Business precedes politics: Turkish Stream

Turkish Energy Minister Taner Yildiz and Russian energy giant Gazprom’s Chief Executive Aleksey Miller took a helicopter ride on Saturday over the Black Sea to survey a possible route for the Turkish Stream natural gas pipeline which was renamed after the cancelled South Stream project.

This was the first substantial step towards the technical feasibility of the pipeline. The alternative pipeline decision was declared by Russia’s President Putin on his visit last December to Turkey after Bulgaria’s split from the project was made after EU pressure which claimed it was against the anti-trust rules of the Union.

At first glance, Putin’s declaration was largely interpreted as an angry reaction to punish Bulgaria and to reward Turkey. However, now this has turned out not to be the case.

The European rejection of the South Stream caused Russia and Turkey to revise their agendas on pipeline projects. Both sides were discussing a new pipeline from Russia to Turkey because of Turkey’s ever-growing energy demand. It was initially considered as a parallel line to the existing Blue Stream. However, the proposed Turkish Stream would probably eliminate that option as it would no longer be necessary to run two lines. Furthermore, the Turkish Stream could eventually negate the western pipeline, West line, which crosses troubled Ukraine and which frequently experiences gas shortages.

From the Russian point of view, the new project kills two birds with one stone – by providing access to the EU market while also securing their market share in Turkey.

In the meantime, the EU’s energy ministers met in Bulgaria’s capital Sofia to search for alternative routes for natural gas transmission to Europe via southeastern Europe. Representatives of Austria, Bulgaria, Croatia, Greece, Italy, Romania and Slovenia as well as the European Commission Vice-President for Energy Union Maros Sefcovic discussed gas infrastructure priorities for central and southeastern Europe.

Whatever they decide on, it will be a long road ahead taking into consideration Greece’s newly-elected government’s tension with the EU which is likely to be another stumbling block in the realization of the project. Additionally, delays and setbacks from Bulgaria and the other Balkan countries’ due to their disappointment over the South Stream cancellation could hamper the progression of the project.

When the decision is made and the infrastructure is complete, Russian gas will most probably be available at the Turkish-Greek border.

In spite of Turkey and Russia’s close economic ties, the relations between the two are not immune from political disputes. The two countries have many issues on which their policies differ sharply; namely the annexation of Crimea, the civil wars in Syria and Ukraine and the disputed region of South Osseti. Nonetheless; these political diversities do not necessarily prevent the two neighbors from cooperation in mutually fruitful investments.

Regardless, the countries have availed of the opportunity to proceed in a constructive direction. As a first example, Russia has accepted an unofficial Turkish delegation’s trip to investigate the Crimean Tatar community’s problems as a goodwill gesture. Other such gestures are likely to follow.

Some may raise eyebrows at the Turkish Stream especially from an EU anti-trust stance. However no objection was raised so far against EU-member Greece. The country is obliged to follow EU anti-trust laws for the proposed Turkish Stream project, similarly to Bulgaria in the South Stream pipeline.

In July 2014, the European Union demanded that Bulgaria suspend the construction of the South Stream, stressing that the pipeline project could not proceed before it complied with European Union legislation. The union opposed the construction of the South Stream Pipeline citing a breach of an EU anti-trust law.

Ongoing sanctions against Russia are another concern. However, the initial pipelines which transverse Ukraine towards central Europe were constructed in the 1970’s and 80’s in spite of the bitter conditions of the Cold War and a strong U.S.- led opposition which included an embargo.

– Business precedes diplomacy

The Turkish and Russian decision makers have chosen to pursue energy policies regardless of “political stalemates”, just as their European counterparts did in the past.

The Greek Cypriots’ Dreams of Energy; Are they fading away?

The French energy giant TOTAL’s recent declaration to cancel drilling in the gas fields off South Cyprus has caused severe disappointment to the Greek Cypriots.

Despite earlier comments from the South Cypriot Greek officials who blamed Turkey for the deployment of a research vessel to the region, the true reason for the decision was the lack of sufficient reserves.

