The Washington Review of Turkish & Eurasian Affairs

The new Great Game and the strategy of players such as Turkey and Russia revolve around the term ‘energy security’.  Although this term has turned into a buzzword in policy circles, academia, and hydrocarbon industry conferences, it remains poorly defined.  It is poorly defined because in reality there is no universal definition of energy security; the implications of energy security strongly depend on where a country sits in the energy supply chain.

For downstream consumer states, for example, ‘energy security’ means protecting oneself against disruptions and ensuring long-term supply of oil and gas resources at favorable prices.  In places such as the European Union or Turkey, this definition has gained traction in recent years as heightening disagreements between Russia (a major supplier) and Ukraine (a major transit state) led to notable supply cut-offs to downstream consumers in January 2006 and 2009.

Mark Mozur holds a Master’s Degree in Energy and Environmental Studies from Columbia University, with a specific focus on Eurasian Affairs. He is a recipient of a US Department of Education FLAS Award for Turkish language and area studies, and has worked as a consultant in the hydrocarbon sector in Turkey and Russia for nearly three years. He currently lives in Moscow, Russia, where he is participating in the Alfa Fellowship Program

Midstream, on the other hand, ‘energy security’ means not only protecting oneself against supply cut-offs, but ensuring a fair transit pricing scheme and building partnerships with supply- and consumer-states.  For an aspiring transit state such as Turkey, this form of energy security entails competing with other transit states for pipeline routes and re-export contracts.  Again, the recent disputes between Russia and Ukraine have given new momentum to the search for alternate transit routes.

Upstream, in countries such as Russia, ‘energy security’ is as much about security of demand as it is about security of supply.  Upstream investment decisions are based on the potential of securing long-term contracts with consumer states while simultaneously meeting domestic demand commitments.  Historically, energy security for Russia has also reflected the pricing and production dynamics further upstream in the Central Asian producer states.  Upon the break-up of the Soviet Union, Russia inherited ownership and administration of the Soviet-era pipeline network.  This has had a profound impact on transit arrangements in Eurasia as a system of cross-subsidization and low prices for Central Asian producers persisted for many years, with Russia controlling the flow of oil and gas to European consumers.  Thus, for Russia energy security has meant finding new consumers and managing its relations with other upstream and transit states while adequately supplying its own population.

Despite this obvious divergence of interests, there are significant entanglements among strategic priorities of the various actors in the oil and gas sector, and energy security remains ambiguous in its implications for energy policy.  For Turkey and Russia, this has led to the formulation of strategies that contribute to zero-sum thinking.

Turkey and Russia: Strategic Priorities 

Based on entangled understandings of energy security, there are a couple of dominant strategies that prevail in the Eurasian energy sector.  First of all, linked with the concept of energy security is the notion of energy dependence.  Spurred by growing concerns after the recent natural gas disputes between Russia and Ukraine, the European Union has formulated a strategy of supply diversification.  This strategy is based on reducing the European Union’s dependence on imports of Russian oil and gas.  Russian gas, supplied via the massive Northern Lights and Brotherhood pipelines, represents by some accounts up to 30% of European Union gas supply, and is one of three primary supply corridors, along with the North Sea and North Africa.¹

The European Union’s diversification strategy is known as the Southern Corridor, or the 4^th Corridor Strategy.  It envisions importing additional oil and gas supplies from the Caspian Sea region by constructing new pipelines that bypass Russian territory (such as the ‘Nabucco’ pipeline).  The aim of this strategy is to avoid the repercussions of a future supply cut-off.²

The Southern Corridor strategy is structured around a series of natural gas pipelines, some still in planning and some already constructed, that build upon the perceived breakthrough of the Baku-Tbilisi-Ceyhan oil pipeline (BTC), completed in 2005 by a coalition consisting of BP (30.1%), SOCAR (25%), Chevron (8.9%), Statoil (8.71%), TPAO (6.53%), Eni (5%), Total (5%), Itochu (3.4%), Inpex (2.5%), ConocoPhillips (2.5%), and Hess (2.36%).  The pipeline delivers oil resources from Azerbaijan’s Azeri-Chirag-Guneshli field in the Caspian Sea to the port of Ceyhan, which is quickly becoming a major export hub in world oil markets.³

