively usedenergy as an instrument for its near abroad policy of expanding its sphere of influence in former Soviet countriesand also aims to increase its revenues from energy resources. A possible way of achieving this goal is to sell gas to Western Europe, and relating to this Russia constructed Nord Stream which goes under the Baltic Sea directly to Germany, which was a quite significant project. Since 2000, Russia consistently faced difficulties with Ukraine and did not effectively use energy as a political instrument against it, as a result of its dependence on Ukraine for transit routes. Therefore, Nord Stream which bypasses Ukraine created an important advantage for Russia. However, following the Ukrainian elections in 2010, Yanukovych came to power and opened a period of improved Russia-Ukraine relations. In this context, another goal of Moscow is to control Ukraine’s pipelines and pressure the government in this regard. If Ukraine is out of Moscow’s control, Russia would somehow face difficulty in implementing its policies. Therefore, Russia tries to develop asymmetrical interdependence with Ukraine in order to prevent it from improving its relations with Western countries. Within this goal, Russia decided to build pipelines through Ukraine which will only transport gas to Ukraine and some specific countries, and the pipelines which transport gas to Eastern Europe will bypass Ukraine. Actually, Russia reached this goal with the construction of Nord Stream. In that sense, South Stream has come to the fore and played a complementary role.

Q: Can we say that within this agreement Nabucco, and in other words Europe, has been bypassed?

A: There are also other dimensions of South Streamthat should be considered.The Russian demand for energy has recently been increasing. Energy efficiency, isolation policies, and the efficient use of gas have also been high on the Russian energy agenda. Another problem is that Moscow does not operate oil and gas fields efficiently. In this regard, there is a possibility that Russian gas will not be enough to fill South Stream and that Russia needs to exploit Central Asian and Caspian resources. Russia has to control energy importing and exporting countries in order to maintain its dominant role in the energy market. Actually, Russia has achieved controlling its energy customers as it is one of the principal arteries to Europe. However, if it does not control the importing countries and permits alternative routes, then it will lose its monopoly position in the energy market. Considering this, Nabucco can be regarded as a project which would curtail the dominant Russian position. This pipeline would transport Turkmen, Azerbaijani and Kazakh resources to Europe via Turkey. However, the Russian role in reshaping this picture is to renegotiate the gas agreements regarding South Stream and build the necessary pipeline to transport this volume of gas. Russia has been working toward this goal since 2007, signing deals with Central Asian countries and also with countries on the route of the pipeline such as Bulgaria, Greece and Serbia. However, the complementary aspect of this picture came to the fore with regard to dependence on Ukraine. While Turkey is controlling the southern part, Ukraine controls the northern part of the Black Sea. Therefore, if Russia would plan South Stream without Turkey’s approval, then it would need Ukraine. Therefore, Russia insisted on using Turkey’s exclusive economic zone. In this respect, Russia pursued serious shuttle diplomacy with Ankara and also seems to be successful in this regard.

Q: What are Turkey’s gains and losses from this agreement?

A: One of the underlying reasons for this delay is the Samsun-Ceyhan pipeline project. It is not certain that there will be any development in this issue, but Turkey has acquired gains from Russia over the gas flowing in the Western line in this process. One of them is the “take or pay” conditions which have been removed, and from now on BOTAS can give gas to third parties. There will possibly be price reductions in the coming days. Those are the dimensions related to Russia and Turkey. Another dimension is that Turkey tries to guarantee the Azerbaijani side. Although Russia has been playing an effective role in the western part of the Caspian basin, it has not achieved the signing of big deals with Azerbaijan.

