Robert M. Cutler on Energy and Eurasia

1. Background

1.1. The Early 1990s

Turkey's international position began to decline in the late 1980s along with the strategic importance of the Bosphorus. Partly in compensation for this, in 1990, still before the Soviet Union vanished, President Özal proposed creation of a Black Sea grouping to promote free trade and freer movement of goods and services among the Turkey, the USSR, Romania, and Bulgaria. By mid-1991 the agenda of this cooperation had expanded to include coordination of shipping and fisheries policies, as well as industrial dumping in the Danube River. By the time the agreement on economic cooperation was signed on 25 June 1992, the participants included Russia, Turkey, Greece, Bulgaria, Romania, Ukraine, Moldova, Georgia, Armenia, and Azerbaijan. It was at the first Republic Day celebration in Ankara, at the end of October 1992, that Özal called upon the attending presidents of the Central Asian states to hook up with Turkey economically and, in particular, to market their energy resources to the West through pipelines over Turkish territory.

Özal saw Turkey in competition with Iran for influence in Central Asia and also saw Turkey as a bulwark against religious fundamentalism. Iran, fearful that the Black Sea initiative would inaugurate a Turkish push for "economic expansionism," sought a counterweight by re-invigorating the Economic Cooperation Organization (ECO). By 1993 all five Central Asian republics plus Azerbaijan were full members of ECO. However, contrary to Iran's designs, ECO's activities in practice tended to facilitate the project of influence by Turkey, the only ECO member with any significant capital for foreign direct investment, through an aggregate of small- and medium-scale construction and other economic projects.

In fact, a major reason why the Central Asian states lost some enthusiasm for links with Turkey in the years immediately after 1991, was not just that the West no felt the “Turkish Model” was needed as a counterbalance to the “Iranian Model” in Central Asia. At least as important from the standpoint of the newly independent Central states in Central Asia themselves was that they discovered by the mid-1990s that Turkey, despite its skill and resources in small- and medium-scale construction projects, could not provide the huge amounts of capital necessary for major infrastructure construction.

Indeed, for most of 1991 and 1992, the Central Asian republics looked to the West and Far East for economic and political support. In this they were disappointed, it was afterwards that they began afterwards to look closer to home, specifically toward Iran, Pakistan, and Turkey. Among these three countries, only Turkey could provide any significant assistance at all. The Central Asian states also shifted their focus from the West and Far East to their common Turkic space, because they understood Özal's point about the importance of westward land routes for the export of natural resources, especially energy.

1.2. The Late 1990s

Despite the impression that some observers outside Turkey received from Özal's rhetoric, Turkey's policy in Central Asia was not expansionist. Turkey's relations with the former Soviet republics of Central Asia came to be of three kinds. First were cultural initiatives, involving the spread of the Turkish language as a lingua franca and of the Latin alphabet. Second, there were and are economic relations, including cooperation to assist in the transition to the market and assist in infrastructural development and schemes of regional cooperation such as the Black Sea initiative. Third, at a time when it appeared that Islamic fundamentalism was a weakening influence inside Iran, Kemalist principles on the differentiation between Islam and the state began to increase again the relevance of the “Turkish model” for the former Soviet republics in Central Asia.

Specialists disagree over the question, whether there was or not a fundamental reorientation of Turkish foreign policy in the mid- and late 1990s. To be sure, Turkish foreign policy in the second half of the 1990s did not exhibit the cohesiveness and vision that characterized it earlier in the decade. It is very possible that this was due, in significant degree, to coalition government and insecure political leadership. Indeed, one of the few constants during this period was the U.S.–Turkish cooperation in promoting pipelines for the export to market of energy resources from the former Soviet republics surrounding the Caspian Sea littoral.

It was during this period that the key agreements for construction of the Baku–Tbilisi–Ceyhan (BTC) main export pipeline were sealed at the highest level at the November 1999 Istanbul Summit of the Organization for Security and Cooperation in Europe. It was also during this period that great attempts were made to realize an agreement on a Trans-Caspian Gas Pipeline (TCGP) from Turkmenistan under the Caspian Sea to Azerbaijan, where it would have rejoined the route of the BTC oil pipeline. In the event, Turkmenistan lost its chance through poor negotiation strategy and the unexpected discovery, in the Azerbaijani Shah-Deniz deposit, of large gas deposits that obviated throughput from Turkmenistan for the creation of volume for a gas pipeline along the BTC route.