The natural gas pipelines of the Southern Corridor envision bringing Central Asian gas to Europe across the territory of Turkey.  Starting as far upstream as possible, the strategy at one point called for the construction of a potentially 30 bcm capacity Trans-Caspian gas pipeline connecting offshore fields in Turkmenistan to Azerbaijan’s transport infrastructure.  Although this pipeline for quite some time enjoyed firm support from the United States, in recent years it has lost momentum.  Then, a series of three pipelines on Turkey’s territory would complete the 4^th artery supplying the European Union.  First, the South Caucasus Pipeline, or Baku-Tbilisi-Erzurum pipeline (BTE), connects Azeri gas from the Shah Deniz field to Turkey’s distribution network.  This 9 bcm pipeline was completed in May 2006.  In November 2007, a further piece of the Southern Corridor was completed when the 7 bcm Turkey-Greece Interconnector began pumping gas.  The final link in the chain is that as yet unconstructed Nabucco pipeline, a 31 bcm capacity pipeline that could bring gas from the Middle East or the Caspian Sea region to Europe by transiting Turkey, Bulgaria, Romania, Hungary and Austria.  Although an Intergovernmental Agreement outlining the general transit terms of the pipelines was signed in Ankara on 13 July 2009, the pipeline still faces major uncertainties in terms of financing and sources of supply.  The point, however, is that Turkey’s participation in these pipeline projects signifies that it has at least in part endorsed the Southern Corridor as an underlying energy strategy and aspires to become the European Union’s 4^th artery.

Russia, on the other hand, has not necessarily pursued a grand strategy, but has taken a number of identifiable steps to enhance its position in the Eurasian energy sector.  Although it may have suffered reputational damage from the gas supply cutoffs to Ukraine in 2006 and 2009, and the oil supply cutoff to Belarus in 2007, it has been relatively successful in acquiring infrastructure shares mid- and downstream in exchange for production deals upstream, allowing it to delay investment in its own infrastructure.  If anything, this sort of strategy can be considered an approach designed to maintain the status quo, as Russia has a strong interest in preserving its dominant position in the post-Soviet energy sector.

It is crucial to understand, however, that these divergent strategies mask the fact that energy dependence – the underlying principle of supply diversification – is more accurately understood as energy inter-dependence.  This sort of interdependence can be seen in multiple aspects.  For one, the Russian virtual monopoly in the oil and gas supply market is mirrored by the European Union’s (and Turkey’s) virtual monopsony as the sole consumers of Russia’s oil and gas resources.  Another form of interdependence is the growing infrastructure ties cited above.  The point is that the underlying basis for supply diversification is not so clear-cut, and that there is a pervading sense of entanglement in the energy sector – entanglement of interests, strategies, and even entanglement of oil pipelines with gas pipelines, as suggested by the overview of the BTC and BTE provided above.

For Turkey, in considering its relationship with Russia, this means that Turkey needs to base its strategy on a realistic assessment of what energy interdependence actually entails.

Turkey and Russia: Mutual Dependence in the Oil and Gas Sector

The common perception about Turkey-Russia energy relations is that Turkey is highly dependent on energy imports from Russia.  Furthermore, based on current trends, this dependence is set to strengthen in the coming years.  This growing dependence comes from two complementary trends: natural gas represents a growing share of Turkey’s Total Primary Energy Supply, and imports from Russia have represented a growing share of Turkey’s overall natural gas consumption. Since the late 1980s the share of natural gas in Turkey’s Total Primary Energy Supply has increased.  As of 2007, natural gas accounted for 30% of Turkey’s total energy consumption.⁴ Almost all of this gas is imported.  Turkey only produces 0.9 bcm of gas annually, barely 2% of its total consumption.  Official statistics published by BOTAS show a steady growth in gas imports (assumed equal to national demand).⁵ 

