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Turkey's energy dynamics, regional politics and pipelines in the context of global game-changers

14 October 2013

The energy debate is increasingly focused on new factors that could prove transforming for global supply and demand, and could alter longstanding assumptions about energy security and geo-economics. Shale gas, the rise of LNG as a global commodity, setback in nuclear power renaissance, climate change, new renewable initiatives, volatile energy prices and increasing geopolitical tensions all play a role in this changing energy outlook.

Produced for National Defence University, Washington DC, 14 September 2012 Mehmet Öğütçü, BREC Board Member

Key features of the developments in world energy

Since the end of the Cold War, and as the twenty-first century continues to unfold, international relations amongst the great powers have undergone fundamental changes. In one important respect, access to energy — and in particular fossil fuels — is reshaping the post-Cold War environment today more profoundly then could have been foreseen during the 1990s.

In the new, energy-centric world we have all now entered, the price of oil and gas will dominate our lives and power will reside in the hands of those who control their global distribution. In this new world order, energy will govern our lives and determine when, and for what purposes, we use our cars; how high (or low) we turn our thermostats; when, where, how or even if, we travel; increasingly, what foods we eat (given that the price of producing and distributing many meats and vegetables is profoundly affected by the cost of oil or the allure of growing corn for ethanol); for some of us, where to live; for others, what businesses we engage in; for all of us, when and under what circumstances we go to war or avoid foreign entanglements that could end in war.

The share of natural gas in the primary energy mix is rising faster than that of oil and coal and the gas industry is simultaneously undergoing immense changes as new technologies, demand and supply patterns entice new market forces. Natural gas, found in abundance in only a handful of countries (Russia, Iran and Qatar together possess over half the world"s proven gas reserves), is inercreasingly the fuel of choice for a number of end-uses. A development that has and is transforming the landscape of the natural gas industry is the advent of LNG.

Source: BP Statistical Review of World Energy

Shale gas has the potential to be a "game changer," dramatically augmenting natural gas supply and opening new opportunities for competition among different energy sources. Specialists see the strategic importance of developing shale gas in Europe as a means of reducing the continent's dependence on Russian imports. Some have argued that developing shale gas is even more important for Ukraine, a country which has no gas resources of its own but is rich in coal.

The countries where shale gas is presumed to exist in the EU are Germany, Poland, Sweden, France, Austria, Hungary and the UK. Warsaw is harbouring major ambitions to develop shale gas, the switch towards which is like "the 21st Century's gold rush"[1]. Shale gas cannot be seen yet as a game changer in Europe as it is in the United States, where roughly 50 percent of the country's needs are met by developing unconventional gas [2]. The "shale gale" sweeping across North America the past few years has more than doubled the size of the discovered natural gas resource in North America-enough to satisfy more than 100 years of consumption at current rates[3].

Overall, Western countries are producing less and less of their own energy, and are therefore having to import more and more. This is having a massive impact on the transfer of wealth. The energy guru, Daniel Yergin, has estimated that the U.S. is currently transferring about $1.3 billion to the oil-producing countries every day — or if you prefer, $475 billion a year. If we include China, the EU, India, and Japan in this calculation, every year the major oil consumers are transferring over $2.2 trillion to the oil producers[4]. What we know is that these massively increased energy revenues not only mean more economic power for the oil producers, but also, of course, increasing political power and influence in shaping the new global security order.

The new world energy system will be shaped by rising demand over the long term, dominance of fossil fuels, inaccessible supplies, price volatility, inadequate investment, geopolitical tensions, and climate change. Three great trends will define the geopolitical energy landscape of the 21st century: The rise of new economic dynamos like China and India, with voracious appetites for energy and other raw materials; the reluctance of the mature industrial powers, led by the United States, Europe, and Japan, to abandon their privileged status atop the resource-consumption pyramid; and the gradual depletion of many of the world's vital resources. How these three trends interact will largely determine the shape of the future world order.

A growing risk of conflict

Throughout history, major shifts in power have normally been accompanied by violence — in some cases, protracted violent upheavals. History has all too many examples of miscalculations leading to wars that spiral out of control. Think of the years leading up to World War I. In fact, Central Asia and the Caspian today, with their multiple ethnic disorders and great-power rivalries, bear more than a glancing resemblance to the Balkans in the years leading up to 1914.

Volatile prices have, together with many other factors, shifted power significantly to producing countries, especially a few large ones, where the majority of remaining reserves are located, such as the Gulf, Russia, and Central Asia. These countries seek a changing or reshaping of the traditional rules of the game for the benefit of their national interests.[5] They have the political will to use energy as an instrument to advance their economic and political interests.[6] Aware of their increasing power, many of the resource-rich countries either have re-nationalized their oil industries, or have established strategic control through further transfer of power into the hands of governments.[7] Production sharing contracts are in the process of being transformed into technical service contracts.

Due to increased demand and depletion of domestic reserves, major consumers will have to rely more on imported oil and gas, from a few politically instable regions such as the Middle East, Africa, Russia and Central Asia, through long-distance pipelines, and vulnerable sea routes[8]. This, combined with the fact that the international market is less stable and more prone to the disruptions of natural disasters, terrorist attacks, and isolated geopolitical acts, has increased the vulnerability of these consumer countries. Yet, suppliers are also concerned about demand security given the depressed prices and demand in most OECD economies as a result of the economic recession [9].

The uneven distribution of energy resources among states, and the critical need to access those supplies by all states, leads to significant vulnerabilities[10]. The coercive manipulation of energy supplies, competition over energy sources, the tendency of energy producing countries to political instability, attacks on supply infrastructure, competition for market dominance, accidents, and natural disasters are all adding significant risks to global energy security[11]. Increased competition over energy resources may also lead to the formation of security compacts to enable an equitable distribution of oil and gas between major powers.[12]

Another concern is the protection of critical infrastructure. As western, domestic sources of energy start to dry up, oil companies are drilling in much more isolated and hostile environments, because technology makes extraction more commercially viable. More oil and gas is extracted from under the sea rather than from under the land. Tankers criss-cross the oceans delivering these products from one continent to another. Pipelines are getting longer and often pass through unstable areas[13]. Over the past few months we have seen several examples of how easily these sophisticated supply networks can be threatened — in the Nigerian Delta, off the coast of Somalia, and in the Southern Caucasus.

What makes the world energy somehow unstable are "above-ground factors." Certainly, the poor state of the world's oil infrastructure is partly to blame. And, the lack of investment in new capacity by major oil exporters such as Russia, Iran, Venezuela and Mexico is another problem. But the energy infrastructure of the world is by definition both an above-ground and below-ground system. And, so by definition the level of oil production is influenced by technological developments, war, civil unrest, energy policy, investment decisions and a host of other human actions.

By dint of their sheer size and population -- and their collective decision to embrace their own particular brand of capitalism [14] -- BRICs are the economic future of the world. Together, the BRICs encompass more than 25 percent of the world's land mass and 40 percent of the world's population. Thanks to their anticipated, rapid growth, by 2050 the BRICs could eclipse the joint economies of the current, richest countries of the world. China and India will become the dominant global suppliers of manufactured goods and services. Brazil and Russia will be the world's leading suppliers of commodities. The BRICs today already account for a combined GDP of $15.435 trillion on a purchasing power basis[15]. By that measure, they are already collectively larger than the U.S..[16]

For the first time in recent memory, BRICs are growing not by borrowing, but by investing. China has the world's highest savings rate. Brazil and Russia are sitting on huge foreign currency reserves, thanks to windfalls from oil profits. Soaring commodity prices have put more money in BRICs" pockets than ever before. That means much less danger of a financial meltdown like those that Brazil and Russia experienced in the 1980s and 1990s. A decade after defaulting, Russia has a higher credit rating than the EU economies of Greece and Portugal.

Energy supplies are likely to get tighter in the next few decades for all economies, unless massive investments and new technologies are mobilized. The root-causes for most geopolitical tensions are the scarcity of resources that fuels competition among nations for a bigger pie, particularly in energy, water or food. Our generation never had to bother much about turning out the lights, heating our homes, or driving our cars. But our children's will.

