Flashing the Energy Card

Turkey

Economic News

22 Jul 2010
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Ankara caused indignation in the US and Cyprus this week after solidifying a natural gas agreement with Iran and confirming plans to explore for oil and gas in the eastern Mediterranean.



While Washington is clearly unimpressed by the expanding cooperation between the Turks and Iranians in energy exploration and delivery, Nicosia is up in arms about Turkish plans to exploit underwater resources in their vicinity, despite doing so themselves. The Europeans have reason to be ambivalent.



When a Turkish delegation visited Tehran on August 12 to add flesh to the bones of a memorandum of understanding (MoU) in energy, the US was understandably irked. Though UN sanctions against the Islamic Republic do not directly apply to energy trade or investment in Iran, any commercial and trade deals that help lift Iran from its nuclear-induced isolation is likely to trigger US censure. That Turkey's state-owned exploration company TPAO is prepared to develop and operate three natural gas fields in Iran, investing a projected $3.5bn to this end, has hardly alleviated Washington's displeasure



US Ambassador to Turkey Ross Wilson recently elaborated on these concerns: the MoU between Ankara and Tehran could pose a serious challenge to the decade-long work conducted by Turkey and the US to exploit and deliver Caspian gas resources to Turkey and international markets. Gas resources in Kazakhstan, Azerbaijan and western Turkmenistan may not be developed as far as they could, should a surge in gas exports from Iran steal the show. The MoU between Iran and Turkey intends to deliver 30bn cubic meters (bcm) of Iranian and Turkmen gas to Europe through Turkey.



Though clearly concerned about Iran's continued nuclear defiance, the Europeans and Turks are swayed by other considerations, that is, local energy demand. The Turkish/Iranian energy deal would help wean Europe off Russian energy supplies - an important priority considering Moscow's tendency to restrict energy flows and apply arbitrary price increases to less-muscular neighbouring states. Moscow has also shown an increased appetite for political rupture with Europe and the US, whether over spies or missile defence.



The planned delivery of Iranian gas through the EU-backed Nabucco pipeline project would play a key role in reducing Europe's dependency on Russian energy supplies. According to the EU Commission, 30% of the EU's oil imports and 50% of its gas imports come from the Russian Federation.



Aside from its role as an energy bridge, Turkey too wants to diversify the sources from which it extracts its energy supplies, with 97% of national gas needs coming from neighbouring states energy experts say. According to a 2006 report by the International Energy Agency (IAE), 65% of Turkey's natural gas requirements are delivered from Russia.



The Turks meanwhile remain as pragmatic as ever. Grumbling from Washington over Turkish / Iranian energy deals may echo Turkish calls for Washington to confront the Kurdistan Workers' Party (PKK) in northern Iraq.



Turkey is also embroiled in an energy exploration row with the Greek Cypriot government. In retaliation for a move by Nicosia to tender oil and gas exploration and drilling rights off the Mediterranean island's south coast, Ankara has given TPOA the green light to explore oil and gas in the estern Mediterranean region.



The tit-for-tat response was met by a predictable Greek-Cypriot riposte, threatening once again to block Turkey's EU accession process and refusing to allow the opening of the energy chapter for accession. This is despite Turkey's claimed rights over underwater resources in the region. The area Greek Cyprus has targeted for exploration is 70,000 square kilometres in size, versus a comparatively modest 4,000-square-kilometers targeted by Turkey. An estimated $400bn worth of oil (6-8bn barrels) lie off the coast of Cyprus, according to regional energy experts.



Brussels is more than aware of Turkey's importance as an energy conduit feeding Europe, and is divided about Nicosia's continuous spoiling tactics and threat to derail Turkey's EU accession drive. As with the status of the troublesome island, the energy dispute between Nicosia and Ankara is likely to continue to fester while Turkey continues to grow as a regional energy bridge.

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