Wednesday, April 1, 2009

Turkey at the Energy Crossroads Turkey, Present and Past Part I


by Tuncay Babalı


1st part of 2

Turkey is increasingly at the crossroads of the world energy trade. Because of tanker traffic through the Bosporus and Dardanelles straits, Turkey has become an important north-south oil transit route. The Baku-Tbilisi- Ceyhan (BTC) oil and Baku-Tbilisi-Erzurum (BTE) natural gas pipelines make Turkey an important east-west route as well. Economic opportunities, however, can present diplomatic liabilities. As the importance of Turkey's energy sector has grown, Turkey has come under increasing pressure. Turkey finds itself caught between competing U.S. and Russian interests as a result of the August 2008 Georgia conflict. Turkish-Iranian energy trade has also brought Washington's ire down on Turkey. Turkey's efforts to minimize problems with its neighbors may make it popular with some, but it has led others to question the strength of the U.S.-Turkish strategic partnership. Analysis of Ankara's options show that it has little choice besides greater caution and engagement, and that energy concerns rather than a reassessment of its Western ties motivate its outreach to Russia and, to a certain extent, Iran.


Turkish-Russian Bilateral Relations

Historically, U.S.-Turkish relations have been strong. Throughout the Cold War, Turkey was a staunch member of the North Atlantic Treaty Organization (NATO). Along with Norway, it was the only NATO country to border the Soviet Union. The Soviet Union's collapse fundamentally altered Turkey's geopolitical position. To the east, Turkey found itself a neighbor to three new countries: Azerbaijan (through the Nakhchivan enclave), Armenia, and Georgia. The Warsaw Pact's demise made neighboring Bulgaria a promising new market. And the Black Sea, once the proving ground of the Turkish and Soviet navies, suddenly became a much friendlier place. It was not long before Turkish businessmen began exploring new economic opportunities.

Analysts and politicians have explained the rapprochment as "ever closer cooperation and [a] multidimensional partnership."[1] At the same time, many U.S. analysts and officials worry that Ankara's warming ties with Moscow signal a decline in the U.S.-Turkish alliance.[2] It need not be like this, however; rather, the growing Turkish-Russian relationship is based on the economic interests of both countries.

In many ways, the private sector has driven Turkish-Russian rapprochement. In 1990, Turkish-Soviet trade was $1.7 billion.[3] A decade later, it was $4.5 billion. By 2007, bilateral trade between Turkey and Russia reached a record $28 billion, albeit with an $18.6 billion Turkish trade deficit. In the first nine months of 2008, bilateral trade had already reached $30 billion with a total trade volume expected to reach $36 billion for the year. Whereas Germany was Turkey's number one trading partner up to 2007, today Russia has taken its place. Indeed, Turkish-Russian trade is now, by volume, almost three times that of U.S.-Turkish trade.[4]

In 2002, both countries completed the 16 billion cubic meter/day capacity Blue Stream pipeline, running from the Beregovaya compressor station in Arkhipo-Osipovka to the Durusu terminal located 38 miles from Samsun, Turkey. Gas flow from Russia to Turkey started in February 2003. However, because of a price dispute between the two countries, the inauguration ceremony could not be held until November 17, 2005.

Energy cooperation—both gas and oil—forms the basis of Russo-Turkish economic relations. Gas is Turkey's major import. In 2007, Turkey imported 23.15 billion cubic meters of natural gas through both western and Blue Stream pipelines, up 18 percent from the year before. Turkey, as the third largest importer of Russian gas after Germany and Italy, depends on Russia for almost two-thirds of its gas imports.[5] If Turkey cannot tap other major supplies from Azerbaijan, Iraq, and Turkmenistan by the early 2010s, then the Russian share of Turkey's gas supply will increase to 80 percent of the total.