How would Turkey"s future role in the new emerging energy architecture evolve?

In the midst of such game-changing developments, Turkey has emerged as an important actor to reckon with as a consumer, transporter, investor, regional hub, and security provider in energy and geopolitics. As global energy demand continues to grow, Turkey is positioning itself as an energy hub for supplies from the East and North, and consumers in the West. Meanwhile it is also working on improving its own security, with plans to boost the share of renewables and nuclear power in its portfolio, and to boost energy efficiency. Turkey"s energy sector is also readying itself for further major investment from abroad. Turks are acting increasingly in pursuit of their own self-interest, rather than following the dictates from Washington or Brussels.

The Turkish government predicts that energy needs will increase 10 percent each year for the next 20 years. Energy supply security[17] is therefore of prime importance to the country"s sustainable growth and development.

Turkey is not blessed with its own domestic energy resources, and imports more than 60 percent of the energy it consumes. Turkey"s domestic supplies, particularly in oil and gas, are miniscule. Its own oil and gas reserves account for only a tiny fraction of its rapidly rising demand. Oil consumption, at 35 percent, accounts for the majority of Turkish energy consumption (675,000 barrels per day — bpd) while crude production stood only at 48,000 bpd. This is followed by natural gas at 29 percent, coal at 25 percent, hydroelectric and renewable consumption at 11 percent. Nuclear electric energy consumption is for the time being zero — two nuclear power plants are under consideration with Russian and Korean support.

The growth in oil consumption is expected to continue at a rate of about 2-3 percent per year. Turkey's oil consumption, 78 million tonnes of oil equivalent in 1998 and 179 Mtoe now, is expected to reach 319 Mtoe by 2020. Turkey's natural gas consumption is expected to grow rapidly, quadrupling within the next 20 years, with 1,400 bcf gas consumption projected for 2020.

As a significant emitter of carbon dioxide and an ideal ground for solar, wind, hydro, geothermal and (perhaps) nuclear energy, it is also set to become a major player on the world"s increasingly important climate change and green energy stage.

A key transit/terminal hub of both oil and gas to the heavy consumer nations of Europe, Turkey is a nexus of multiple important pipeline projects and provides access to the Bosporus Strait and the eastern Mediterranean via the Ceyhan terminal. Not only a significant consumer in its own right, Turkey is also geographically close to 72 percent of the world's proven oil and gas resources, and thus is a natural energy hub between major oil-producing areas in Russia, the Caspian Sea basin, and the Middle East, and European consumer markets and has thus become the "Silk Road of the 21st century."

Turkey, poor in energy resources, and one of the high growth energy markets, also commands major chokepoints and transit routes for energy shipments. In natural gas, Turkey is Gazprom"s second largest market in the world after the EU. Despite difficulties in sustainable supply, Turkey is the only market for Iranian gas exports to date. It is the major outlet for Azerbaijani oil via BTC, and gas via the TGI Interconnector and the South Caucasus Pipeline. Iraq"s entry to the Mediterranean markets is through Turkey"s Yumurtalik deep-sea port. Iraq and the Arab peace pipeline coming from Egypt could also be other potential insurers of Turkey"s energy security.

Is Turkey a genuine regional powerhouse and energy hub?

By any objective criteria, Turkey is a regional power with which to reckon. A country of 780,576 square km, Turkey is almost the size of Germany and France put together. What opponents of Turkey's EU accession complain most about is that its population is too poor, and too big (at 73 million today and 80 million by 2015), although they are increasingly better educated and prosperous. If calculated in terms of purchasing power parity, Turkey is among the world's top 16 economies, with a GDP size of around $750 billion (the largest in its region and 7th largest in Europe).

Added to these facts are Turkey"s huge military power (second largest in NATO after the US and biggest in its region), world-class manufacturing and construction capacity, its status as a cultural center of attraction, and tourism potential. These facts imply a medium-size, global, economic, and military power. Turkey can do much better over the longer term, judging from the performance of dynamic Asian economies, if it can pursue a "high growth" (i.e. 7-8 percent per annum) path.[18]

Conscious of its unique assets in hand, Turkey pursues a long-term strategy of becoming a major Eurasian energy hub[19]. Better connections with both supplier countries and energy consumers not only serve to increase Turkey"s geopolitical standing, they also bring lucrative business opportunities in the form of transit fees, or through new refineries, LNG terminals, and trading facilities. Another value is to diversify Turkey"s own energy supplies and to re-export any surplus gas it may have.

Yet, whether the Turkish goal of becoming an energy bridge along east-west and north-south axes (and serving not only as a transit country, but also as an aggregator and center of trade) is a realistic one remains largely unanswered. True, Turkey is located at the crossroads of regions possessing three-quarters of the world's oil and natural gas reserves — sandwiched between major centers of energy production and consumption. Oil is fungible and could easily find its way to international, high-value markets, once it is loaded on a tanker. The critical fuel is natural gas.

If Turkey becomes a transit country for Russian gas only, its value will be rather insignificant. Turkey could become a critical energy hub if its supplies of gas were to originate from multiple sources, such as Russia, Turkmenistan, Iraq, and Iran. If Turkey could offer access to Russian and non-Russian gas supplies to European markets, its role as an integral part of the European energy structure would be secured.

In many ways, Turkey already fulfils the role of an energy hub. It does so in transporting oil through the Bosphorus strait and through several new pipelines linking it to Russia and the Caspian. Every year, some 10,000 tankers pass through the Bosphorus strait, which connects the Black Sea with the Mediterranean. Traffic keeps growing rapidly, and today a tanker maneuvers through these narrow, busy waterways every 20 minutes during the daytime.[20]

Can Turkey live up to its own rhetoric of being a regional energy hub? There are three projects on the drawing board. TANAP is an ambitious scheme to pipe 16 bn cubic metres of gas to central Europe. Although TANAP aims eventually to bring gas from Turkmenistan, Iraq and even Iran, none of the three projects will get off the ground without supplies from Azerbaijan"s Shah Deniz II fields, set to come online in 2018 and produce up to 16 bcm a year[21].

For its part, Turkey appears to be pursuing a two-pronged energy strategy. First, it seeks to diversify its own sources of imported fuel. Second, the Turkish strategists see the turning of their country into an east-west and north-south energy corridor as part of a broader plan aimed at enhancing Ankara"s geopolitical role in the region. Indeed, the main components of the Turkish energy corridor are the Straits, the Baku-Tbilisi-Ceyhan crude oil pipeline, the Shah-Deniz natural gas pipeline (Baku-Tbilisi-Erzurum), the Blue Stream, Iraq and Iran pipelines and the Trans-Caspian/TANAP Gas Pipeline projects.

Some EU officials say that energy is too pressing an issue to wait for the Turkey accession talks to make progress. They add another argument for decoupling energy from the enlargement process, namely that Turkey should not be allowed to use its strategic location to get concessions from the EU. This, they fear, could set a dangerous precedent: once TANAP and other energy links are in place, Turkey could try to use them to get ahead in negotiations with its EU partners in unrelated areas. Such fears are probably exaggerated. They certainly should not be used as an argument for not opening the energy chapter. If the EU is serious about the diversification of its energy supplies, it needs to do its utmost to unblock the accession talks in this area.

Turkey"s accession to the EU will only make progress if both sides keep reminding themselves of the benefits that deeper integration and closer co-operation would bring for both parties. Energy is an area where early gains are available. The fact that Turkey is negotiating for membership should help, not hinder, progress in this area. The evolving nature of the EU"s energy policy gives Turkey a great opportunity to make sure that its own energy policy contributes to Europe"s energy security, without neglecting its own strategic energy and security interests.

The possibility of Turkey shifting its focus in favour of Russia and the Middle East, as it now seems to be in the process of doing, despite denial by Turkish leaders that there is no change in the axis of the country's foreign policy, can easily be explained as a kneejerk reaction to the continuing saga of Turkey"s long-standing application for EU accession.