Where exactly is this gas coming from?  There are conflicting data regarding contracted volumes to BOTAS, Turkey’s national energy champion, and actual deliveries.  On the company’s web site, BOTAS cites seven long-term import contracts totaling 67.8 bcm/yr.  Of this total, 16 bcm can be discounted, as this amount is tied to a 30-year contract signed between Turkey and Turkmenistan on 21 May 1999 but never implemented (there are no direct supply routes between Turkey and Turkmenistan).  Without the Turkmen supplies, BOTAS has 51.8 bcm of contracted supply, 57.8% of which come from Russia, as the table below shows:⁶

A total of 30 bcm of gas is contracted from Russia annually, with the oldest contract set to expire in 2012.  The fact that Turkey imports nearly 60% of its gas from Russia does not make it uniquely dependent on Russia.  Indeed, this figure is rather moderate compared to the extremes observed in the European Union.⁷ Nevertheless, Russia is clearly Turkey’s most prominent energy partner.

These figures do not correspond completely to the actual import quantities reported by BOTAS.  Many of the pipelines supplying Turkey with natural gas operate below capacity due to supply constraints or periodic drops in demand, a commercially unsound situation for Turkey as all of its contracts are subject to standard take-or-pay provisions.  In terms of the gas Turkey receives from Russia, the 1986 contract for 6 bcm/yr and the 1998 contract for 8 bcm/yr both cover gas transported through the Western Pipeline, an offshoot of Russia’s Soyuz trunk line.  This gas transits Ukraine, Moldova, Romania, and Bulgaria before reaching Turkey.  This pipeline operates at nearly full capacity and Turkey has never reported significant drop-offs in gas supplies even when transit states further upstream faced shortages.

The largest of Turkey’s three import contracts with Russia concerns the Blue Stream Pipeline.  Blue Stream, like the Baku-Tbilisi-Ceyhan oil pipeline, was born out of strong political support, but unlike the BTC it did not represent any over-arching security agenda.  The pipeline runs from the Beregovaya compressor station on Russia’s Black Sea coast to the Durusu terminal in Turkey, a few kilometers from the city of Samsun.  Its realization began with the signing of the Intergovernmental Agreement between Turkey and Russia on 15 December 1997, and then construction began in late 2001 as Gazprom and Eni created a joint venture to complete the pipeline.  When it finally opened in 2005, it did not lead to a strategic partnership between Turkey and Russia, as at that point the BTC and BTE were nearly finished.  Instead, the bilateral ties most strengthened by Blue Stream were those between Gazprom and Eni, which have since planned a number of additional ambitious subsea pipelines, such as Blue Stream 2 (running parallel to the original), and South Stream.⁸

In reality, Turkey is dependent on Russia for a large share of its gas, but this dependency is complicated by the fact that the Blue Stream pipeline does not operate at full capacity.  When figures for Turkish demand (according to the World Bank) are compared to volumes actually delivered to Turkey by Russia, it seems as though Turkey’s dependence is set to naturally decrease in the coming years. Russia’s share of Turkey’s total natural gas seems to have peaked at 62.11% in 2005 and will decrease as low as 52.40% in the years 2012-2013 due to the expiration of certain contracts.  This speaks to the fact that while the gas trade between Turkey and Russia may be characterized by dependence, it is also characterized by uncertainty.⁹

Beyond this basic uncertainty, however, it is also clear that the dependency that exists in Turkey-Russia energy relations is not a one-way street.  Russia, which has experienced tumultuous relations with supply states such as Ukraine and has at times cut gas supplies to some eastern European consumer states, enjoys a stable and lucrative long-term commercial relationship with Turkey, which is the second largest importer of Russian gas by volume.  No commercial disputes regarding any of the three gas supply contracts have arisen to date, and despite the fact that Russia and Turkey’s larger strategies may be in opposition, they remain to this day reliable partners.  Although the exact contract structures are opaque, it is known that Turkey pays extraordinarily high prices for Russian gas.  In 2008, for example, Turkey imported gas from Russia at a rate of $400-450/mcm, significantly higher than the rate Turkey pays Azerbaijan ($120/mcm before the most recent negotiations).¹⁰ From Russia’s perspective, these prices are greater than the price paid by any other consumer state with whom Russia has a direct supply line.  Overall, with high volumes, high prices and a stable export route, Turkey’s value as a partner to Russia is enormous, and if anything the two countries are mutually dependent.

