by Tuncay Babalı
2nd part of 2
Turkey's Energy Relations with Iran
Despite frequent Iranian declarations of contracts and partnerships, since 2001 Turkey has been the only significant importer of Iranian gas. Turkey signed the Iran contract in 1996, during the short tenure of the Refah Party, whose leader Necmettin Erbakan's Islamist leanings later led to public pressure for his resignation. While the Islamic Republic is Turkey's second largest gas supplier after Russia, Ankara's dealings with Tehran have not been easy. Iran often demands prices higher than those of alternative suppliers, and gas quality and quantity often fall below the terms agreed. Even after renegotiation, Iran currently supplies Turkey with a little over half of its contracted 9.6 billion cubic meters of natural gas a year (6.16 billion cubic meters in 2007). In both January 2007 and January 2008, Tehran slashed gas exports to Turkey in the face of high Iranian domestic demand.
Turks certainly do not always consider Iran a reliable partner. Ankara and Tehran have also come to loggerheads over Iran's failure to respect commercial contracts. On May 8, 2004, the Islamic Revolutionary Guard Corps forced the expulsion of the Turkish construction consortium TAV from Tehran's flagship Imam Khomeini International Airport despite a 15-year service contract. That same year, the Iranian government also cancelled Turkcell's successful bid to enter the Iranian cell phone market.
Still, under the ruling Justice and Development Party (AKP) chairman and prime minister Erdoğan's administration, there has been a renewed drive for energy partnership with the Islamic Republic. On July 14, 2007, Iranian oil minister Kazem Vaziri-Hamaneh and his Turkish counterpart, Hilmi Güler, signed a memorandum of understanding by which the two sides agreed to build 2,200 miles of gas pipelines to transport up to forty billion cubic meters of gas annually to Europe through Turkey. They also agreed to increase cooperation in electricity generation and to construct natural gas power stations. This would allow the Turkish state oil company, Türkiye Petrolleri Anonim Ortaklığı, to develop successive phases of the South Pars gas field, a $3.5 billion undertaking. But one year later, the energy accords remained formally unconcluded.
Turkish-Iranian energy cooperation has angered Washington because it undercuts White House efforts to isolate the Islamic Republic over its defiance of three U.N. Security Council sanctions seeking suspension of uranium enrichment. Reuben Jeffery III, undersecretary of state for economic affairs, urged Turkish officials to bypass Iran and develop alternatives in the Caucasus and Central Asia. U.S. energy secretary Samuel Bodman and undersecretary of state Nicholas Burns have traveled to Ankara to underscore U.S. displeasure. Burns even alluded to possible application of the Iran Sanctions Act which would enable the U.S. government to sanction any company investing more than $20 million in the Iranian hydrocarbon sector.
Erdoğan, however, has shrugged off Washington's displeasure and said Turkey seeks diversified energy supplies. It would be "out of the question to stop imports from either country [Russia or Iran]," Erdoğan said following the Georgian war, especially as Turkey's energy needs grow by almost 6 percent per year.
Geopolitical Reality Check
The August 8, 2008 Russian invasion of Georgia has complicated Turkish strategy. Immediately after the invasion, Anatoly Nogovitsyn, deputy chief of Russia's General Staff, warned Ankara that Moscow would hold Turkey responsible for allowing U.S. navy ships through the Turkish straits to provide humanitarian assistance to Georgia should U.S. ships remain in the Black Sea for more than three weeks, as stipulated by the Montreaux Convention.
According to some analysts, in apparent retaliation for allowing the U.S. ships passage, Russia has imposed new import controls on trucks at Russian border points. Russian foreign affairs minister Sergei Lavrov's September 2, 2008 visit to Turkey failed to resolve the dispute although he denied any connection with the U.S. ships' passage to the Black Sea. Some Turkish trade officials say—depending upon the timing of final resolution of the problem—Turkey may lose roughly $3 billion because of these new Russian restrictions.
Turkey's leaders are treading carefully around the Georgia crisis. Although Turkey has called for Georgia's territorial integrity to be respected, it has refrained from embracing the stronger rhetoric coming out of Washington and Brussels. An explosion on the Turkish portion of the Baku-Tbilisi-Ceyhan pipeline three days before the Russia-Georgia conflict highlighted Turkish vulnerability, even if it were caused by technical error.
Prime Minister Erdoğan walked a very tight rope, explaining to the Turkish daily Milliyet, "It would not be right for Turkey to be pushed toward any side. Certain circles want to push Turkey into a corner either with the United States or Russia after the Georgian incident. One of the sides is our closest ally, the United States. The other side is Russia with which we have an important trade volume. We would act in line with what Turkey's national interests require." Prime Minister Erdoğan's top foreign policy advisor Ahmet Davutoğlu explained, "You can't say that Turkish-Russian relations can be like Danish-Russian relations, or Norwegian-Russian relations, or Canada-Russian [sic] relations. ... Any other European country can follow certain isolationist policies against Russia. Can Turkey do this? I ask you to understand the geographical conditions of Turkey... We don't want to pay the bill of strategic mistakes or miscalculation by Russia, or by Georgia."