Turkey feels it has met all the requirements put forward by the EU, but that Brussels keeps moving the goal posts while the game is underway. Turkish Prime Minister Tayyip Erdogan, in fact, compared the E.U".s attitude towards Turkey to "changing the rules for the quarterback in a football game in the 36th minute."[22] In its own region, Turkey is regarded as a regional powerhouse and a force to be reckoned with, as opposed to the West, where many Turks are fed up with being treated like a second-class, poor man trying to gain entry into an elite club.

Who is who in Turkey"s energy world?

Turkey's energy establishment has been significantly controlled by the Prime Minister Recep Tayyip Erdogan and his close advisors/business proxies, with the Minister of Energy and Mineral Resources Taner Yildiz sitting on top of the day-to-day management of the energy governance. The Minister will not be allowed to make key decisions on investment, project choices and appointments without a clear go-ahead from the PM.

The President Abdullah Gul wants to be kept in the loop for key energy developments and has an energy advisor (Ibrahim Arinc). He also his own close circle of businessmen promoted for certain energy businesses. The Minister is loyal to him given that they come from the same city (Kayseri) and got this appointment.

Due to his personal interest (he was previously the PM's right-hand man on energy matters) the head of the Turkish Intelligence, Hakan Fidan, is also consulted on key energy matters and he influences decisions.

It is expected that a cabinet reshuffle will take place in November and Taner Yildiz is one of the ministers who might lose the government seat and be designated as a candidate mayor for Kayseri in 2013.

TPAO and BOTAS are state-owned oil and gas companies under the Minister's authority but his influence is limited. There is a long-standing plan to restructure them and create Turkey's own energy champions.

Pipeline politics

Being an energy hub is not having pipelines criss-crossing your territory. Turkey"s first priority must be to secure its own supply.

Second only to China, Turkey is the country in the world where the demand for energy supplies have increased most during the last decade. Turkey is dependent on foreign supplies for seventy-four percent of its energy consumption. Turkey"s main suppliers of natural gas are Russia and Iran. Natural gas accounts for the production of nearly fifty percent of its electricity, and eighty percent of the natural gas that Turkey imports is in turn provided by Russia and Iran.

To decrease the dependency on Russia and Iran, the diversification of energy supplies has long been a major preoccupation for Turkey"s leaders. Ankara has been looking to sign deals that would bring natural gas from Iraq, the Persian Gulf and the Caspian region to Turkey. This strategy aims both at enhancing Turkey"s energy security by diversifying its suppliers, and to turn Turkey into an energy hub, providing a transit route for energy to the European markets.

A web of pipelines already crosses Turkey, carrying hydrocarbons along east-west and north-south energy corridors. Among the most significant of these is the BTC oil pipeline, which connects the Caspian and Mediterranean via Azerbaijan, Georgia, and Turkey--notably, without crossing Russian soil. One million barrels of Caspian crude is pumped each day through the $4 billion pipeline, built through a Western consortium. Roughly two-thirds of BTC oil is headed for Europe. But attacks on this line--including strikes by Kurdish separatists in Turkey's southeast--have become a growing concern for Ankara.

Another important pipeline is the Turkey-Greece Interconnector (TGI), which has the capacity to transport 11.5 bcm of natural gas from Azerbaijan"s Shah Deniz field. Like the BTC oil pipeline, the line bypasses Russia. Other pipelines already pumping or in the works in Turkey include:

Kirkuk-Ceyhan: This 600-mile pipeline links northern Iraq with the Turkish port of Ceyhan. Two parallel lines have a combined capacity of roughly 1.6 million barrels a day, but a string of terrorist attacks since 2003 have repeatedly shut the pipeline down.

Blue Stream: The 754-mile Blue Stream pipeline connects mainland Russia with mainland Turkey, and will eventually deliver 16 bcm of gas annually once operating at full capacity. (The line was officially inaugurated in November 2005). A joint venture between Turkish, Russian, and Italian energy firms, Blue Stream was meant to provide Turkey with cheap gas by bypassing land routes in Eastern Europe. But the project has been criticized by the United States for potentially making Europe more dependent on Russia for energy.

Samsun-Ceyhan: A proposed bypass to the heavily traveled Bosporus shipping lane, this 350-mile long line would transport oil from the Kashagan oil field in Kazakhstan's portion of the Caspian Sea. Turkish officials say the project is part of a broader effort to reduce Bosporus traffic and protect Istanbul from a potentially devastating oil spill. The pipeline is still on the drawing board.

TANAP: The $7bn TANAP is set to transport 16 bcm of gas a year from Azerbaijan"s Shah Deniz II field, the largest natural gas field in Azerbaijan. Turkey has a 20 percent stake in TANAP, while Azerbaijan"s state oil company SOCAR holds 80 percent. Construction is expected to start at the end of 2013 or in early 2014, and the first phase should be ready in 2018. 10 bcm of gas is planned to be shipped to Europe, while Turkey will get the remaining 6 bcm. The project is designed to be expandable to 30 bcm and ultimately 60 bcm.

Turkey is keeping its options open. Posturing by Moscow has pushed Ankara to balance its cooperation with the West while expanding cooperation with Russia and Iran. For Turkey to be an energy hub, the energy resources don't have to go from east to west--they can also go from north to south. Pipeline projects connecting Turkey with Egypt, Iraq, Greece, and the Black Sea show how important Turkey is going to be for years to come. It's too early to know how European markets will be affected if Turkey's diversification strategy continues, or if Russia eats into Ankara's transport plans.

Turkey's emergence as a European energy hub seemed assured only a few years ago, but today, Turkey seems to be stuck in the middle of a great European energy game : with Europe looking to Turkey for diversification; Russia seeking to maintain its grip on the continent's gas transports; and Central Asian suppliers like Turkmenistan eager to expand to new markets but fearful of alienating Russia.

Will TANAP and Trans-Caspian pipelines threaten Russia"s national security?

Last week senior officials from Turkey, Azerbaijan, Turkmenistan and the European Union came together in Ashgabat to discuss the launch of the Trans-Caspian Gas Pipeline, which will include Turkmen gas in the Trans-Anatolian Pipeline project and deliver it to Europe through Azerbaijan and Turkey.

The project aims to strengthen the southern corridor that is an alternative source of natural gas for Europe, diminishing its dependence on Russian gas. The move comes at a time when Turkmenistan is trying to ease its export dependency on Russia -- the main market for Turkmen gas -- and as Turkey and Europe are looking for ways to diversify their supply.

Turkmenistan"s willingness to supply 20-30 bcm of gas to Europe is of great importance to Turkey[23]. The Trans-Caspian project is expected to provide Turkey with additional natural gas resources (as Turkey"s gas demand will increase by up to 77 percent by 2030) and also help it achieve its goal of developing into a regional energy hub between Central Asia and Europe.

Construction of the $7 billion TANAP pipeline project is to commence in 2013, with gas to start flowing through it in 2018. The TANAP project was initiated by Azerbaijan and Turkey to transport Caspian natural gas, from the Azeri Shah Deniz gas field, to Europe and is considered to be the first true push to the EU-backed Southern Corridor. If realized, the Trans-Caspian pipeline, between Turkmenbashi in Turkmenistan and Baku in Azerbaijan, will introduce a gas route via TANAP and later Nabucco West or TAP to Europe.

Azerbaijan is increasingly considering the Nabucco West project linked with the TANAP as the best option for transporting Caspian gas to West European markets. Azerbaijan"s Industry and Energy Minister Natik Aliyev recently stated that "It has a big capacity, big diameter, and it gives us the opportunity to deliver gas to east and central Europe. It's a more reliable market for Azerbaijani gas."

Turkmen gas transported via the TANAP pipeline will make the project more cost-effective and financially viable. Azerbaijan-Turkmenistan relations became strained in the second half of June when Turkmenistan began exploration and research in the disputed Kapaz, or Serdar, gas field in the Caspian Sea, a move that undermined the 2008 Turkmen-Azerbaijani agreement suspending any activities in the field until the dispute was settled. In Baku, the gas field has long been known as Kapaz, while in Ashgabat it goes by the name of Serdar.