1.3. The Beginning of the Twenty-first Century

Although there still remain important lines where American and Turkish national interests coincide, events in Afghanistan and Iraq have led Turkey to contradistinguish its interests, through its actions, from those of the United States. At least as important from Turkey’s standpoint, the rapprochement with Russia that appeared to occur in the mid- and late 1990s has decelerated if not been altogether halted on the intergovernmental level, although (in Gorbachev’s words) Russia still seeks access to the warm waters of the Mediterranean through Russian tourists. The more that Russia under President Vladimir Putin continues to adopt a unilateral and zero-sum approach to international politics (a tendency that became evident early on), the more the inheritance of its “enemy image” of Turkey will persist on official levels, notwithstanding the evolution in Turkey's image of Russia.

We should expect in the future a continuation of Turkish–Russian conflicts of interest that may or may not be temporarily mollified, but which will not be fundamentally resolved and will hold the potential for worsening relations between the countries. This historical record of the last three centuries teaches that overt conflict between Turkey and Russia is most likely when both countries are strong with respect to the international system and with respect to each other. The one exception to this pattern is observed in the twentieth century.

In the late 1960s and early 1970s, Turkey’s strength as a regional power increased but never challenged the Soviet position as a pillar of the bipolar Cold War system. Yet it was also the structure of the Cold War system, and American support for Turkey against the Soviet Union in particular, that made acute conflict between Turkey and the USSR avoidable. Today Russia, despite its unavoidable demographic decline, will remain a strong international power because of foreign dependence upon its energy resources. Turkey too will be a strong state on the Eurasian scene, so the older diplomatic patterns will re-assert themselves; indeed, they have already done so.

2. Implications

2.1. Looking Northward

Turkey’s participation in the energy corridor through the South Caucasus has been addressed above and requires no further discussion at this point. Also energy relations with Russia, in particular Blue Stream, will be discussed at the beginning of the “Recommendations” section below. Therefore I wish here only to mention an interesting possibility if for no other reason than to put it on the political agenda for discussion one day when it may become to discuss.

It would be a most positive development for energy if the conflict in Abkhazia were settled, but Russian–Georgian relations are worsening and a resolution looks no closer. It is worth nevertheless mentioning indicatively a relative consideration of energy security in this context. A recent survey of the railroad in Abkhazia that parallels the Black Sea coast has inventoried the significant amount of track that has been damaged and also that which no longer exists at all. Rebuilding the railroad at some time in the indefinite future would not only contribute to the economic reconstruction of the region, even representing a potential confidence-building measure in that direction.

Such a rebuilt railroad would moreover become a means of transportation for industrial equipment (which could also arrive by boat via the Straits from the Mediterranean) for exploring and eventually developing the hydrocarbon deposits, if they exist, that have long been rumored to be depicted on Soviet-era maps lying off the Bahamian coast. Unfortunately it does not seem the case, as appeared to some observers in mid-2005, that Russia is seeking to cooperate with Turkey, much less Georgia, in the Caucasus. However, the eventual change of political leadership in Russia will at least create a situation where talking about such possibilities in at least a semi-serious way becomes itself possible.

2.2. Looking Westward

Turkey’s geographic situation, which key to its role as an energy bridge, will not change, whether or not it becomes a member of the European Union. It is correct, and it is the correct stance, that Turkey undertakes necessary reforms, not because the EU requires these but because they are in Turkey’s own interests. Following this path, Turkey will successfully defend and realize these interests, whether in the end it joins the EU or not. Turkey’s participation in energy corridors, including the corridor to Greece that links southwest Asia to southeast Europe, follows from the same principle, which likewise animates the present analysis and the policy recommendations made below.

2.3. Looking Southward

Turkey has not played a great role as an energy bridge to the Arabian Peninsula because energy resources there have easy access to the world market through the ports of the countries there. Looking southward more carefully, the cooperation with Israel concerning the pipeline through its territory that has been re-engineered to flow north-to -south rather than the original south-to-north holds the possibility of exporting BTC crude to markets in Asia. It is an example of the ingenuity and pragmatism that Turkey should not sacrifice in the search for a role on a wider world stage. Turkey’s development of its role as an energy corridor and bridge, reflecting its nature and geography, will a greater and more respected international profile than any diplomacy that invites old Self/Other stereotypes to reassert themselves, whether in Turkey or abroad looking at Turkey.