In fact, TOTAL’s decision was not the only bad news for the Greek Cypriot Administration as other disappointments were to follow.

Another prominent investor, The ENI/KOGAS consortium also declared in December that it did not find profitable reserves in the nearby parcel-9 offshore in south eastern Cyprus.

The only remaining driller in the region is Noble Energy which reportedly has found sufficient reserves in the adjacent parcel-12, although below the expected volume. However, Noble Energy may well not be in any hurry to exploit these reserves due to the recent oil price drop which mostly determine global natural gas prices.

However, Noble Energy, which was focused on the nearby Israeli Leviathan and Tamar fields where the company is currently exploiting a considerable amount of gas, has been forced to suspend their operations due to an Israeli Court’s recent decision regarding a violation of anti-trust law.

This is bad news for Greek Cypriots who speedily lobbied for an LNG terminal and an underwater pipeline through Greek-administered Cyprus as opposed to the Turkish pipeline which most experts would agree is the most feasible option. Noble Energy has now initiated a bidding process for an Israel-Turkey pipeline given that this is the most natural route to gas markets in Europe.

The recent developments have provided more fuel for the option through the Northern route through Turkish Cyprus while pushing the Greek overland western Route out of the race. The only remaining step for the Northern route is a reconciliation of Turkish-Israeli relations which are now looming on the horizon.

In the face of the dwindling options available, it seems a pointless exercise for the Greek Cypriots to pursue a counter-lobbying campaign.

The Greek Cypriot Administration has insistently denied the legal rights over offshore mineral reserves of the Turkish Cypriots. It now appears that there is very little if nothing to defend. As a matter of fact the Eastern, Northeastern and the Northern parts of the Exclusive Economic Zone (EEZ) which falls to the Turkish side of the Island have so far not been explored yet. But considering the proximity to the proven reserve areas, they may be more profitable. If and when proven reserves are realized there, how will Greeks ask their share from their Northern neighbors?

Even before the possible underwater fossil resources, Turks on the island had other resources to share with their neighbors. Northern Cyprus has recently been connected to Turkey through a water pipeline where abundant fresh water from the Taurus Mountains is serving the needs of the northern part of the island. The electricity power grid of the North was also connected to mainland Turkey a long time ago resulting in much cheaper electricity than in the South.

The time has come for Greeks to restart bilateral talks, which were suspended by them on the pretext of the Turkish research ship. Otherwise, the island will remain the prisoner of a “political stalemate” and the window of opportunity for them to have their own claim on the energy map may slip from their hands.

The Political Stalemates in Middle East against Energy

The Middle East has been one of the most important sources of oil for a century. It can be compared only with North America and Russia together with the Caspian Basin. However, the transfer of this commodity to the markets has always been painful, despite the fact that it is the easiest and the cheapest to exploit compared with the others.

This is a long story which can fill books to be covered in full details. But we will summarize it in two episodes in historical order to make it more comprehensible for readers.

The story starts with the dissolution of the Ottoman Empire, which had dominated the region for the previous four centuries. That in itself did not have a negative effect on energy flow: it was only a political handover from the Ottoman Empire to the British Empire. British rule was a kind of extension of the order and peace in Middle East, which ended shortly after the end of WW II. The end of British rule in late 1940s was also, unfortunately, the end of order and peace in the region.

The political turmoil was ignited by the Arab-Israeli war, which broke out in 1948 and resulted in Israel’s independence. However, Israel does not bear the blame alone, because many other countries put much fuel in the fire; namely Iran-Iraq war in 1980’s, Gulf Wars I and II in the 1990s and 2000s, and the recent ISIL catastrophe that is a result of Syrian civil war and the political disorder in Iraq. This turmoil hindered energy flow and investments in the region.

The Kirkuk-Yumurtalik oil pipeline is a good example of the construction and operation losses caused by politics. The pipeline was built as two parallel lines in 1970s and 80s between Iraq and Turkey instead of a shorter and easier route through Syria. The rough territory of southern Turkey was preferred to the more favorable route over Syrian Desert at a much higher cost because of the political uncertainties of Syria. However, the flow from Kirkuk to the Gulf of Iskenderun was not so smooth because of occasional sabotage by PKK terrorists together with the illegal siphoning.