Russia opposes a gas pipeline running under the Caspian Sea, arguing that the agreement of each Caspian littoral state is needed for the Trans-Caspian project. Echoing Russia, Iran also claims that the export of Turkmen gas via the Caspian Sea is impossible, offering Iranian territory as a transit route to Turkey. However, Turkmenistan and Azerbaijan have said they will come to an agreement with each other, as they believe they have the combined right to lay pipes under the Caspian Sea -- territory the legal status of which is yet to be defined.

The Southern Gas Corridor, bringing gas from the Caspian and Middle East to the EU, needs a new pipeline across Turkey as there are existing capacity constraints in Central Anatolia. TANAP will hence contribute to both Turkey"s and the EU"s security of supply.

The Consortium will decide on the pipeline going through Turkey next year. Therefore, the final decision on the whole route and the pipelines chosen will be known only in June 2013. Whatever the final decision taken — one or more pipelines — there will be an unbroken system of pipelines that will be built from the Caspian Sea to Europe.

Azerbaijan expects to increase its gas exports to more than 30 bcm per year by 2030 from the current 6 bcm, with a further possible increase to 50 bcm, according to Aliyev: "I think that if our programs are successful … in 2030, we can produce for export more than 30 bcm of gas per year … In Shah Deniz II alone we can produce 30 bcm … the 16 bcm calculated by BP is very pessimistic. It will be more than this. We can increase easily, but it depends on the market."

Why are the Turco-Russian energy links still of paramount importance?

Russia plays a critical role in Turkey"s energy supply security — currently Ankara"s top supplier of oil, followed by Iran and Saudi Arabia, with lesser volumes supplied by Libya, Iraq, and Syria, among others. While Turkey gets oil from a variety of sources, more than 60 per cent of its gas needs are met by just one supplier: Gazprom[24].

Over the last decade, some very significant shifts have taken place in Eurasia"s geopolitical landscape, with Turkey and Russia moving away from Cold War era animosity and toward what seems to be ever closer cooperation. Analysts and politicians in the two countries have advanced a set of similarities that account for the ongoing rapprochement between Ankara and Moscow.

The Turks and the Russians were perceived as "significant Others" in the process of the construction of European identity and to this day have remained largely uncertain as to how they relate to Europe. Once the worst of enemies, involved in 12 wars in three centuries, Turkey and Russia have suddenly become the best of friends, forging strong bonds to advance their own economic and geopolitical interests in Eurasia, and often turning a blind eye to the concerns expressed by Brussels and Washington.

Moscow matters to Turkey more than ever. Russia has become Turkey's biggest economic partner, replacing Germany; trade between the two countries reached $40 billion in 2009, an eightfold increase in eight years, and is expected to reach the $100 billion mark in the next two years. Turkish construction firms are omnipresent all over Russia. Millions of Russian tourists flock to Turkish resorts every year -- 3 million last year. There are tens of thousands of intermarriages.

The two countries' growing closeness is probably helped by the similarities between Putin and Erdoğan: Both come from humble origins; both seem ready to bury historical enmities; and both are seen as strong leaders, firmly entrenched in power for years to come. "If there is the touch of a Czar in Putin, there is a Sultan in Erdoğan."

Turkey, straddling Europe, Asia and the Middle East, is looking to bolster its geopolitical standing by signing deals that would allow Turkey to transit energy from the East to the European markets. Russia, as the dominant natural gas supplier for Europe, wants to ensure Turkey does not give Europe too many options in circumventing Russian energy networks[25].

Since Russia and Turkey are both resurgent powers in the region, the energy issue can turn quite thorny at times, particularly as the West is leaning on Turkey to keep its distance from Moscow. But Russia and Turkey are not looking for an energy brawl at the moment. Tensions exist between these historic rivals, but the current geopolitical environment is pushing the two sides to work with — instead of against — each other.

Azerbaijan has long been a pawn in Turkey"s negotiations with Russia. The country shares deep cultural and linguistic linkages to Turkey, and already transports roughly 9 bcm of natural gas per year for the Baku-Tbilisi-Erzurum pipeline, which circumvents Russia and carries natural gas from Azerbaijan"s offshore Shah Deniz fields through Georgia to Turkey for the European market.

Turkey wants to secure as much of that remainder for export as possible so it can transit substantial amounts of natural gas through its territory for projects like the Trans-Anatolian gas pipeline and the Nabucco West, designed to provide Europe with a non-Russian-influenced natural gas alternative. Russia, which has a strategic interest in maintaining an energy stranglehold on Europe, naturally wants to ensure such pipeline projects remain pipe dreams.

At the moment, Turkey is not short of gas. On the contrary, the long-term contracts that it has signed with Russia, Iran, Azerbaijan, and other suppliers including LNG commit it to buying more than it actually needs. This leaves it potentially liable to pay penalties for breaching the take-or-pay contracts. So Turkey needs to build infrastructure for storing gas, for re-exporting surpluses to the EU and, most importantly, for distributing the gas imports around the country so that factories, power plants and households can use it.

Turkey–Russia economic relations remain mutually beneficial; however, the two countries would be hard pressed to achieve the goal of $100 billion in total trade volume. Turkey is the third largest market for Russian gas and also imports substantial oil, coal, and petroleum products. They are pursuing cooperation in development of nuclear power and may link electrical grids around the Black Sea. While there are significant economic opportunities in Russia and Central Asia, Turkey is disinclined and unable to change its economic and foreign policy orientation away from the European Union and the US[26].

Russia's energy engagement with Turkey is based on several pillars supporting an overall "win-win" strategy. The Kremlin tries to capitalize on its energy "weapon" as a source of comparative advantage in the global system, trying (successfully or unsuccessfully) to combine the maximum efficiency of a private management with state control of the "critical industries." Therefore, Russia is seeking control over the three major elements of the "energy chain" -- production, transit and processing/distribution -- by supporting the international expansion of Russian energy companies, (i.e., the acquisition of assets and the control of existing and prospective energy resources) and alliance with other energy producing and transit states, and also with the national oil companies and international oil companies. It also supports Russian companies' access to the downstream markets (and mid-stream facilities) of the energy consuming countries[27].

Russia also wants to play a lead role in Turkey's lucrative downstream sector, the second pillar of the strategy. Gazprom is keen on bidding for major city distribution projects and gas-fired power plants, while Rosatom has offered to move ahead with a Russian-built nuclear power plant. Last but not least, Moscow managed to get Ankara's permission for its South Stream pipeline to Italy to pass through Turkish waters in the Black Sea.

As a quid pro quo, Moscow has offered to support and supply the Samsun-Ceyhan oil pipeline, which will connect Turkey's Black Sea port at Samsun and an oil terminal at Ceyhan on Turkey's Mediterranean coast. Growing volumes of Russian and Caspian oil are being sent by tanker via the Bosphorus Straits to Western markets[28]. The pipeline is designed to ease the traffic going through the Bosphorus Straits, a bottleneck that handles about 3.7 percent of the world's oil supply. Gazprom also affirmed a commitment to expand the existing Blue Stream gas pipeline to Turkey, so that it may eventually lead across Turkey to Cyprus and Israel, but this is unlikely to go ahead under the current standoff in the East Mediterranean.

Turkey is not naive in its assumptions and has learned the game for an effective play on the crowded chessboard with Russia, EU, U.S., and other major energy powers. Ankara is confident that it can handle both the challenges and opportunities associated with Russia's position as an energy power. Russia's importance to Turkey is not new. It has traditionally been the biggest player in the region and it figures prominently in almost all of Turkey's energy designs and geopolitical calculations. As energy looms larger in the domestic and regional calculus of both countries, especially with regard to their European. relationships, the strategic importance of the Turco-Russian rapprochement will undoubtedly grow stronger.