This symbiotic relationship is most evident when it comes to the oil sector.  Turkey imports nearly 40 Mtoe of oil annually.  Despite the completion of the Baku-Tbilisi-Ceyhan oil pipeline, Turkey’s dependence on Russian oil imports is actually growing.  In 2007 Russia overtook Iran as the number one supplier of oil to Turkey, this gives Russia leverage over Turkey similar to the leverage it enjoys in the gas sector.¹¹

Russia, in turn, is dependent on Turkey for the safe passage of its oil exports.  Turkey is institutionally bound by the terms of the 1936 Montreux Convention to ensure safe passage of commercial ships through the narrow Bosporus and Dardanelles Straits connecting the Black Sea to the Mediterranean.  The volume of shipping through the straits has reached levels not envisioned at the time of the signing of the Convention.  There are a variety of figures attesting to the high volume of tanker traffic through the Bosporus.  According to public information, as of 2006 2.4 mln bbl/d of crude oil was shipped through the Bosporus.  Turkish government officials cite that in 2008 3.7% of total world oil output transited the Bosporus, which represented a 240% increase in shipping volume over the previous decade.  In terms of individual actors, Russia is the most dependent on safe passage through the Bosporus.  Approximately 2/3 of all oil tankers passing through the Strait are Russian, even if they are not necessarily carrying Russian oil.¹²

The Russian city of Novorossiisk is the largest single point of origin for tankers transiting the Bosporus.  In addition to Russian oil, Novorossiisk handles Kazakh oil transported by the Caspian Pipeline Consortium from Atyrau in Kazakhstan, and Azerbaijani oil supplied through the Baku-Novorossiisk pipeline.  Compared to upstream oil producers such as Kazakhstan and Azerbaijan, Russia enjoys a dominant market position by being the primary oil outlet for these landlocked states.  At the same time, however, Russia’s current tanker-based strategy is entirely dependent on the status quo of the 1936 Montreux Convention.  Although it is common to portray Turkey as the vulnerable party in this relationship – policymakers and analysts fear the high probability of a tanker accident in the metropolitan area of Istanbul – it can also be argued that Russia’s dependence on the choke point of the Bosporus weakens its leverage in the energy sector.  Overall, this means that at best Turkey and Russia have a complex, evolving relationship that is characterized by mutual dependencies in the oil and gas spheres. ¹³

Despite these mutual dependencies, Turkey’s policymakers continue to base their strategic planning around the assumption that energy dependence (and energy security) is an undesirable one-way street.  In fact, dating back to the 1990s and the “Contract of the Century”¹⁴, Turkey’s energy policy has focused on the Southern Corridor and has failed to take into account the mutual dependencies that exist between consumer and producer (in particular, Russia).

Turkey's Broader Energy Strategy: Evolution without Evaluation

Turkey’s broader energy strategy has been strongly influenced by the strategic thinking of its leading foreign policymakers.  That is, there is a high degree of policy coherence between Turkey’s energy policy and its foreign policy.  In its most basic form, this policy coherence has meant that as long as Turkey’s primary goal was accession to the European Union, its energy policy coincided with the goals of the EU.  Thus, historically Turkey has fully endorsed the Southern Corridor strategy.  As long as Turkey aspires to be a member state of the European Union, its energy security will be entangled with European energy security, and supply diversification for the EU will imply new pipeline routes across Anatolia.

As described earlier, Turkey’s participation in the construction of the Baku-Tbilisi-Ceyhan oil pipeline and the Baku-Tbilisi-Erzurum natural gas pipeline, along with the inauguration of the Turkey-Greece Interconnector in November 2007 and the signing of the Nabucco Intergovernmental Agreement demonstrate Turkey’s support for the Southern Corridor.

While it is certainly possible to mark the construction of the BTC and BTE pipelines as a policy success, it is important to soberly assess the legacy of these pipelines and not to exaggerate the extent to which they set a precedent in the Eurasian energy sphere.