2.4. Looking Eastward

2.4.1. Iran and Iraq

To look at the dynamics of the Iran–Turkey–Russia triangle is a traditional way of examining international affairs in this part of the world. Historically, these three countries were the most important powers in influencing Central Asia. The dynamic has changed over time. Today, this triangle is key because of its member’s roles as potential or actual "transit holders" for energy flows from the region, notwithstanding that Russia and Iran are important producers in their own right. Since 1991, their interactions have been more concentrated in the South Caucasus than in Central Asia, where they have had broader and more general conditioning effect. Today, of the three countries, Russia has been the agenda-maker and Iran has been the agenda-taker. Turkey acquires the key strategic role of (potential) agenda-breaker. This characterization is all the more true with respect to flows of energy resources.

Russia made an important strategic error in the Ukraine gas affair at the New Year. All resource-holding countries now have a greater incentive than ever to seek non-Russian transportation to world markets. Iran sought to play this role over the last decade and has failed. The reasons concern U.S. diplomatic pressure on third parties less than they concern the legal impediments to international cooperation that are embedded in the country’s constitution and structural and impediments that result from the correlation of forces within political decision-making structure.

For historical and cultural reasons alike, as well as for reasons of contemporary geo-economics and politics, Turkey's relations with Iran are unlikely to rise above a certain level of guarded and relatively low-level cooperation. (The fact that Iran prefers to sell Turkey low-quality gas at high prices, and that this is unlikely to change, has already been mentioned.)

Concerning Iraq, it is unlikely that energy flows through Turkey will ramp up anytime soon, but some constructive eventual development in the longer term could only enhance Turkey’s project of ensuring its own energy security and contributing to that of the world at large, in the manners here described.

2.4.2. Pakistan, India, and China

India sees Turkmenistan and especially Uzbekistan as key to its larger objectives in the region, but is seeking also to extend contacts with Kazakhstan. India was always interested in Central Asian energy although the route to get it there was uncertain. It indicated interest in an undersea gas pipeline from Iran that Gazprom would have constructed. When it became clear that this was not cost-effective, India increased its interest in the long-project Iran-Pakistan-India (PIE) pipeline. At the same time, India kept an eye on the Turkmenistan-Afghanistan-Pakistan (TAP) pipeline first bruited about in the mid-1990s, but which ceased to be feasible with the Italian’s coming-to-power in Kabul.

Since the more recent change of regime in Kabul, however, India has signalled its interest in extending the TAP into India. Still more recently, in January 2006, India suggested adding Uzbekistan and Azerbaijan to the project. Adding Azerbaijan could mean either piping gas from Turkmenistan to Azerbaijan to Baku, or it could mean revisiting the TCGP. Turkey must follow these developments closely. India and Pakistan have, in the first half of the present decade, emerged along with China as competitors with Turkey for Central Asian energy, both as transit and as consumer countries.

3. Recommendations

Turkey can balance this trend—that India and Pakistan have emerged with China as competitors with Turkey for transit and consumption of Central Eurasian, especially Central Asia, energy resources—by re-emphasizing cooperation around the Caspian Sea and especially Black Sea basin. Indeed, with Azerbaijan is the country-coordinator for the Working Group on Energy of the Organization of Black Sea Economic Cooperation (OBSEC) until April 2007, and with reference to the agenda of the September 2003 Baku Declaration of the BSEC on Energy Cooperation, this should not be difficult. Let us now see how, in fact, Turkish and global energy security may complement and reinforce one another under such a strategic policy direction.

The contribution of the Blue Stream pipeline to Turkey's energy security is both certain and uncertain. It is certain because of the large share that Russian gas has and will continue to have in the Turkish market. It is uncertain because, even before the Russian attempt to strong-arm Ukraine at the beginning of this year, there were disputes between Russia and Turkey over quantities and prices of Blue Stream gas. Because the pipeline is operational and contracts have been signed, Turkey has little choice but to import Russian gas by this route. However, and particularly in light of the Ukrainian affair earlier this year, Turkish dependence on Blue Stream gas should not be increased any higher than necessary. Moreover, the recent indications of interest by Gazprom in developing Turkey's energy infrastructure must be considered extremely carefully.

It is no secret that Gazprom, as well as Lukoil in the oil sector, has increased its holdings of energy transmission infrastructure, over the last several years, in the Russian “Near Abroad”. It has used the indebtedness of such countries to Russia, often for energy supplies, as a lever to wrest control of energy transport infrastructure away from national authorities and national companies. This has happened in Georgia, partly in Kazakhstan, and elsewhere; it was the true hidden Russian agenda in Ukraine. So if Russia should wish, through gas exports transiting Turkey, to extend its influence into North Africa (where the USSR was once a strong power), then Turkey must take care that Russian energy companies never have any opportunity to obtain a controlling interest in any such transit pipeline.