However, of late, Turkey and Russia have taken totally different positions on Syria since the beginning of the crisis in that country. Even so, the two powers now face serious threats and losses over Syria. Russia may be deprived of the regime in Damascus, which is its main geo- strategic partner in the region. This has the potential to affect Moscow"s long-term position in the Middle East. On its side, Turkey now realizes that a post-Bashar al-Assad Syria, thrown into a chaotic struggle of various ethnic and sectarian groups that is reminiscent of Iraq, may become the nest of choice of Kurds hatching their dreams of autonomy[29].

While remaining part of the Western security order, Ankara expanded its economic ties with Russia in the post- Cold War period. Furthermore, both sides managed to fence off political issues from their flourishing economic cooperation. In this way, Turkey has created "hybrid spaces" with Russia. The term "hybrid" is chosen to characterize Turkey"s canny strategy of improving close relations with Russia while staying in the Western/NATO system.

The regional matrix that Turkey envisions, however, nurtures certain risks in terms of relations with Russia. Turkey"s strategies potentially put Russian geopolitical interests in the Middle East at risk. Although not intending to target Russia directly, Ankara"s policies have a general tendency to weaken Russia"s strategic interests in the region. If Russia cannot maintain its established interests in a post-Assad Syria, Turkey will be remembered for its high-level contribution to that development. Indeed, there is no serious demonstration on display with Ankara"s positive concern about Russian interests in the Middle East.

The Arab Spring has forced Turkey to adopt a new doctrine in foreign policy: it would not back any regime that oppresses its own people. Turkey will distance itself from any regime that oppresses its citizens. Naturally, the long-term implications of this doctrine require close attention by regional countries. Will Turkey implement this doctrine if it faces similar cases in countries like Saudi Arabia, Qatar, Kuwait, or Azerbaijan? Indeed, Turkey will likely be selective when it comes to bringing this revisionist doctrine to bear on its allies. So it is not clear to the Russian side how this new revisionist doctrine will imprint on the general characteristics of Turkish foreign policy.

Given all these developments, the Turkish-Russian axis is now more fragile than it has been in years. The Arab Spring has proved that the two countries have conflicting perspectives on the region. Both states prefer different countries when it comes to alliance formation. So, what could be the Turkish strategic calculation behind the scenes? Why has Turkey put its relations with Russia at risk in the region?

There is a simple logic here: Turkey sees the weakening of Russia in the Middle East as an opportunity to ease its vulnerability vis-à-vis Russia. Turkey has failed to liberate itself from dependence on Russian energy and has failed to persuade Russia to regulate energy prices. Turkey is very critical of the Russian energy regime, but has no means of challenging it. Also, in the last decade, Russia has successfully limited Turkey in the Caucasus and Central Asia. Rarely does one hear a comment on Central Asia from the Turkish leaders. The accord between Russia and Iran on many regional issues has the capacity to weaken Turkey"s regional role. The upshot of all this is that the weakening of Russia in the region may increase Turkey"s power leverage in Moscow.

In terms of energy security, Europe is indeed competing with China for Caspian/Central Asian energy supplies and not with Russia. There is little doubt that Russia's energy overtures to Turkey have a strong geopolitical dimension. It wants to draw Turkey into a closer strategic alignment with Russia, but, primarily, they are designed to have an effect on Europe. That effect is both political and specific: Russia wants Turkish interests to be so intertwined with Russia's that the E.U'.s southern gas corridor project would be less of a threat to Russia"s interests.

Because of its central position within Eurasia, the Caspian region could become a key segment of the transcontinental systems for transportation of energy along the north-south and east-west axes. Russia"s interests are to control routes for Caspian Basin energy flows while preventing the development of alternative routes. Turkmenistan, Kazakhstan, Azerbaijan, and Uzbekistan have the potential to become serious competitors for Russian exports to Europe. Russia"s strategy over the past decade has been to prevent direct access of Central Asian gas to Europe, while retaining maximum control over supplies and subsequent resale of gas from these sources in foreign markets under a system of Gazprom purchases.

The collapse of demand for gas in 2009 partially destroyed this arrangement; however, Russia remains the largest buyer of gas in the region. The desire of Caspian countries to diversify their gas markets has also led to changes in regional energy trade.

Moscow and Tehran hold divergent positions on demarcation of the Caspian Sea, but both oppose development of the trans-Caspian pipeline that would bring Central Asian hydrocarbons to Europe. This difference should not be seen as a major source of friction between the two, as the Soviet Union has left a legacy which is beneficial to Iran. The deepest waters of the Caspian Sea are on the Iranian side, but it doesn"t make sense to develop those fields. Iran has the reserves which it can use in the future. It will not develop them but make others feel its presence.

Russia is forming the integrated Eurasian transport system between Europe and Asia by building excess pipeline capacity. It now has surplus oil capacity such that it can offer a country like Kazakhstan to transit its oil to market via the Russian pipeline system to Asia or Europe. Russian oil flows through the Black Sea, partly as a result of these pipelines, has diminished in the last few years. Turkey is buying less Russian oil because less Russian oil is moving into the Black Sea. So what is the Bosporus bypass pipeline project for from a Russian perspective? Is it really to secure the Russian oil flow from the Black Sea which is already diminishing, or is it to extract economic rent from the Kazakh flows into the Black Sea which is increasing?

While Russia may see closer ties to Turkey as a means of limiting the increase in Europe's role in the economies of the former Soviet Union, it would be an overstatement to say that Turkey is turning its back on Europe, or simply playing the Russia card against the West in order to strengthen its own hand. For Turkey — and, for that matter, Europe — a closer Turkish-Russian partnership in energy need not be a zero-sum game. Turkey could provide both a new and reliable transit corridor capable of transporting both Russian and non-Russian gas to Europe in the event of a supply crisis. Turkey therefore has a chance to turn this partnership into a win-win proposition. Its co-operation with Russia could benefit it, Russia and Europe. If so, it could help to allay deep-seated concerns in the Russian-European relationship.

Russia's brief war with Georgia in August 2008 reminded Turkey that the BTC, Southern Caucasus, TANAP and future pipelines are not invincible. Future pipeline projects in the region could come under greater Russian influence if Moscow chooses to assert itself, a prediction the Kremlin has fueled by talking up a potential international gas cartel with Iran and Qatar, and pushing the Gazprom-backed South Stream pipeline as an alternative to TANAP.

Iran: how far can Ankara and Tehran endure the troublesome energy relationship?

The two countries are so close to one another in geography, history, ethnicity and culture, while at the same time so distant in fundamental political/security priorities and economic/trade co-operation — one can hardly come across two such countries in the world. It is more likely than not that the gap between Turkey and this "far-away" country on its doorstep could further widen in the period ahead.

Despite the occasional tensions that occur from time to time, bilateral relations between Iran and Turkey have generally been based on mutual recognition of the interests for a long time. It is worth bearing in mind that there has been no war between the two countries since the signing of the Qasr-e-Shirin Peace Treaty in 1639 — more than four centuries. They both have stood the test of time as the two medium-size, rival powers in the region.

The Tehran regime has always been concerned about Turkey"s influence over the large Azeri-origin population (20-25 percent of the population). Ethnic Azeris, who comprise 25 percent of the Iranian population and favor improved relations with Turkey and Turkic countries, have also been a factor in expanding ties. The supreme Iranian spiritual leader Ali Khameini is an Azeri Turk and by tradition Azeri Turks become the chief of the Iran"s armed forces. Iran has done its best to block Turkey"s eastern moves to link with its Central Asian brethren by closely cooperating with Russia and Armenia. Iran has pursued a pragmatic policy to build closer economic and energy ties with its immediate neighbors to encourage regional cooperation, enhance its security, and reduce the impact of sanctions.

While sectarian suspicions remain, Turkey has special appeal across the Iranian political spectrum as a neighboring state that has shown Iran respect and offers access to needed technological and financial assistance. These factors converge with Turkey"s strategy of developing cooperative relations with neighbors in order to foster continued economic growth and regional stability and enhance its regional stature.

