Turkey’s pipeline balancing act

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As Turkey looks to diversify its sources of natural gas, one option that is coming closer to reality is a deal with the Kurdistan Regional Government (KRG) to build an oil and gas pipeline from northern Iraq. While this link would help consolidate Turkey’s position as a regional energy corridor, it risks upsetting relations with Iraq.

Turkey already has a number of pipelines linking it to foreign suppliers of oil and gas. Lines from Russia and Iran provide a large part of the natural gas consumed in Turkey, while a twin pipeline from Iraq offers an outlet to European markets for oil from fields in and around Kirkuk. The Baku-Tblisi-Ceyhan oil pipeline, running from Azerbaijan to the export terminal at Ceyhan on the Mediterranean is the main export route for Azeri crude.

Pipeline plans

Other plans to girdle Turkey with pipelines include the Trans-Anatolian Natural Gas Pipeline, which would carry Azeri gas to Europe. There is even a proposal for a link to Israel’s offshore fields, which would supply gas to Turkey and possibly Europe, though this project could be held up.

However, far more likely to spark debate is a proposal to build a pipeline between Turkey and Iraq’s Kurdish region. According to a late-October report from Reuters, the KRG would export up to 2m barrels per day (bpd) of oil via Ceyhan, while also selling a minimum of 10m cu metres of gas annually to Turkey for domestic consumption.

The deal could be of immediate benefit to Turkey, which is among the world’s largest importers of natural gas. The country spends around $12bn each year on natural gas, much of which is used to fire power plants, and electricity demand continues to rise steadily. Total energy imports in 2013 are expected to amount to nearly $60bn, a heavy drain on the economy and one that has jumped this year due to the depreciation in the value of the lira.

Political concerns

KRG officials have said the new oil pipeline could be completed within 18 months, a timeframe Turkey’s energy minister, Taner Yildiz, has said is not possible. Work on such a project could not start without a full feasibility study and other necessary preliminary steps, a spokesman for the minister said in late October.

Though the KRG is in the process of finishing a pipeline running to the Turkish border, it will not allow independent exporting capacity, with the new connection having to tap into the existing Kirkuk-Ceyhan conduit controlled by the Iraqi central government. To get around this, the KRG has proposed the construction of a parallel pipeline to Ceyhan, one dedicated to carrying the main flow from the northern Iraqi fields.

While the deal with the KRG would bring benefits to Turkey, both through a ready supply of oil and gas at competitive rates and revenue from transit fees for the portion of the Iraqi-Kurdish hydrocarbons shipped for export, Ankara could also have a price to pay.

The KRG is in an open dispute with the Iraqi central government regarding the issue of the semi-autonomous region’s plans to export oil and gas directly, without involving Baghdad. By formalising any agreement with the KRG, Ankara could further alienate Iraq, just at a time when the Turkish government has embarked on a diplomatic offensive to mend broken fences.

Among the Iraqi central government’s complaints is that Ankara has undermined its authority by negotiating agreements directly with the KRG, particularly over energy. The Iraqi central government would prefer any exports from the Kurdish region be carried out through the existing pipeline to Ceyhan, though this does pose a technical problem as much of the take from the fields in the area under KRG control is heavier than the Kirkuk-sourced crude currently being pumped through the line.

While the KRG is entitled to 17% of Iraqi’s total energy revenue, Baghdad is concerned that the regional government wants a bigger slice, one that could be used to fund a move towards full independence. This is something Turkey in the past has said it would not accept as Ankara fears an independent Iraqi Kurdistan would further inflame its own Kurdish separatist problems. However, the increased rapprochement with the KRG, combined with Ankara’s efforts to end its own Kurdish conflict, may have lessened those concerns.

A potential outflanking move

On November 11, the Turkish foreign minister, Ahmet Davutoglu, said during a meeting in Baghdad that Iraqi Prime Minister Nouri Al Maliki had proposed building a new pipeline from his country through Turkey to Ceyhan, creating an energy corridor that could be used to carry oil from Iraqi’s southern oil fields. While potentially attractive, holding out the possibility of higher transit fees for Ankara, the offer could be dependent on Turkey’s not tying itself too closely to the KRG, though Turkish officials have said accepting one proposal does not rule out the other.

Turkey seems to be attempting a somewhat difficult balancing act, having apparently committed to purchasing Iraqi Kurdish hydrocarbons while trying not to undermine Baghdad’s sovereignty. With any independent pipeline at least two years down the track, Ankara may well be hoping that the Iraqi central government and the KRG will be able to come to a working arrangement, one that would see Turkey hosting an increase in transport of oil and gas from Iraq without being burdened with a host of political problems.

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