In addition, Turkey imports approximately six million barrels of oil (seven million tons) annually from Russia, 30 percent of Turkey's total oil import and second only to that purchased from Iran. Turkey is also the third largest importer of Russian coal following Ukraine and Great Britain, spending $710 million in 2007.[6]

It is not just geography and energy that make Russia such an attractive trading partner for Turkey. Even though Russia's population is twice that of Turkey's, if the energy sector's contribution is subtracted, the Russian economy is smaller. Flush with cash from the still underdeveloped oil boom, Russia provides Turkish industry with ample opportunity. Turkish contractors have engaged in projects worth close to $28 billion; $5 billion in 2007 alone.[7] In addition, Turkish direct investments in Russia reached $6 billion by the end of 2007.

Tourism has also helped cement relations. In 2007, 2.5 million Russian tourists visited Turkey, almost four times the number of American visitors.[8] In only the first six months of 2008, Turkey welcomed two million Russians. Both Ankara and Moscow encourage this trend, which is unprecedented in the history of the two countries. According to the memorandum of understanding signed in 2006 between the Turkish Ministry of Culture and the Russian Federation's Federal Agency for Culture and Cinematography, Ankara named 2007 the year of Russian culture in Turkey. Moscow reciprocated and declared 2008 the year of Turkish culture in Russia. On October 20, 2008, the Red Army Chorus and the Ottoman Army Military band (Mehter) gave a joint concert in the Kremlin.[9] Such a concert may seem a side note to a U.S. audience, but for both Turks and Russians, it had immense symbolic meaning, given that the Russian and Ottoman armies had clashed eleven times in major battles in the course of history. Few Turks ever expected a "Janissary" soldier to sing "Kalinka" in the Kremlin Palace.

The leaders of both Turkey and Russia have encouraged further bilateral developments. On December 5-6, 2004, Russian president Vladimir Putin paid his first bilateral visit to Turkey, the first by a Russian head of state since 1972 when Nikolai Podgorny, the chairman of the Presidium of the Supreme Soviet of the USSR, paid a symbolic visit to the country. Putting aside Podgorny's visit, Putin's was the first state visit by a Russian head of state since the beginning of official diplomatic relations 512 years before. During the visit, Putin and Turkish president Ahmet Necdet Sezer signed a joint declaration of cooperation which characterized bilateral relations as a "multilateral strengthened partnership."[10] The following year, Turkish prime minister Recep Tayyip Erdoğan visited Russia three times, and Putin returned to Turkey to mark the opening of the Blue Stream pipeline. On June 28-30, 2006, Sezer became the first Turkish president to visit Russia,[11] and his successor, Abdullah Gül was scheduled to visit Moscow in January 2009. In contrast, during this period, U.S. Secretary of State Condoleezza Rice visited Turkey only twice (February 5-6, 2005, and April 25, 2006) and National Security Adviser Stephen Hadley just once.

Nor are the Russo-Turkish visits just symbolic. In follow-up agreements to the Turkish-Russian partnership, the foreign ministries of both countries established a bilateral consultation mechanism to cover twelve different subjects in February 2006. The commission held meetings in November 2006 and June 2008.[12] In contrast, the United States and Turkey do not enjoy such a comprehensive, regular mechanism for meetings or developing relations. Instead, because of the difference of opinion over the invasion of Iraq, they started in July 2006 to have irregular "Shared Vision and Strategic Dialogue" meetings. Although it is one of the key strategic partnership topics for Ankara and Washington, the parties were able to establish a working group on energy issues only in the summer of 2008.


Turkey's Energy Strategy

Turkey's energy strategy has three main pillars. The first is to ensure diversified, reliable, and cost-effective supplies for domestic consumption; the second is to liberalize its energy market; and the third is to become a key transit country and energy hub. Three quarters of the world's proven oil and gas resources are located in regions neighboring Turkey, and there is an increasing dependence on Russian, Caspian, and Middle Eastern oil and natural gas by Europe, the United States, and developing East Asian countries.

Approximately 3.7 percent of the world's daily oil consumption transits the Turkish Bosporus and Dardanelles straits. While this is currently only one-fifth of the traffic that passes through the Strait of Hormuz, it still represents a 240 percent increase in traffic over the last decade.[13] Two-thirds of these tankers carry Russian oil and gas exports; most of the bulk cargo trade is also Russian.