As a "regional energy superpower", Iran hosts ten percent of the proven oil reserves and fifteen percent of the natural gas reserves in the world. Yet, it is unable to effectively exploit its own resources — it hardly meets the domestic demand and the exports fall far short of its huge potential. Iran produces about 4 mbd of crude oil: 2.5 mbd out of this amount is exported to the Asian markets via the Strait of Hormuz. The annual natural gas production is 84 bcm; it fails to make exports because of the growing domestic consumption and limited investments, particularly in the giant South Pars fields.

Iran has the potential to control the "Energy Corridor" which stretches from Kazakhstan, Azerbaijan, and Turkmenistan to eastern Saudi Arabia, the U.A.E., and Oman. It is in competition with Turkey, which aspires to become a regional hub for the Central Asian/Caspian/Russian and Middle Eastern hydrocarbon exports.

There is also potential for co-operation between Turkey and Iran as Tehran remains the second largest natural gas supplier (20 percent) for Turkey after Gazprom. The 2,577 km long natural gas pipeline, completed in 2001, between the two countries stretches from Tabriz to Ankara. Under the gas agreement signed on August 30, 1996 between Turkey and Iran, 30 million cubic meter natural gas each day should be pumped to Turkey whereas there have been sudden supply cuts particularly in the winter times. By choking off the gas stream, particularly in winter, Iran has been sending a not-so-subtle message to its neighbour to stay out of any Western efforts to rein in its disputed nuclear programme.

Turkey"s increasing energy co-operation with Iran has been viewed by Washington as "troubling". The Turks know that long after the dust has cleared and the Americans have disappeared over the horizon again, they will be paying for the collusion in action against Iran for many years. Therefore, Turkey needs to create different options to resist Washington"s pressures and to review its options based on the long term strategic interests.

Iran imports $60 bn of goods annually, most of which could be produced in or imported from Turkey. Iran is actively moving financial transactions and some of its $16 bn re-export channel from UAE to Turkey. Turkey and Iran could realize their goal of doubling total annual trade volume to $30-35 bn. There are over 2,000 firms financed by Iran with operations in Turkey. The number of Iranian firms in Turkey grew by 40 percent between 2010–2011, raising concerns among Turkish officials that many of these may be front companies set up to circumvent Western sanctions.

Energy remains the dominant sector. Turkey imported over 50 percent of its oil from Iran in 2011 as well as 21 percent of natural gas. Iran exports about 10 bcm of gas a year to Turkey. Ankara and Tehran signed $1.5 bn in agreements providing for the joint construction of three 2,000-megawatt thermal power plants -- two in Iran and one in Turkey, and several hydroelectric plants in Iran with a total 10,000-megawatt capability.

Under terms of the agreement, Ankara will import 3 billion to 6 billion kilowatt hours of electrical energy annually. At present, Iran exports electricity to Turkey through two transmission lines totaling 250 megawatts. In June 2007 Turkey and Iran signed a memorandum of understanding under which Turkish Petroleum Corporation will operate in Iran and exploit three natural gas areas in the South Pars region. The company plans to invest $3.5 bn to operate these fields, but no progress was made. Moreover, the two countries have long been talking about building a 2000-km pipeline between them to transport Iranian gas to Europe.

Iran, which supplies Turkey with 17 percent of its gas imports, presents another set of political challenges. The first is opposition from the West; Washington has criticized Ankara's cooperation with Tehran on gas and power-generation projects. But Turkey must also contend with Iranian shortages and production shutdowns, including frequent interruptions during the winter months. While Iran sits on massive gas fields that could offset Turkey's Russian imports, Tehran does not have the capacity to develop them in a time frame that would meet Turkey's needs.

Turkey also announced readiness to ink the required agreements on linking Trabzon port to Bandar Abbas.[30] Over 160,000 large trucks crossed the Turkish–Iranian border in 2011, a route that is important for Turkish exports to Central Asia.

Relations between Ankara and Iran had until recently been growing increasingly warm. However, growing international pressure on Tehran over its nuclear ambitions has been putting strain on ties between Turkey and its neighbor, tensions exacerbated by the two counties" jockeying for a more prominent regional role in the aftermath of the Arab Spring. As Turkey"s efforts to balance its relations between East and West draw Iranian ire, the benefits of close ties with Tehran are becoming increasingly uncertain[31].

Turkey in March 2012 imported more than 270,000 barrels per day of crude oil from Iran, nearly triple the previous month"s 100,000 barrels, or 401,349 tons. And now? Though Turkey was one of several countries to receive a temporary waiver from U.S. sanctions against Iran, it is scrambling to make up the looming energy deficit. Turkey has begun talks with Saudi Arabia to make up any shortfalls caused by obeying the sanctions and recently signed a one-million ton oil supply deal with Libya.

But in trading out Iran for Libya and Saudi Arabia, Turkey has swapped relative political stability for uncertainty. Whatever one thinks of the mullahcracy ruling Iran, it has been in power since 1979. Post-Gaddafi Libya is hardly a stable state as yet. There are rising tensions between the eastern part of the country, which controls much of the nation"s oil output, and authorities in Tripoli. And the recent death of Saudi Crown Prince Naif bin Abdul Aziz at 78 years old may herald a period of instability for the nation. Saudi Arabia"s King Abdullah bin Abdul Aziz is 88 years old, and has now outlived two appointed successors from among the elderly group of sons of Saudi's founding monarch, King Abdul-Aziz.

For Ankara, who matters most today: Iraq"s autonomous KRG or Baghdad?

Despite the mammoth size of Iraq's reserves only 2,300 wells have been drilled in total, fewer than in the North Sea. Hence, the appetite for access to Iraq's abundant reserves is sufficiently robust to attract foreign investors in this high-risk environment. If the country were to open up and the security situation stabilizes, then companies are likely to go ahead even if terms are not ideal.

One of the controversial issues is how much control the new constitution gives regional governments over existing oil fields and new discoveries. Local powers over the latter appear stronger. The Kurds are particularly proactive in enticing potential investors and indeed inspiring Shiite Arabs in Iraq's oil-rich south to pursue similar approach. They want responsibility for A- Z in the energy sector from exploration to marketing. They have also included Kirkuk and a number of other oilfields outside the recognized KRG areas to their remit under the heading of "disputed areas," a point which the rest of Iraq and neighbouring countries contest.

Ironically, Turkey, widely feared today to militarily intervene, had contributed significantly to the consolidation of Kurdish self-rule in northern Iraq in the 1990s and even provided Kurdish leaders Barzani and Talabani with diplomatic passports. For the Kurdish leadership and people it appears that the continuation of the current level of autonomy at least within the new Iraq is nonnegotiable.

The alienation of Iraqi Kurds will work against Turkish interests in the longer run as they may turn the KRG region into a regional nest for anti-Turkish hostilities. The Kurds themselves must also understand how much they would need a friendly Turkey, particularly if fragmentation is truly looming. Turkey is a geographical sine qua non for their opening to the world and their lifeline in ways that a much more self-interested Iran would not be. They should also bear in mind that neither Turks nor Arabs would allow the absorption of the oil-rich province of Kirkuk and other "disputed territories." Reasonable minds on both sides of the border see this, but not everybody is reasonable.

Ankara has willy-nilly helped the Kurdish genie escape from the bottle and it will be very difficult for Turkey to push it back inside.

If there is one country that has helped build a Kurdish entity in Iraqi Kurdistan it is Turkey. This assertion seems paradoxical in view of Ankara"s traditional opposition to such an eventuality in Iraq and the well-known pressures it applied on its allies, especially the United States, not to lend any support to the Kurds of Iraq because of the possible spillover effects on its own restive Kurds. Turkey"s new stance appears even more paradoxical against the backdrop of the latest upheavals in the region and their contagious effects both on its own Kurds and those of Syria.

The slow change in Ankara"s policy towards the KRG was not due to any altruistic considerations but for very pragmatic, down to earth ones. On the one hand Turkey was extremely apprehensive of the possible contagious effects of the KRG on its own Kurds, hence Ankara"s attempts to thwart any political and diplomatic gains by the KRG. On the other hand Ankara did its best to reap the fruits of its relations with the emerging entity, one of the most important of which were economic gains. This approach turned the Kurdistan Region into a huge investment area for Turkish companies whose number reached around 900 by 2012 and amounted to half of the companies acting in the KRG.

