Most-Read Article for August 2015
THE TRIANGULAR RELATIONSHIP OF RUSSIA IRAN AND TURKEY
*first published 6 August 2015*
The recent agreement among world powers and Iran regarding the latter's nuclear program has numerous ramifications. One of them is the domino effect it has on strategic natural gas issues between Russia and Turkey. The likely introduction of Iranian gas into the European Union via Turkey is also a crucial consideration.
The head of Russia’s National Energy Security Fund organization, Konstantin Simonov, commented "Turkey is seriously considering transferring westwards not only Russian gas but also from Iran, apart from its already established deals with the Azeris". The Turkish Stream project is being held up with the Russian side blaming Turkey for obstructing the development. The Russian energy minister, Alexander Novak, announced that Gazprom and Turkey’s BOTAS have agreed in principle to a 10.25% reduction in gas pricing for future deliveries made by Gazprom to BOTAS. Nonetheless, Moscow is also dragging its heals on announcing a formal agreement opting to wait for Ankara to conclude the Turkish Stream. In the meantime, Turkey has been fighting a two-fold military campaign against PKK Kurdish rebels and the Islamic State, while the security and political climate in the country gradually deteriorates, thus shifting the priorities of the Turkey’s government.
All available information suggests Turkey is being pressured by Washington not to proceed with the Turkish stream project even as diplomacy between Gazprom and the Turkish energy ministry takes place. Details are being worked out and observers anticipate a formal announcement being made at a meeting between Vladimir Putin and Recep Erdogan in late September. The main obstacle has little to do with technicalities or even Washington’s opposition, but the stance of Iran regarding its own gas export preparations and how they fit into the Turkish Stream plan. Moscow is already in talks with Tehran about a potential security alliance that would see Iran supplied with high-tech weapons worth $10 billion. Russia also aims to increase imports of Iranian oil in exchange for industrial goods. In a play of high-level diplomacy, Russia is also attempting to build closer relations with Saudi Arabia. Should Iran decide to proceed with plans that will strategically clash with Russian goals, Russia may then formalize recent agreements made with Riyadh that stipulate construction of nuclear reactors in the country and a supply of weaponry.
The Greek Embassy in Baku recently drafted a memo that researched the opportunities of importing Iranian gas. However, Greek diplomats relayed that no such imports should be expected before 2023, taking into consideration the TANAP-TAP system of pipelines will be used. On the other hand, Iranian LNG may flow into international markets as soon as 2020, but it will mostly be directed to non-European markets. This export route is costly and would involve Western multinationals such as Shell. Iran has made previous plans to supply the Pakistan-Indian markets and also Iraq, Syria and Lebanon. That along with the need for Iran to upgrade its infrastructure and increase domestic gas consumption is another factor to be taken into consideration. Most importantly though, tacit approval by the United States for Iran to supply the EU with gas would rouse opposition by Saudi Arabia and Israel, due to the perceived increase of Tehran’s role in the region and decreasing American guarantees to them. Therefore, in the short term anyway, Iranian exports to Europe are not viable.
The domino effect of the above scenarios may lead to the materialization of the North Stream 2 pipeline project, agreed to recently between Russia and EU gas companies. Shell has expressed a strong interest in participating in the project and its CEO, Ben van Beurden, made recent comments to the Russian TASS press agency confirming this. In June, Gazprom, Shell, E.ON, OMV and Wintershall announced North Stream 2 in June. The project is an upgrade of the route with as much as 55bcm capacity per annum, comparable to the first Nord Stream pipeline. If the proposal goes ahead, Turk Stream would become irrelevant since the bulk of Russian gas delivered to major EU markets would be shifted to North Stream 2. In economic terms, even given the likelihood of Iranian finding its way into Turkey, the Russian northern route would probably prove cheaper and more reliable since it would traverse a secure geopolitical region such as Baltic Sea, instead of the Kurdish regions, Middle East, and the Balkans. The cost of the pipeline infrastructure would also be much less than if a new route were constructed from Tehran to Vienna for instance.
In a nutshell, the gas policies in the region between Central Europe, Black Sea, and the Middle East have become more complicated, and even exciting, with the Iranian breakthrough. Turkey will play a vital role as to which direction future pipelines will proceed.
Ioannis Michaletos