Another difficulty arose in 1991 when Gulf War I ended. Turkey shut down the pipeline in accordance with the UN embargo against the Saddam regime in Iraq. The pipeline was partially re-opened in 1995 under the “oil for food” program for the Iraqi people, in accordance with UN Security Council Resolution 986. The current negotiations between Turkey, the Northern Iraq Regional Government and the central government of Iraq show that the pipeline may finally reach its full capacity, which is estimated around 1.5 million barrels a year.

Turkey’s cumulative loss only as transit country is estimated nearly $5 billion, which is small to that of Iraq, which lost between $15 and $20 billion.

The Iran-Iraq war posed yet another problem, both for production and for transport of crude oil from the Persian Gulf in the 1980s. The reciprocal missile attacks against oilfields, refineries and cargo tankers sailing in the gulf created terrible losses which is difficult to estimate to both sides.

In 1990, Iraq invaded Kuwait to pave the way for the following two Gulf Wars, in 1991 and 2003. Both wars were disastrous for Iraq. The decade-long political stalemate, which ran from 1991-2003, between the Saddam Regime and the West ruined the welfare of Iraq, where hundreds of thousands children reportedly died of hunger and a lack of medicine. It took another decade until oil exports were more or less restored, while the political order needed even more time to be restored.

The most recent threat to the oil resources — and a terrible enemy of the people in the region, as well — is ISIL, which is a result of Gulf Wars and the Syrian civil war. ISIL controls most of the oil and gas production of Syria and a considerable portion of that of Iraq. The energy production installations like refineries, oil/gas rigs, pipelines, etc. are the targets for Coalition air attacks on ISIL. God knows if and when the so-called ISIL will be eradicated.

One of the most recent gas deposits to be discovered lies off the Israeli coast. It is hoped that the oversupply will be exported to neighboring countries once the local demand is met. However, those hopes are shadowed by the traditional – and seemingly eternal — Arab-Israeli wars and hatred.

Israel’s first likely customers are Jordan and some private companies in Egypt. The initial agreements with Jordan and Egypt were unwelcome. Protests were held, urging some legislators to press to scrap the deal, which calls for supplying Jordan with 45 billion cubic meters gas from Leviathan offshore field over a period of 15 years. But the existing pipeline between Egypt and Israel was attacked by extreme Islamists in the Sinai Peninsula.

Like many other countries in the region, Egyptians and Jordanians apparently put their hatred in front of their interests. If for a moment they were able to reverse their priorities, then the course of peace process could take a better direction. This was explained well by Malek Kabariti, a former energy minister of Jordan in an interview with The Anadolu Agency during the recently held Bosporus Energy Club meeting in Istanbul.

“At the end of the day, we have to look for Jordan’s interest,” Kabariti said. “The Egyptians are already in negotiations with Noble to import gas from the East Mediterranean region.”

He regarded the deal as a chance to facilitate peace in the region.

“It is not only Israeli gas,” he said. “It is Israeli-Palestinian, Turkish-Lebanese, Egyptian-Cypriot gas. It is a combination of all these countries. This, I think, is a good mechanism for making all countries and decision-makers in the region talk seriously about peace.”

Middle East wars alone do not pose all the obstacles to the free flow of energy. The four-decade political stalemate over Cyprus is also an obstacle to the upstream and downstream process regarding the vast natural gas resources of the Levant.

Southern Cypriots are continuously lobbying for an underwater pipeline to stretch from Cyprus to Greece and then on to Europe, apparently to bypass Turkey. This is like someone showing his right ear with his left hand from behind the neck. Most experts agree that such a project will not only cost more, but also delay the delivery of energy for years.

The relationship of politics and energy in the Middle East might seem strange, like a carrot with a horse behind it. The carrot cannot proceed unless the horse is in front.