To this list one should add other large business, cultural and social ventures which turned the KRG into an undeclared Turkish sphere of influence. The net result was that no less than seven percent of Turkish exports went to the KRG.

Ankara"s thirst for oil and gas and the pressure brought to bear on it to stop importing from Iran go a long way to explain the surprising pipeline deal it cut with the KRG on May 20, 2012, without the approval of the central government in Baghdad. If it materializes, the deal, which envisaged the building of two oil pipelines and one gas pipeline from the Kurdistan Region to Turkey, might give further boost to Kurdish aspirations for independence.

Interestingly, the Turkish Minister of Energy and Natural Resources, Taner Yildiz, declared on that occasion that "Turkey should also be considered as the Regional Kurdish Government"s gateway to the West." A second important aim for developing these relations was the hope that the KRG would help in solving Turkey"s own acute Kurdish domestic problem, namely the ongoing attacks which the armed Kurdish PKK continued to launch against Turkish state targets.

However, Ankara"s hope that the KRG would fight against, or at least contain the PKK, whose bases are found in Iraqi Kurdistan, was not fulfilled. The third and perhaps most important consideration was Ankara"s need to attune itself to the region"s changing geostrategic map, which pushed it to act according to the dictum "my enemy"s enemy is my friend."

The geostrategic changes over the past two years have been quite drastic, including the "Arab Spring," which accelerated the collapse of the Turkish-Iranian-Syrian axis. Furthermore, the revolution in Syria not only turned Ankara and Damascus into sworn enemies once again but also raised the specter of the influx of Syrian refugees. Worse still, it opened the Pandora"s box of Syrian Kurds and their possible collaboration with their brethren in Turkey, not to speak of the PKK card which Damascus started to employ once again against Ankara.

One should also note the deteriorating relations between Ankara and Baghdad against the background of the Sunni-Shi"ite rivalry in the region, Iraqi Prime Minister Nuri al-Maliki"s growing tilt toward Iran and his support for Syrian president Bashar al-Assad, as well as the growing personal antipathy between Turkish Prime Minister Tayyip Erdogan and Maliki. Under Iranian influence, the Maliki regime has taken a stance against both Turkey and Sunnis. The question that should now be asked is whether the Kurds will take part in a front that is formed by Turkey and Sunnis. The KRG too is not content with Maliki. This shows that the Sunni-Kurdish axis is cooperating to ensure balance in Iraq under Turkey's auspices.

The current panorama in Iraq shows that in this and the next few years Iraq, like Syria, will be a field of struggle between Turkey and Iran. Paradoxically, the struggle will require Ankara's patronage of Iraqi and Syrian Kurds. All this weakened Ankara"s "commitment" to the almost sacred notion of Iraqi unity and emboldened it in its bilateral ties with the KRG, the most challenging of which for Baghdad was the oil pipeline deal mentioned above.

Ankara, Erbil and Baghdad, with support from the U.S. and some EU countries, particularly the U.K., have been diligently working on a special plan to put the relationship between the three countries on a healthy footing.

Energy cooperation remains one of the main drivers behind closer partnership. There are a number of issues to be resolved, such as how to phase out the P.K.K, and the status of the multi-ethnic Iraqi city of Kirkuk, and energy investment regime and transit routes. On the other hand, Ankara, Erbil and Baghdad feel that these issues need to be settled and energy cooperation should be dealt with separately. If the hydrocarbon law is adopted by the Iraqi government and Parliament, there will be significant exploration and production activity in the KRG area as well as in Basra and central Iraq. It is vitally important for Turkey to have its fair share of contracts, both in Northern Iraq and in the rest of Iraq.

In this complicated picture, a key strategic interest for Turkey would be to team up with Iraq and foreign partners more systemically and energetically than hitherto on building energy infrastructure including power, refining and petrochemicals, exploring new oil and gas fields and getting these supplies to international markets. A stable and economically dynamic, increasingly secular and democratic state is a "rare bird" in the region. If Turkey resumes rapid rates of growth, maintains its cohesion, and deals with the Kurdish issue in some real fashion, it could indeed become a more significant force in the changing politics and economics of the Middle East.

Key messages

  • As a pivotally located country, Turkey will continue to be an important partner to Western, Russian, Caucasian, and Middle Eastern energy and foreign policy initiatives. Its partnership with the U.S., its prospective membership in the EU, its strong ties to Eurasia and the Middle East, make Turkey an irreplaceable partner on all regional energy and foreign policy matters.

  • Turkey"s external energy outreach starts from China"s north-west province of Xinjiang-Uyghur Autonomous Region and extends to the North African tip of the Mediterranean, as well as from the Straits of Hormus, all the way to the Arctic, where 22 percent of the world"s oil and gas reserves are located. As the virtual boundaries have been removed, Turkey is now facing the East, the North and the South directly. Those who define Turkey"s will to be part of the solution to the problems of the East with its self-formulated prescriptions as a "shift of axis in foreign policy" are falling into the mistake of trying to read Turkey based on its erstwhile habits, both in foreign and security policy and in energy equations.

  • Under the Ottomans, Turkey was actively involved — indeed, was the dominant power — in the Middle East. Thus, in many ways Turkey"s more active policy in the Middle East of late represents a return to a more traditional pattern of behavior.[32] The recent tension with Iran and Iraq, the ideological supporters of Syria, Israel"s failure to honor Turkey"s demands and the ambitions of Saudi Arabia and Qatar as well as other leading actors of the region in Syria have all narrowed Turkey"s sphere of influence. In addition, the failure of Morsi, a member of the Muslim Brotherhood movement, which the Justice and Development Party supported in the elections, to deepen strategic relations with Turkey has triggered some comments that Ankara"s Middle East vision should be revisited.

  • The new Turkish foreign policy vocabulary in the region now sounds very much like that of India, South Africa, Mexico, China, Indonesia, or Brazil [33]. This kind of posture -- not so much neo-Ottoman as neo-non-aligned -- could well be the most important new dimension of Turkish foreign policy over the next decade. It will shape the way the U.S. deals with Turkey. And it will influence and perhaps complicate Europe"s relationship with Turkey as an EU candidate. Today"s Turkey brings a lot more foreign policy capacity to the table, but it may not be an easy fit with Europe"s interest in forging common strategies on key issues, including on Iran and Russia.

  • Russia has established a deep enough presence in the Central Asian and Caspian energy sector to ensure it faces no energy shortage. What matters most to Russia is that its dominant role as Europe's number one energy provider is not eroded. So long as the Central Asian countries have no pressing need for new U.S.-backed trans-Caspian pipelines, Russia is satisfied.

  • Turkey is not far off in this equation. As a historical adversary of Iran, Turkey indeed has managed to steer a remarkable course in foreign policy, but faces a host of new challenges to continuing its balancing role in the region. Iran"s push for nuclear weapons—which analysts fear could prompt such regional powers as Saudi Arabia, Egypt, and Turkey itself, to develop a nuclear deterrent—is a case in point. Indeed, these economic ties have not quelled Ankara"s anxiety over a nuclear-armed Iran.

  • As a pivotally located country, Turkey will continue to be an important partner to Western, Russian, Caucasian, and Middle Eastern energy and foreign policy initiatives. Its partnership with the U.S., its prospective membership in the EU, its strong ties to Eurasia and the Middle East, make Turkey an irreplaceable partner on all regional energy and foreign policy matters.

  • What Turkey has been doing systemically since 2002 in this most difficult part of the world is not a simple drifting away from the West and embracing "rogue" and "anti-Western" nations at the expense of its historical western vocation. Such criticisms result from a lack of faith in Turkey"s transformative power. It is also too early to judge Turkey"s multi-vectored drives as successful. Indeed, far from looking for a life without them, Turkey is looking for an upgraded relationship with the U.S. and the EU. Clearly, Turkey can hardly expand its influence without first having a firm footing in the West.