Still, from what other sources can Turkey receive natural gas? The pipeline from Iran, negotiated with difficulty, and constructed behind schedule and over cost, is also problematic. Iran likes to sell low-quality gas at high prices. Moreover, given the structure of political authority in Tehran, such a decision is taken on the highest political (religious) level, out of the hands of the technical (and economic) experts. Consequently, this will continue to be the case, even if current ideas are implemented, to increase Turkmenistan's output through Iran to Turkey. It is not possible to anticipate an improvement in this situation for the foreseeable future. Also it is to be noted, that Turkey has no recourse against Iran in case of non-fulfillment or other problems, because the Constitution of the Islamic Republic of Iran explicitly denies legitimacy or recognition to any international tribunal.

In mid-January 2006 U.S. Deputy Assistant Secretary of State Matthew J. Bryza, who has known Saparmurat Niyazov Turkmenbashi personally almost since the Soviet Union disappeared, visited Ashgabat and received from him an affirmation that it would be a good idea to look again at the possibility of a trans-Caspian gas pipeline to take Turkmenistan's gas to world markets. It will be recalled that this project foundered in the late 1990s for a number of reasons. It is in Turkey's interest to cooperate with the United States so as to obtain more realistic conditions from the Turkmenistan side than were forthcoming in the previous negotiations, including serious guarantees of supplies and conditions of financing construction. These goals should be facilitated by several recent developments, giving reason why the drawing-boards for this project are being taken out of storage.

First of all, the vulnerability of Turkmenistan's exports to Russian control must be now undeniable to official Ashgabat. President Niyazov had considered discussing an increase in the price paid by Russia to Turkmenistan for natural gas before his most recent trip to Moscow this year; in the event, however, the matter was not raised. In mid-January a short and very general framework agreement with signed between Turkmenistan and China, for the construction of a gas pipeline from eastern Turkmenistan into western China. This pipeline, which was first suggested in the mid-1990s is gigantesque and was then judged unrealistic by the international energy consortia and financial institutions. One is correct to remain most skeptical, if for no other reason than because transit countries such as Uzbekistan and Kazakhstan were not consulted, never mind the continuing technical and financial obstacles. However, a new Trans-Caspian Gas Pipeline project (let us call it TCGP–2) is feasible is being explored anew.

Second, the death of Heydar Aliev makes such a pipeline more likely, since a certain degree of Niyazov’s hesitation and reticence was due to his resentment of the extensive and positive publicity that the elder Aliev received in the West, which Niyazov thought he deserved but was denied.

Third, the negotiations over the status of the Caspian Sea have progressed to the point where there is a draft treaty (Tehran Convention) on ecological matters. Even though it has not yet entered into force, the conditions set out in the treaty may easily serve as the basis for negotiations and construction of TCGP﷓2. By observing those conditions, the participants will remove from the agenda a series of objections on environmental grounds that had earlier been raised against the previous project. The positive and successful experience of the Baku–Tbilisi–Ceyhan oil pipeline, operating under international scrutiny and transparency perhaps wider than any previous pipeline project, including a host of EBRD conditionalities, demonstrates that such a way of proceeding is quite possible and indeed rewarding. TCGP﷓2 is all the more desirable because it unites the interests of Turkey and Turkmenistan. Even exports from Turkmenistan to Turkey through Iran can only be in relatively low volumes. Moreover, the usefulness of even these low volumes cannot be taken for granted, given Tehran's preference for selling Ankara low-quality gas at high prices.

In fact, developments over the last several years, since the first TCGP project fell apart, make a renewed project more economically feasible. Kazakhstan has placed certain interesting conditions on the Offshore Kazakhstan International Operating Company (OKIOC) concerning its development the Kashagan deposit in the northern Caspian. The sensation will be recalled, that was created when this deposit was proved earlier in the decade, confirming it as the largest strike in the world since Prudhoe Bay in Alaska over a third of a century ago. The government of Kazakhstan has mandated that associated gas from the Kashagan oilfields must not be burned off but instead be commercially developed. Indeed, overall Kazakhstani gas production has been increasing during the course of the present decade, for both domestic consumption and eventual export. Astana had been speaking with Moscow about access to the Russian pipeline system, so as to market this gas in Europe.

