Streetwise Professor

August 13, 2009

Talking Turkey

Filed under: Economics,Energy,Financial crisis,Politics,Russia — The Professor @ 6:37 pm

In the immediate aftermath of the Russo-Georgian War, I wrote that a major objective of US policy should be to revitalize the relationship with Turkey:

Rebuild the Relationship With Turkey. Turkey is another frontline state, and a largely overlooked one in commentary and analysis on the Russo-Georgian War. Turkey has a strong interest in keeping Georgia independent of Russia. The Turks have ambitions to be an energy hub, a bridge from the Caspian to Europe. Georgia is essential to realizing those ambitions. The Turks also have an ethnic affinity with Turkic peoples in Azerbaijan and the ‘Stans that would be more firmly in Moscow’s thrall if Russia controls the Georgian cork to the Caspian bottle. Turkey is also a historical enemy of Russia, with Russia’s 18th and 19th century expansion having come largely at Turkey’s (or, more precisely, the Ottoman Turks’) expense.

. . . .

American relations with Turkey have been rocky, especially since the Iraq war (with Turkey’s refusal to permit the 4th ID to attack from Turkey into northern Iraq), due to the impact of Iraq on the Kurdish issue, and the increasing Islamicization of the Turkish government. These fractures were perhaps inevitable in the absence of the perception of a common threat and a common interest that made the US and Turkey close allies during the Cold War. Russian revanchism in general, especially as manifested in the Georgian campaign, could bring these two somewhat estranged nations back together. It should certainly be a major objective of US policy to achieve this.

Sad to say, there has been little visible progress on this front, although the Europeans did secure something of a victory by getting Turkey to agree to proceed with the Nabucco project; although it must be said that there are still many potential obstacles, and Turkey’s future cooperation is not guaranteed.  They relented on some of their demands (e.g., 15 percent of the gas for domestic use, linkage of Nabucco to EU accession), but they could un-relent in the future.

Putin and Russia, though, clearly have identified Turkey as a linchpin in their energy strategy, and hence in their broader foreign policy.  (The two are so inextricably linked it’s impossible to say where one ends and the other begins, just as it is hard sometimes to determine whether Putin is prime minister of Russia, or of Gazprom.)  Almost immediately after the signing of the EU-Turkey accord over Nabucco, Putin jetted to Ankara, where he and the Turks inked their own deals, and discussed other ventures.  Notably, routing the South Stream project through Turkish waters, the creation of a South Stream 2 project that would ship gas through Turkey to the Mediterranean, and construction of a nuclear power plant.

One the one hand, this is worrisome, as it suggests that Turkey is more than willing to deal with Russia and engage in deals that will cement Russian gas dominance, at Europe’s (and Ukraine’s) expense.  It could be viewed as somewhat encouraging, though, because it also suggests a certain desperation on Putin’s part.  No sooner do the Europeans leave with Turkish agreement on Nabucco than Putin feels compelled to follow in their wake, offering all sorts of goodies.

There is, as always with these grandiose Russian gas projects, an element of unreality about them, not to say fantasy.  Medvedev and Putin are always slagging on Nabucco by questioning where the gas to fill it is going to come from.  But, pray tell, where is the gas going to come to fill South Stream (63 billion cubic meters/year) and South Stream 2 (16 billion cubic meters/year)?  South Stream in particular has growed like Topsy, with announced capacity more than doubling in a year’s time.

All this at a time when Russia is facing decline of its existing fields, delays in bringing new fields on line, cutting capex for exploration and development, not to mention a financial crunch that makes it highly doubtful that South Stream could be funded, even if there were the gas to fill it.  Also, Russia is facing a domestic supply crunch aggravated by the political necessity to keep domestic prices artificially low.  Russia has for years plugged its supply gap with gas from Central Asia, but the prospects for continuing to rely on that are bleak, thanks in no small part to Gazprom’s short-sighted cutting off contracted imports from Turkmenistan in response to its cash crunch.  Hence, there are even more doubts about the availability of gas for new pipeline projects.

Turkey is probably smart to exploit Russia’s willingness to deal, figuring that it might get something out of Russia and Europe.  Indeed, the smartest move would be for Turkey to continue to support Nabucco and to continue to negotiate with Russia.  Given Russia’s proven track record of ruthless opportunism (contract?  what contract?) if Turkey were locked into Russia with no Nabucco alternative it would be extremely vulnerable to holdup down the line.  Conversely, with Nabucco, it would have some leverage over Russia.  And Nabucco with no Russia would be preferable to Russia with no Nabucco, because the Europeans are more reliable contracting parties, and are far less likely to engage in holdups than the Russians would be.  And it is very possible that if Nabucco were dead, South Stream would soon follow it into the grave, leaving Turkey with zip.

All that said, a more proactive US policy towards Turkey would be welcomed, if only to force Putin to raise the bid further.  And the Europeans should not let this Russian-Turkish deal undermine their determination to proceed with Nabucco.  That prospect is no doubt a major reason for Putin’s Turkish sales job, and there’s no reason to hand him an easy victory.

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