As some analysts at Stratfor Intelligence Service put it, however, "Moscow got its point across: Europe can sink its money into projects designed to leave Russia in the cold [mainly east-west energy corridor projects like Baku-Tbilisi- Ceyhan, Baku-Tbilisi-Erzurum, and Nabucco], but the Russians still have the will and capacity to disrupt many of these projects."
The Georgian crisis has shattered many of the assumptions in both the East and West about how oil and gas from the Caspian Basin can best be transported to international markets and, as a result, about the relations between producing and transit countries on the one hand and those two categories and the rest of the world on the other.
Both Caspian Basin oil and gas producers and Western powers have wanted oil and gas export pipelines from that region to bypass Russia but, at the same time, have ruled out Iran as an alternative. Following the successful completion of the Baku-Tbilisi-Ceyhan and Erzurum pipelines and the first leg of the Turkey-Greece-Italy gas interconnector, the U.S.-Turkish "east-west energy corridor" concept envisions extending these pipelines east to Kazakhstan and Turkmenistan via the Trans-Caspian pipeline and west to Europe via the Nabucco pipeline between Turkey and Austria. This would, for the first time, allow the European Union to buy Caspian gas without a Russian intermediary.
Given the continued standoff between Azerbaijan and Armenia over the Nagorno-Karabakh region, that leaves only one route available: the current BTC pipeline route through Georgia. Georgian and Russian actions there have called into question the security of this pipeline. According to analyst Soner Cagaptay, "It is hard to imagine today how any energy company would invest in extensions to the East-West corridor, along which Georgia has become the weak link."  With its actions in Georgia, Russia has sent a strong message to "the U.S.-Turkish plans to boost the East-West corridor and make Turkey an entrepôt of Caspian energy. Moscow has also preemptively blocked the EU's plans to buy energy from the Caspian Basin without having to go through Russia." 
As a result, some Caspian Basin states are now considering exporting their hydrocarbons via Russia even if that gives Moscow leverage over them, while some Western countries that want to punish Russia are discussing allowing exports via Iran; still others are pushing to resolve the Karabakh crisis in order to allow the export of oil and gas via Armenia.
No matter what solutions major powers pursue, the mere discussion of alternative energy strategies suggests old allies may come into conflict while old enemies may begin to cooperate. Perhaps the first major shift will be in Turkish-Armenian relations. On September 6, 2008, at the invitation of Armenian president Serzh Sargsyan, Turkey's president Abdullah Gül visited Armenia—a country with which Turkey does not have diplomatic relations—to watch the 2010 World Cup qualifier soccer match between their national teams.
A second outgrowth of the Georgian crisis has been plans to create a "Caucasus Stability and Cooperation Platform" to include Armenia, Azerbaijan, and Georgia as well as Turkey and Russia. In principle, each country has agreed to support the initiative.
Energy dominates Turkish strategic thinking. While the United States enjoys a relatively peaceful neighborhood, Turkey exists in a tough and complicated region. As Turkey continues to industrialize and develop into a regional hub, its thirst for oil will only increase. This requires not only diversification but also good relations with all its neighbors, in addition to and not to the exclusion of its traditional partnerships. Turkey simply does not have the luxury to remain aloof from its neighbors, even if they are Russia and Iran.
Still, the Russian invasion of Georgia underlines the uncertainty that marks Turkey's diplomatic realignment. The future of Turkish-Russian energy relations and the north-south corridor depend largely on Moscow's vision of energy security for Europe and the world. Russian officials often point out that during the Cold War, they did not stop supplying oil to the West. While that is correct, it is equally true that the reputation of the Russian Federation as a consistent and trustworthy energy supplier is questionable. Moscow's use of energy as a trump card against Ukraine, Belarus, Latvia, Georgia, Azerbaijan, and the Czech Republic raised eyebrows. Even if Russian decision-makers perceive energy as not only an economic but also a political matter, energy bottlenecks due to political risks are always a possibility—a situation that will increase the legitimacy of energy policies aimed at creating alternative supply routes.
This should make Turkey's long-term energy development important to the United States and Europe even if Washington remains upset at the short-term implications of Ankara's dealings with Tehran. Diversification of new energy supply routes remains crucial not only to Turkey's development but also for the West's energy security.
Tuncay Babalı, Ph.D., is counselor at the embassy of the Republic of Turkey in Washington D.C. The views expressed in this article are the author's own and do not necessarily reflect those of the Ministry of Foreign Affairs of the Republic of Turkey.
Copyright - Original materials copyright (c) by the authors.
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