Like Turkmenistan, however, Kazakhstan is now hedging its bets and looking for other routes to world markets. There is no reason why gas from the offshore Kashagan deposit could not join gas from Turkmenistan on its way to Azerbaijan and Turkey. This would engage another supplier for TCGP﷓2, making any conceivable threat by Turkmenistan to emulate Russia’s arbitrariness with the gas taps much less dangerous for investors. Kazakhstan has already indicated that it will be contributing oil to the BTC pipeline in years to come. (This option is referred to as “turning the BTC into the ABC”: for Aktau–Baku–Ceyhan.) So there is every reason to believe that pursuing the option for Kashagan gas to be added to the TCGP﷓2 project will be successful.

All other things being equal, it is good that official estimates of Turkey's demand for natural gas through 2010 have been scaled down from the figures discussed in government circles in the late 1990s and early part of the current decade. This is good, because it means that it will be possible to scale down Turkey's dependence on gas from Russia. Everyone has seen the results of Ukraine's dependence on Russian gas. Still, if construction of the gas pipeline to Greece is finally achieved—a pipeline projected for years and one the EU's main strategies for satisfying future energy demand without increasing environmental damage—then not only will Turkey gain revenue from transiting Russian gas to Europe; but also, if ever necessary, Turkey will be able to conserve gas for itself from Russian sources if supply is diminished, as has happened for example this winter after the Ukraine crisis, when respect to Russian gas earmarked for Europe was simply kept in Moscow when temperatures dropped to levels not seen for several decades and stayed there for days.

4. Conclusion

The Russian “hardball” threats against Ukraine at the beginning of the year over natural gas deliveries highlight issues with which every country in Eurasia, if not the world, must come to terms. These issues concentrate on the question of national and international energy security. Moscow’s declaration, in speech and through action, of its intentions to use energy resources to heighten its profile on the international stage only raises the question why Ankara should not also do so with greater consequence, even if it decides to work to enhance rather than to threaten the energy security of others. A renewed and concentrated emphasis on energy security by the Turkish Republic will not only serve its own interests but also contribute to global energy security as well. At a time when the term “peak oil” has entered the everyday speech (even if its timing is disputed), it is certainly true that world demand for hydrocarbon energy supplies will continue to grow and even accelerate, because there are so few resources substitutable for them.

Despite both skepticism and exaggeration during the 1990s over the volume of energy resources in the Caspian Sea basin, it is clear that proved, recoverable reserves constitute at least several “North Seas”. Indeed, because of the extensive prospecting carried out by Soviet state industry in the decades before 1991, world energy specialists have known since then, that a lack of infrastructure and the cost of transporting heavy-industrial technology such as drilling rigs to the region were in fact bigger problems than actually finding exploitable deposits. The Caspian Sea differs from most of the rest of the world in that, thanks to Soviet engineering, the location of many deposits are already known; the USSR simply did not have the technology to reach and prove them. Thus in late January 2006, Russia—which has the advantage of the industrial plant and port at Astrakhan on the Caspian Sea—announced confirmation of yet another large offshore deposit entirely within its waters, beyond the several deposits over which it had successfully negotiated with Kazakhstan for joint exploitation in the late 1990s and earlier part of the present decade.

The resurgence of a hard political line in Tehran and the proliferation of fundamentalist Islamic movements seeking either to overthrow or to seize control of existing states, increases the relevance of Kemalist principles for the rest of the Islamic world, including the Turkic former Soviet republics. Such a situation gives the “Turkish Model” (characterized by a combination of a secular state for a Muslim-majority population, multi-party system, and cooperation with the West) a potentially new significance, even greater than in the early 1990s. The economic conjuncture offers Turkey this opportunity to extend its influence politically on the basis of establishing first the energy cooperation here described.

For this reason, Western powers should be expected to take steps, indeed already have taken steps, in parallel along this common road that should be further developed. The initiative to turn Ceyhan into a genuine international energy hub, just announced and transcending the BTC project, is one big step in that direction. The perspective that it opens up is broad, with potential implications for the whole of Mackinder’s “World Island” from Central Eurasia to Central Europe. In this perspective, in this strategic project with its partners, Turkey has a central role to play, bridging the interests of the other countries concerned, yet always doing so on the basis of its own interests, as it has done throughout its history due to its location at the juncture of three seas and three continents.

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