NEW GAS PIPELINE TO LINK AZERBAIJAN AND ITALY, VIA TURKEY

Since the 1991 collapse of the USSR, resource-poor but strategically vital Turkey has sought to position itself as a major transit hub for burgeoning Caspian energy exports. For 15 years Ankara looked on helplessly as Russia, invoking its rights under the 1936 Montreaux Convention, turned the Turkish Straits into a tanker superhighway. Turkey derived no revenue from the transit even as its waters were put under increasing environmental threat.

Chafing under Moscow’s penurious transport monopoly, Azerbaijan and other Caspian states gradually warmed to the idea of alternative export routes bypassing Russia. The 1999 Baku-Suspa pipeline did not transit Turkey, but it buoyed Ankara’s hopes for larger projects.

In 2006 the thousand-mile-long Baku-Tbilisi-Ceyhan pipeline opened, allowing Ankara to receive transit fees on the one million barrels flowing through the region each day. Turkey hoped the funds would make up for the $40 billion Ankara claimed that it lost from transiting Iraqi crude because of U.N. sanctions. While Turkey’s transit revenue from BTC is estimated at $1.5 billion annually, a new natural gas project will finally realize Turkish aspirations for becoming a major energy transit hub.

On July 26 Italian Minister for Economic Development Pier Luigi Bersani, Greek Development Minister Dimitris Sioufas, and Turkey’s Minister of Energy and Natural resources Turkish Hilmi Guler signed an intergovernmental agreement to build a $1.36 billion natural gas pipeline that will connect Azerbaijan’s Shah Deniz gas field to Italy via Turkey and the Adriatic (Corriere Della Sera, July 26). The Turkey-Greece-Italy (TGI) pipeline, with a completion date of 2012, has a projected annual capacity of 11.5 billion cubic meters of natural gas. The Turkish-Greek link is expected to begin operations later this month, while construction of the 131-mile-long Greek-Italian undersea portion of the pipeline is to begin next year. Turkey will take 15%, or 1.74 billion cubic meters annually, of the TGI’s natural gas.

Bersani said that the TGI pipeline plan “is the first and the most advanced one, in a position to connect the area of the Caspian to European consumers” (Agenzia Internazionale Stampa Estero, July 26). Guler commented, “Turkey and Greece will become a bridge for the transmission of gas from Anatolia to the West. My earnest desire is to accomplish the tripartite agreement that includes Turkey, Greece, and Italy and to pull together a new collaboration for the south corridor” (Zaman, July 27).

Washington strongly supports the project. In a written statement, U.S. State Department spokesman Sean McCormack said, “The United States congratulates the prime ministers of Turkey, Greece, and Italy for today’s signing in Rome of the inter-state agreement for the construction of the Turkey-Greece-Italy (TGI) pipeline…The agreement constitutes the culmination of the joint efforts of the three countries, with the strong support of the USA and the European Union, to thus contribute so that Europe diversifies the sources of the supply of natural gas from the Caspian Sea, and to promote the economic growth of the region of Caspian” (ANA-MPA, July 27).

Washington is certainly not thinking small. On July 9 Deputy Assistant Secretary for the Bureau of European and Eurasian Affairs Matthew J. Bryza told an “on-the-record briefing” at the 10th Annual U.S.-Azerbaijan Security Dialogue in Washington, “Part of what we’re talking about here today is trans-Caspian security in a broad sense, and we have a challenge to make sure that market principles decide where the other great quantity of gas around the Caspian, which is in Turkmenistan, where that gas or how that gas makes it to market. There is a large — a huge supply of natural gas in the far western reaches of Turkmenistan, which, if the market decides, will make its way to Europe via Azerbaijan” (U.S. Department of State transcript, July 9).

However, Washing is less pleased about other Turkish energy developments. On July 31 Iranian Oil Minister Kazim Veziri Hamane said that, following the recent preliminary agreement between Turkey and Iran, European states had begun negotiations with Turkey to purchase Iranian natural gas (Keyhan, August 1).

If Ankara’s negotiations with Washington are producing unease, there is little indication that Russia will quietly sit by as the West attempts to corral Turkmenistan’s natural gas assets, the world’s fifth-largest natural gas reserves, which Gazprom has been angling to monopolize as well.

Furthermore, Turkey remains vulnerable to Moscow’s pressure, most notably because of the Russian-Turkish Blue Stream natural gas pipeline, which came online in November 2005, with Gazprom last year delivering 8 billion cubic meters of Russian natural gas. Russia already supplies more than 60% of Turkey’s natural gas and 20% of its oil, and Gazprom’s hardball tactics over natural gas supplies to Belarus, Ukraine, Poland, and Georgia cannot be very far from the minds of policymakers in Ankara.

Further increasing potential Russian political pressure on Ankara was the July 5 auction and sale of a 51% share in Turkey’s sole petrochemicals company, Petkim Petrokimya, to the newly chartered Transcentral Asia Petrochem Holding Kazakh-Russian company for $2.05 billion, outbidding the Azerbaijan state oil company SOCAR. The deal is Russia’s fourth-largest foreign investment ever and by far the largest Russian investment acquisition in Turkey. Petkim Petrokimya generates annual revenues of $1.6 billion and supplies most of Turkey’s domestic market with materials for its plastics, textile, and detergent sectors, with one-quarter of Petkim Petrokimya’s products then being sold on export markets.

It is one thing for Moscow to acknowledge that Azerbaijan has effectively slipped from its orbit, quite another to see it used as a transit bridge to tap Turkmen energy. In such an event, Moscow has some significant cards to play that could derail, if not kill, Turkish hopes of being a major east-west energy bridge in the 21st century.