This creates a problem for Turkey, however. Istanbul, its largest city, straddles the Bosporus with a population of thirteen million. The 19-mile-long Bosporus has a convoluted morphological structure that requires ships to change course at least twelve times, including four separate bends that require turns greater than 45 degrees. At Kandilli, a blind 45-degree bend complicates navigation where the channel narrows to less than half a mile. At both Kandilli and Yenikoy, forward and rear lines of sight are blocked during turns. Moreover, two bridges built in 1973 and 1988 spanning the channel increase the navigational threats. Approximately 1.5 million people cross the waterway daily on intercity ferries and shuttle boats, accounting for about 1,000 east-west crossings.[14] No other city in the world is exposed to the transit of such volatile cargo every day.

Planning for an accident in the congested shipping passage is every Istanbul waterway official's nightmare. All Turkish officials remember the conflagration that followed a collision between two Cypriot tankers at the Black Sea entrance to the Bosporus on March 13, 1994. The accident killed twenty-nine crewmen, polluted the waterway with nineteen million gallons of crude oil, shut the channel for a week, and caused $1 billion in damage.[15] Today, ships four times as large as those involved in the accident ply the waterway. Turkey has been lucky that there have been no more major accidents. Still, between 2004 and 2007 alone, there were 103 minor accidents in the Bosporus strait. Over the same period, 651 tankers experienced technical breakdowns or malfunctions in the passage. Shipping is no longer a sustainable way of carrying hydrocarbons through the Bosporus.

Russian energy companies understand the gravity of the situation, and even as Moscow demands fulfillment of the 1936 Montreaux Convention's guarantee of "free and uninterrupted passage" through the Turkish straits, Russian officials and energy companies are aware that current traffic through the Bosporus is unsustainable. The solution lies in the use of alternative oil export options that bypass the straits.

The Blue Stream natural gas pipeline is one of the main components of a north-south axis alternative transport strategy. In 2007, Turkey imported 9.3 billion cubic meters of Russian gas through Blue Stream; the figure for 2008 is likely to be 25 percent higher. The Turkish Ministry of Natural Resources and Energy regards the implementation of gas transit projects through Turkey to third markets as possible new projects to strengthen Turkish-Russian energy cooperation.

Turkey also has begun work on other pipeline bypass options. While the Trans-Thrace pipeline has been cancelled because of environmental concerns, the Samsun-Ceyhan project (also called the Trans-Anatolian pipeline) broke ground at Ceyhan on April 24, 2007, in a joint venture between Turkey's Çalık Energy, Italy's Eni, and the Indian Oil Corporation (IOC); it is expected to have a capacity of 60 million barrels annually (70 million tons). Ceyhan provides distinct advantages for its existing infrastructure and linkages to the Baku-Tbilisi-Ceyhan pipeline. Originally meant to terminate at Samsun, its directors calculated that Unye, a small town in eastern Samsun province, would allow larger offshore facilities while reducing the total length by sixty miles. The proximity of Unye-Samsun to the oil outlets of Novorossiysk, Supsa, and Batum on the eastern Black Sea minimizes seaborne transportation of oil in the Black Sea.

While environmental concerns have also caused Turkish officials to oppose plans for an oil terminal in the Aegean Sea, there has been preliminary progress on the potential Medstream project, which envisions a network of pipelines to supply oil, natural gas, electricity, and water, possibly along with a fiber optic line from Turkey to Israel by connecting the Blue Stream and Samsun-Ceyhan pipelines to Israel's Ashkelon-Eilat pipeline. Feasibility studies have been positive, and Israeli demand would enable Russia's state oil company, Gazprom, to fill the Blue Stream pipeline although progress has stalled as Moscow and Jerusalem have yet to agree on a contractor to lay the pipeline from Ceyhan to Ashkelon.[16]


Tuncay Babalı                                    ./..


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