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Mar 19, 2010 | 18:20 GMT

7 mins read

Turkey: The Pursuit of Energy and Azerbaijan

Turkey's near-term energy strategy consists of diversifying its energy supplies and becoming a hub between the energy-rich east and the energy-hungry west. To accomplish this, Ankara needs reliable suppliers for the Nabucco project. Azerbaijan, Iran and Iraq are potential suppliers, but Iran and Iraq are politically problematic. Azerbaijan would fit the bill, provided Turkey and Azerbaijan can overcome a relationship frayed by the issue of Armenia — something now under way as Ankara and Yerevan drift apart again.
Energy is one of the pillars of Turkey's re-emergence as a regional geopolitical force to be reckoned with. In the short-term, Turkey's energy strategy calls for diversifying its energy supplies and becoming a hub between the energy-producing countries to its east and the energy-consuming countries to its west. Accomplishing this will require Ankara to secure reliable suppliers to projects such as Nabucco, which aims to bring Central Asian, Caspian and Middle Eastern energy supplies to Europe by circumventing Russia. In the near term, just one country fits the bill, Azerbaijan. But to get Azerbaijan on board, Turkey must first overcome lingering resentment in Baku over Turkey's bid for a rapprochement with Armenia and deal with Russia's bid to keep Turkey and Azerbaijan apart. With the Turkish-Armenian detente now on ice, Ankara is better positioned to win over Azerbaijan.

The Search for a Nabucco Supplier

Iraq and the Central Asian states Iran and Azerbaijan are potential Nabucco suppliers. There are political impediments to Turkey pouring large-scale investment into Iran given the current tensions with the international community over Tehran's nuclear activities. Moreover, its nuclear activities mean it could become a conflict zone on short notice. Turkey has two main problems with Iraq. In the short-term, the security situation in Iraq and the dispute between the Kurdistan Regional Government (KRG) and the central government in Baghdad over the distribution of energy wealth mean Ankara must proceed cautiously with regard to energy investments in its southern neighbor. In the long-term, investing in Iraqi energy will enrich the Iraqi Kurds, promoting their bid for greater autonomy — which could well incite Turkey's large Kurdish minority to follow suit. Turkey is working steadily to enhance its trade links with Iraq, but will also proceed with caution so as to keep the Kurdish issue in check. Plans to use Central Asian gas to supply Nabucco via a Trans-Caspian pipeline have long been stalemated. Not only are there technical, and thus costly, impediments to building this underwater pipeline, but Turkey must also contend with Russia's immense influence over the Central Asian states. Kazakhstan is currently bound tightly to the Kremlin and Turkmenistan, while expressing an interest in Nabucco remains extremely hesitant to risk Moscow's wrath by committing to such a project. This leaves Azerbaijan as Turkey's best option. The bulk of the approximately 9.7 billion cubic meters (bcm) of natural gas produced by Phase I of Azerbaijan's offshore Shah Deniz project already travels to Turkey through Georgia via the South Caucasus pipeline. The Nabucco project is relying heavily on Phase II of Azerbaijan's Shah Deniz project, which will come online in 2018 in a best-case scenario, and that's assuming negotiations are concluded on time. It eventually will produce 15 bcm of natural gas per year, 12 bcm of which will be exported. Turkey wants to ensure that the 12 bcm flows through the Anatolian Peninsula and not to a competing transit corridor, such as Russia. For Turkey to meet this 2018 deadline, however, STRATFOR's Turkish energy sources say that Turkey must finalize a pricing deal with Azerbaijan by the end of 2010 to make the necessary infrastructure investment to bring the project online.

Overcoming Azerbaijani Ire

Turkey has alienated its longstanding ally Azerbaijan due to its ongoing talks over normalizing ties with Armenia. Since the very beginning of the process, Baku has been suspicious about Ankara's policy to open its border and establish diplomatic relations with Yerevan without first addressing the contentious issue of Nagorno-Karabakh, which ethnic Armenians seized from Azerbaijan after armed conflict in the early 1990s. Despite Turkish efforts to mollify Baku, Azerbaijan has made clear that it has options in its energy balancing act and isn't afraid of sending more of its energy resources northward toward Russia — which has been offering to pay 30 percent more than what Ankara was offering — instead of through Turkey should Ankara fail to address Baku's demands. Recent events have opened the way for a Turkish charm offensive toward Azerbaijan. Turkey and Armenia have not sent diplomatic protocols to their respective parliaments for ratification. This is largely over the row between Armenia and Azerbaijan over the disputed Nagorno-Karabakh region. Moreover, the U.S. Senate Foreign Relations Committee decision March 4 to refer to killings of Armenians in 1915 as genocide (a very delicate issue for the Turkish government) also means Armenian-Turkish talks are not likely to be revived anytime soon. And STRATFOR sources in the Turkish government suggest that Turkey has no intention of putting any serious effort into the talks this year, especially in the lead up to Turkey's 2011 general elections.

The Russian Challenge

Before Turkey can successfully woo Azerbaijan, however, it will have to deal with Russia. Moscow has encouraged the Turkish-Armenian reconciliation process precisely because of the resultant Azerbaijani anger at Turkey. Russia not only does not wish to see Azerbaijan's energy bypass Russian territory on its way to Europe, therefore undermining one of Russia's strongest levers over Europe, it has also seized an opportunity to cozy up to Azerbaijan, thus undermining Turkey's leverage in the Caucasus. Azerbaijan is also drawn to the higher natural gas prices Moscow offers compared to Turkey. Therefore, Turkey needs to come to terms with Russia before it can try to rebuild ties with Azerbaijan. Turkey is likely to make moves in this direction during Russian President Dmitri Medvedev's May 11 visit to Turkey. During that meeting, Turkey and Russia are expected to sign a long-waited agreement for a nuclear energy power plant in Turkey to be built by a Russian-led consortium. Also, Russia has given signals that it will agree to supply crude oil to the Samsun-Ceyhan oil pipeline that Turkish oil company TPAO and Italian firm ENI will build. Separately, the Russian state-controlled natural gas monopoly Gazprom has announced that it is in talks with Turkish energy companies for natural gas storage and distribution projects in Turkey. These projects will serve two Russian strategic interests: Establishing a firmer stake in Turkey's energy sector and maintaining a healthy relationship with its Turkish competitor as it proceeds with an agenda to consolidate Russian influence in the former Soviet periphery. By cooperating with Russia on significant energy deals, Russia in turn could be more willing to give Turkey some room with Baku — though Russia could shift course at a moment's notice. For its part, Azerbaijan has been quite willing to use the Russian card in response to Ankara's bid to normalize ties with Azerbaijan to show its Turkish allies that Azerbaijan has options. But Baku wants to retain its ability to act independently between Ankara and Moscow rather than falling into either side's orbit. Azerbaijan has no desire to become absorbed into the Russian sphere of interest a la Turkmenistan, a reality that Turkey will attempt to exploit as Ankara tries to mend its relationship with Baku again. Therefore, Azerbaijan is likely to continue using the Shah Deniz project to balance its two main suitors despite Turkey's best efforts to tie the knot.
Turkey: The Pursuit of Energy and Azerbaijan

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