  • Turkey"s rise in that volatile, troubled region is an exceptional and unique role Turkey could play — as a regional "hub," rather than a "bridge." This is what Washington and Brussels should be supporting wholeheartedly, rather than getting worried about.

  • The signature policy of Turkey"s new self-confidence is the policy of "zero problems with neighbors", but the current outlook indicates that this has not worked well. Turkey is yet another victim of the unforeseen consequence of the Arab Spring: its ambitious Middle East policy has almost collapsed. Two years ago, Turkey could claim to be the most successful country in the region. Its economy was booming. The Turkish combination of democracy and Islam was hailed as a model for the region. Foreign Minister Ahmet Davutoglu, an academic turned statesman, was credited with devising a peaceful regional order, based on the principle of "zero problems with neighbours[34]."

  • A key pivot of Davutoglu"s new regional order was a Turkish-Syrian partnership, both commercial and political, which soon expanded into a free-trade zone embracing Turkey, Syria, Lebanon and Jordan. Visas with these countries were abolished. Meanwhile, Turkish construction companies were active in Saudi Arabia and the Gulf States, as well as in Qadhafi"s Libya (where contracts were estimated at some $18bn for roads, bridges, pipelines, ports, airports and much else besides.)

  • The new Turkish interest in non-western directions has been the outcome of Turkey starting to "read" its neighborhood and energy interests through its own lenses, from where it firmly dwells. Turks are not content only to be a simple "bridge" over which energy flows; they aspire to become a regional "hub," extracting greater value for the crisscrossing oil, gas pipelines and power interconnections, and turn this role to foreign/security policy gains.

  • A more promising approach lies in better understanding Turkey"s drives, needs and priorities and seeking Western alignment for a durable, "win-win" relationship with Ankara as well as using Turks" leverage in the broader Middle East, Eurasia and Southeast Europe to find solutions to protracted problems that the West has thus far failed to address.

  • If Turkey were to be a reliable energy partner as consumer, transit, terminal and investor country in the current global energy arena, there should be no room for threats or blackmail each time a problem emerges to "cut back the flow of energy," "close down the borders" or "punish political actions by economic sanctions." Not only for Russian, the Caspian and Central Asian supplies of oil and gas, Turkey should show the same degree of sensitivity for Iranian and Iraqi supplies as well. This way, Iraq's energy future could also be Turkey's business.

[1] Between 2007 and 2010, Poland granted 58 concessions for shale gas development to US giants such as Exxon Mobil and ConocoPhillips. According to estimates, Poland's shale gas reserves stand at 1.4 to three trillion cubic metres, enough to satisfy the country's needs for the next 100-200 years. However, there is not yet enough evidence to prove this. The first estimation is due in 4-5 years and the first potential production in 10-15 years. [2] Operators need to reach agreements with land owners. This was an easy task in Texas, but much more difficult in the New York area, where "a lot of debate" on water issues had been taking place. Europe is more densely populated and has more infrastructure than the United States. [3] Upstream, 10 March 2010. [4] The Oil Drum, April 5, 2010 [5] Mandil, C. (2007). The Energy Future International Oil and Gas: Financial Review 2007. M. Crisell, Euromoney International Investor PLC 1-3.P1 [6] Lo, B. And A. Rothman (2006). China and Russia: Common Interests, Contrasting Perceptions Asia Pacific Strategy, Asian Geopolitics Special Report, CLSA Asia-Pacific Markets: 1-31.P13, 21 [7] "The new seven sisters: oil and gas giants that dwarf the west"s top producers," Financial Times, March 12, 2007. [8] According to EIA, the world oil demand could reach to 99million barrels per day in 2015, and 116 million per day in 2030, up from 84 million per day in 2005. [9] A recent study measuring the shift in power in global energy markets revealed that seven major state controlled energy corporations from non-OECD countries (i.e. Saudi Aramco, Gazprom, PDVSA, China"s CNPC, Iran"s NIOC, Petrobras of Brazil and Petronas of Malaysia) presently control over 30 percent of global oil and gas production and over 30 percent of reserves, while the original seven (now four — ExxonMobil, BP, Chevron, Shell) OECD-based energy blue chips which have dominated global energy markets since World War II now control just 10 percent of production and 3 percent of reserves. [10] Sino-Indian cooperation in the search for overseas petroleum resources: Prospects and implications for India, J. Nandakumar, International Journal of Energy Sector Management, 2007, 1 Issue: 1, 84 — 95, Emerald Group Publishing Limited. [11] Power plays: Energy and Australia's security, 11 October 2007, [12] Climate change may spark conflict with Russia, EU told, Ian Traynor, Brussels, The Guardian, 10 March 2008 [13] Globocops of energy security, Mathew Maavak, The Korea Herald, July 18, 2006, [14] But if we go back to the origins of diplomacy and the extensive trade that existed in subsequent centuries among the countries and civilizations of Egypt and West Asia, we see that trade provided the first motivation for inter-state contacts and agreements. Another example is provided in the spread of colonialism in Asia, following Vasco da Gama"s journey to India in 1498, and Europe"s "discovery" of the riches of the East Indies. Again the flag followed trade. [15]Build Your Fortune BRIC by BRIC The Global Guru, [16] But per capita income and military comparison will continue to give a different perspective. For example, this year the US defence budget will again be around $600 billion which is larger than the next ten countries combined. If all national security spending was included, that figure would rise to around $800 billion. [17] Energy security may be achieved when a state is able to minimize vulnerability to resource supply disruptions, access reliably energy at reasonable and/or market-driven prices, and consume resources that least damage the environment and/or promote sustainable development. [18] See [19] In this part of the paper, much use has been made of "Turkey"s role in European energy security" by Katinka Barysch, CER, December 2007, [20] Although Turkey has spent billions on high-tech navigation systems and other safety features, maritime experts say that it is only a matter of time before one of them spills its toxic cargo This would be a disaster for Istanbul"s 13 million residents. And a big headache for the transporting companies that run up costs of tens of thousands of dollars for every day that one of their tankers" crossings is delayed. Turkey and the other Black Sea countries have been looking at a number of bypass options. [21] Gates Says EU Pushed Turkey Away, Wall Street Journal, 10 June 2010. [22] Is Turkey Shifting Alliances?, Energy Hedge Fund Syndicate,15 December 2009, [23] Shall we carry on accession talks with the EU?, Mehmet Ogutcu, Today"s Zaman, 8 December 2008, [24] "Making sense of the current phase of Turkish-Russian relations," Igor Torbakov, Jamestown Foundation Occasional Papers, October 2007. [25] [26] [27]Turkey and Russia: Rivals become partners?, Mehmet Öğütçü and Danila Bochkarev, 21 September 2009, European Voice, [28] The port of Ceyhan has become an important outlet for both Caspian oil exports as well as Iraqi oil shipments from Kirkuk. Turkey is seeking to build up Ceyhan as a regional energy hub, with private investors receiving approval to build several refineries at the oil terminal. The Kirkuk-Ceyhan pipeline has a capacity of 1.65 mbd. [29] [30] [31] [32] How Turkey is re-discovering its Middle East role, Europe"s World, autumn 2009, Stephen F. Larrabee [33] [34] Buoyed by these successes, Turkey set about seeking to solve some of the region"s most obdurate conflicts. It tried hard to bring Syria and Israel to the negotiating table. Together with Brazil, it made what seemed a promising advance towards solving the problem of Iran"s nuclear programme. In Afghanistan, Turkish troops were the only foreign forces welcome, which seemed to presage a role for Ankara in negotiating a settlement with the Taleban. In addition, Prime Minister Erdogan had hopes of reaching an entente with Turkey"s old rival, Greece, and of making peace at last with Armenia (a country still smarting from the harsh treatment of Armenians by the Ottoman Turks.) Above all, the Turkish Prime Minister seemed ready to make major political concessions to the Kurds of eastern Anatolia in a bid to end, once and for all, the long and violent struggle with the PKK, which has claimed tens of thousands of lives.

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