The Baku-Tblisi-Ceyhan oil pipeline, for example, faced a major commercial uncertainty, as it was unclear whether the pipeline would generate enough revenue to attract financing from major international investors.  The project enjoyed robust international political support from countries such as the United States, who viewed the construction of an export pipeline circumventing Russian territory as a key step in reorganizing post-Cold War Eurasian geopolitics.  Whether the pipeline project ultimately succeeded due to this political support or due to its commercial feasibility is a complex question.  As Harvard-based analyst Brenda Shaffer writes, however, “by the late 1990s, it was clear that Azerbaijan’s modest oil holdings would not justify multiple export pipelines,” and at that point no major international energy company had signed onto the project, ignoring government encouragement.  The economic benefits only became overwhelmingly clear when BP discovered natural gas deposits in the Shah Deniz field in Azerbaijan in July 1999, and upstream investors joined the project enticed by the entanglement of gas revenues from oil production. ¹⁵

When the pipeline was finally completed in 2005-2006, it was seen as a triumph of project management: a $3 bln dollar investment that could transport 1.3% of global oil demand and generate annual transit revenues of $200-290 mln for Turkey was seen as a complete validation of the “Contract of the Century” signed with Azerbaijan in 1994 and beginning the era of Western involvement in the production and export of hydrocarbon resources in the former Soviet Union.¹⁶ Success of the BTC pipeline was achieved in the face of major supply and financial uncertainty, not to mention a potentially volatile regional security situation.

The same types of uncertainties did not and do not exist downstream, however, as the port city of Ceyhan has upgraded its transport infrastructure, transforming itself into a modernized oil export center, Turkey’s answer to Rotterdam (the Dutch city is the world’s largest oil port, shipping 150 mln tons of oil annually; Ceyhan’s planned output is 170 mln tons).  Clearly, the commercial sustainability of exporting oil – a fungible commodity – does not depend on long-term contracts with importers.  Instead, this fungibility greatly simplifies strategic planning as infrastructure upgrades take advantage of economies of scale.  The more oil that is shipped through Ceyhan, the more oil can be exported on the world market by Turkey.  Revenues can even be increased by expanding refining capacity or building petrochemical plants.

Indeed, Turkey has actively pursued the goal of turning Ceyhan into an international energy terminal.  Over the past five years, the Turkish Energy Market Regulatory Authority has approved no less than four refinery proposals with a host of international partners.  In January 2008, a consortium consisting of Calik Enerji (Turkey), Indian Oil Corporation (India), Eni (Italy), and KazMunaiGaz (Kazakhstan) received approval to construct a 300,000 bpd refinery at a cost of USD 4.9 bln, which includes the possibility of building a petrochemical plant.  Three other similar sized refinery projects have also been approved: the Turkish consortium Cehavir Group plans to build a 200,000 bpd refinery, a partnership between Petrol Ofisi (66%) and Austria’s OMV (34%) intends to construct an EUR 2.23 bln refinery with a 200,000 bpd capacity, and an Azeri-Turkish consortium featuring SOCAR and Turcas plans to build a refinery with a capacity ranging from 200,000-400,000 bpd for US$5bln.  Taken together, these investments of nearly EUR 10 bln would double Turkey’s refining capacity to 62 mln tons of oil a year.¹⁷

Despite these developments, as of April 2010 no new refineries have come online in Turkey.  Additionally, some of the proposed refinery projects cited above have encountered roadblocks.  In December 2009, Kazmunaigaz Managing Director for Oil Processing and Marketing, Danir Tiesov, was quoted by New Europe as confirming that his company had “suspended [their] plans for Ceyhan” supposedly due to cost concerns.¹⁸ As it stands, Turkey currently processes approximately 714,300 bpd of crude oil at its five existing refineries: Izmit (230,000), Izmir-Aliaga (200,000), ATAS/Mersin (162,000), Kirikkale (100,000), and Batman (22,300).  The possibility of expanding refining capacity beyond these current amounts is clear, and the fact that no new refineries have been built does NOT signal a failure of Turkey’s strategy of transforming Ceyhan into an international energy center.  Prospects for the successful continuation of this strategy are examined in the following section.  It is important first to examine what underlying assumptions have driven this strategy to this point because these assumptions have also shaped the Turkish government’s strategy in the Eurasian gas sphere.

