Turkey and Russia: The importance of energy ties.

• Author: Winrow, Gareth
• Position: COMMENTARY - Essay

ABSTRACT Turkey and Russia maintain close energy ties in spite of difficulties in other areas of their relationship. This compartmentalization of ties was tested following the downing of a Russian jet by Turkish Armed Forces. However, the Turkish Stream had been suspended prior to this incident by Ankara, in part because of disagreements over gas pricing. Reconciliation between Ankara and Moscow led to a reactivation of the Turkish Stream. Given their mutual dependency the energy relationship between Turkey and Russia will likely remain fairly immune to possible future downturns in ties.

This article examines the continuing importance of Turkish-Russian energy ties in the face of strains in relations between Ankara and Moscow over Syria. There is an assumption that the shooting down of a Russian jet over Turkish territory in November 2015 led to the collapse of Turkish Stream. However, this much-trumpeted project had already been suspended by Ankara, in part because of disagreements over gas pricing. Focusing on the significance of Russian gas exports and on Russian plans to construct Turkey's first nuclear power plant, this article analyses developments before, during, and after the crisis in relations between Turkey and Russia over Syria. In this context, the Syrian crisis refers to the deterioration of relations between Turkey and Russia in the period from November 2015 to June 2016.

Close energy ties between Turkey and Russia were maintained after Russia invaded Georgia in 2008 and annexed Crimea in 2014. At first sight, the erstwhile successful compartmentalization of energy ties from other aspects of the Turkish-Russian relationship seemed to have collapsed over the fighter jet incident with the suspension of Turkish Stream. However, Turkish Stream had already run into serious difficulties by late July 2015 before the downing of the Russian jet. Meanwhile, Gazprom continued to deliver substantial volumes of gas to the Turkish market after November 2015, and preparatory work by the Russian state-owned Rosatom on Turkey's first nuclear plant at Akkuyu, while slowed down, was not halted.

Turkey is greatly dependent on Russia for gas imports and this may give Moscow some leverage over Ankara's policies. Nevertheless, there is a degree of mutual dependency in energy ties which could also be exploited by Turkish officials. In 2015 Turkey produced only 0.38 billion cubic meters (bcm) of gas. Imports of gas from Russia amounted to 26.78 bcm out of total imports of 48.43 bcm. (1) Gas will remain a crucial component in meeting Turkey's energy needs for the foreseeable future. Ankara is seeking to diversify its gas imports by taking deliveries from alternative sources such as northern Iraq, Turkmenistan, and Israel, and by importing more liquefied natural gas (LNG), but this project will not be realized in the near term due to political and security concerns and a lack of infrastructure. Turkish policymakers are aiming to increase the use of renewables in the energy mix, use more locally produced coal, and develop nuclear power. However, Rosatom's role in constructing Turkey's first nuclear power plant, which is expected to produce 4,800 Megawatts of electricity, will only heighten Ankara's energy dependence on Moscow.

It is important to note, on the other hand, that Turkey is Gazprom's second largest export market after Germany. The suspension of gas deliveries to Turkey without proper legal reasoning would damage Russia's reputation as an energy supplier and would likely result in Gazprom incurring heavy fines for breaking the terms of its long-term gas contracts. Russia is also eager to demonstrate that it is a serious international player in the construction of nuclear power units. However, Russia could still haggle over gas prices or take-or-pay obligations and temporarily reduce gas deliveries without violating the terms of its contracts. In effect, a range of options are available for Russia as a gas supplier to make life uncomfortable for Turkish consumers; this was evident in the months prior to the crisis in Syria when relations between Turkey and Russia deteriorated over the downing of the Russian jet.

Pre-Syrian Crisis I: Proposals for Turkish Stream

Institutionalized bilateral ties developed between Turkey and Russia after the establishment of a High-Level Cooperation Council in May 2010. In 2014, trade turnover between the two totalled over $31 billion and there were plans to surpass $100 billion by 2020. (2) Turkish companies were heavily involved in the construction and banking sectors in Russia. Almost four million Russian tourists visited Turkey annually. The close energy ties between the two countries reflected their warming political and economic relationship.

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After extensive lobbying from Moscow, in late December 2011 Ankara eventually approved the construction of South Stream across Turkey's exclusive economic zone (EEZ) in the Black Sea. This pipeline network envisioned the annual delivery of 63 bcm/y from Gazprom to Europe via four offshore lines which would connect the Russian mainland with Bulgaria. This project threatened to disrupt the plans of the European Union (EU) to reduce Europe's energy dependency on Russia by promoting the Southern Gas Corridor, which aimed to carry non-Russian supplies of gas to markets in Europe via a new pipeline system crossing Turkey. In return for Ankara's approval of South Stream, Moscow promised gas price discounts and flexibility in take-orpay obligations; Russia also revised agreements so that Turkey could continue to receive a maximum of 14 bcm/y of Russian gas from the Western Line running through Ukraine and up to 16 bcm/y via Blue Stream running across the Black Sea until 2021 and 2025. (3) But negotiations with the EU were halted after Russia annexed Crimea, (4) and South Stream fell victim to objections from Brussels, which opposed the project on the grounds that it violated the provisions of the EU's Third Energy Package with regard to Gazprom's ownership of the planned pipeline network and control over gas transmission.

Although South Stream was encountering grave difficulties, it nevertheless came as a surprise when on a visit to Ankara on December 1, 2014, President Vladimir Putin announced that Turkish Stream would replace South Stream. According to the non-binding memorandum-of-understanding (MOU), 63 bcm of Russian gas would be transported to Europe and Turkey each year through four separate strands which would be laid across the Black Sea to connect Russia with Turkey instead of Bulgaria. One of these strands would supply gas to the Turkish market. There was talk at the time of Turkey also receiving an additional 3 bcm annually via Blue Stream and securing price reductions for future Russian gas deliveries. (5) The planned Turkish Stream made sense for Moscow, which had already spent $4.7 billion on purchasing offshore pipes and building infrastructure on the Russian mainland for South Stream, that could instead be used for Turkish Stream. (6) The new pipeline connection to Turkey could replace gas deliveries across the Western Line which Russia was considering closing after 2019 to avoid remaining dependent on troublesome Ukraine for gas transit. However, the provisions of the Third Energy Package still threatened plans for the delivery of Russian gas to EU member states via Turkish Stream. The project soon encountered technical problems, however, and became entangled with disagreements between Turkey and Russia over the prices for Russian gas currently being delivered to Turkish consumers.

A number of issues needed to be resolved before Turkish Stream could be...