However, it is crucial to indicate that there is a certain competition between Turkey and Russia in this regard. Today, while Russia tries to transport Azerbaijani gas to the Western market through the north, at the same time, Turkey also tries to open a new artery to the West via its land. In that issue, all the concern regards the Shah Deniz-2 field. In the beginning of the 1990s, Azerbaijan developed the Shah Deniz-1 gas field and since the middle of the 2000s, it has started production in this field. This gas has supplied Azerbaijan’s demand and also some of the Turkish and Greek gas demands. However, today, we are discussing about the second phase of the Shah Deniz gas field from which 20 bcm of gas will be producedannually. There has been a deal with Baku and Ankara to transport through Turkish land. In this regard, the Trans-Anatolia pipeline will be constructed and 16 bcm of gas will flow to the European market via Turkey. However, the problem is that it is not certain whether this volume of gas will flow to either Southern Europe or Central Europe. If the gas will be transported to the southern area, it does not matter for Russia because Moscow is concentrated on controlling the Western and Central European market. If Turkey and Azerbaijan build a pipeline through the Greece and Italy line, it will not annoy Russia. The aforementioned project is not Nabucco, as from now on Nabucco will be regarded as a European project not Azerbaijani. However, the Trans-Anatolian project will achieve bringing Azerbaijani gas to Turkey, which can be considered the first phase of Nabucco. Following this, Azerbaijan and Turkey stated they would decide whether the route of the gas would be Eastern or Southern Europe in accordance to offers, and that which ever made the best offer would win as well. Turkey has acquired adequate gains from this deal, as it enabled Turkey to get nearly 6 bcm of gas and on the other hand, also build a new pipeline. This project will be beneficial for the Turkish, Azerbaijani and Georgian economies. Moreover by the way of the project, as it is Azerbaijan’s second branch to the Western market, Azerbaijani dependence on Russia will be reduced. However, Russian permission for such projects in the Caucasus will be limited. If the limits were to be exceeded, the regional balances would be shaken. Therefore, after Turkey gets what it wants from Azerbaijan, I expect that it will give the green light to Russia over the South Stream project. Turkey will benefit from this deal by fueling its economic growth as it needs more Russian gas, and along the way, Turkey will meet its energy demand. Another important issue is the Arab Spring. The Syria problem, democratization and secularism in the Arab world have brought the Iran issue to the fore as well. While Iran is being annoying with its debates, the placing of NATO missiles on Turkish land also strained Turkish-Iranian relations. Regarding this, Tehran has been threatening the global economy with its recent statements about closing down the Hormuz Strait.

Apart from that, nearly 20-30% of Turkey’s gas demand is supplied by Iran. However, Iran could undoubtedly cut the supply of gas in the winter period. Also recently, Iran has started to use gas as a political instrument. Therefore, in order to balance Iran with Russia and vice versa, Azerbaijan is critical for Turkish energy policies. However, it is not enough; Turkey needs gas for regional integration and development and the promoting of clean energy. Those goals will not be achieved with only Russia, Iran, and Azerbaijan. Therefore, in the coming decades, Turkey should debate new alternatives such as Turkmenistan, Qatar, and Iraq as well. Instead of adopting policies on the possible projects, Turkey needs to build new concrete policieswhich will contribute to its short and medium-term necessities. In this regard, the agreement with Russia is critical. Although Turkey did not bargain on the problematic issues, the process brought opportunities which enable Turkey to use the South Stream card.

Essentially, in order to persuade Russia on some specific conditions about Western gas, Turkey has to say yes to South Stream. We will see whether this process will be a zero-sum game, or an advantageous game for Russia or Turkey in the coming period. However, it is certain that the deal with Russia will balance possible Iranian and Azerbaijani pressures on Turkey. Although those existing agreements will not completely balance Russian pressures, they will bring some mitigating effects. I believe that Turkey will enter a new period with the Trans-Anatolian project. In the current situation, Turkey’s dependence on Russia did not decrease, but contrastingly sharply increased. Agreements on nuclear power plants, oil, and gas sale deals have made Russia a critical partner for Turkey. Considering those matters, Turkey has to satisfy Russia and should therefore assess the South Stream project within this context.

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