The first assumption is that the Baku-Tblisi-Ceyhan oil pipeline, built as a continuation of the premise of the “Contract of the Century”, is a model to be followed.  In crude form, this model can be interpreted as a self-fulfilling prophecy: in the face of supply and financial uncertainty, the political decision to construct a pipeline will by itself negate these uncertainties, and international companies will willingly participate, especially when oil reserves are complemented by significant deposits of natural gas.  For instance, in terms of both setting a precedent and entanglement with natural gas, one other building block of the Southern Corridor strategy – the Baku-Tbilisi-Erzurum gas pipeline – nearly mirrors the BTC in the route chosen, the consortium partners (with some notable differences, such as the participation of Lukoil in the BTE pipeline and Chevron in the BTC pipeline), and the basics of the Intergovernmental Agreement.

The policy danger is that these sorts of precedents are adopted without fully evaluating the actual success or failure of the overarching strategy.  As stated earlier, Turkey’s primary motivation for participating in the Southern Corridor was linked to a foreign policy objective, namely, EU membership.  That objective remains unachieved despite apparent progress in laying the foundations for a 4^th supply artery to the EU.  In fact, the EU has not even opened the energy chapter in their accession negotiations with Turkey.  Turkey’s other prominent motivation – reducing its import dependency on Russian hydrocarbon resources – remains largely unaddressed.

From the perspectives of both Brussels and Moscow, the precedent-setting construction of the BTC pipeline and its twin, the BTE, has not had the major strategy-altering effects one might anticipate.  EU member states have continued to experience mid-winter supply cutoffs as recently as January 2009 while Russia, on the other hand, has not deviated from its tactic of isolating transit states such as Ukraine by engaging EU member states on an individual basis.  Russian production and pipeline plans have been moving forward with various EU partners.  The German company RWE is a partner in the Nord Stream pipeline, a subsea project that bypasses Poland; the Italian company Eni is a partner in the planned South Stream pipeline, a subsea project that bypasses Ukraine; France’s Total has a stake in the eventual development of the massive Shtokman field.  Unless these European companies are acting in concert to divide up the riches of mutually beneficial Russian hydrocarbon projects, it would seem that Russia has successfully exploited their competing interests, irrespective of the momentum gained by the Southern Corridor.

Returning to Russia-Turkey relations and the question of whether Turkey has achieved its strategic objectives, it is clear that the developments most likely to have a short-term impact in the energy sphere are actually policy decisions and commercial transactions that take place in a domestic context.  In Turkey, these domestic developments are related to the goal of joining the European Union.  In an effort to comply with European Union energy market regulations, Turkey has taken steps to liberalize its electricity-generating sector and to open its gas distribution market to competition.  The national gas champion BOTAS has been given a directive to unbundle its import, distribution, and storage networks.  An immediate consequence of this directive was the acquisition of a 40% stake in Bosporus Gas by Russia’s Gazprom, a move designed by an un-unbundled foreign company (Gazprom) to gain a foothold in a (possibly vulnerable) liberalizing consumer country.  This is a true policy dilemma faced by Turkey: to what degree can domestic economic objectives be pursued while operating with the constraint of interdependence?  These sorts of questions have not yet been addressed as part of a comprehensive strategy assessment.

It is in this context – the absence of a robust strategy assessment – that the successes of the BTC and BTE for Turkey in particular have been highly influential.  Besides the legacy of the BTC as a model to be followed, Turkish strategic planners have drawn lessons from the development of Ceyhan as an international energy center.  These lessons include the notion that a transit state can create added value by re-exporting oil as well as gas, and that, based on interest in investing in Ceyhan’s refining capacity, international companies and consumer states will support this mark-up potential.  The interpretation of these legacies contributed in part to the formulation of a strategy for Turkey that goes beyond the basics of the Southern Corridor.  This strategy has prevailed at least until the ratification of the Nabucco Intergovernmental Agreement by the Turkish parliament on 4 March 2010.

Turkey’s energy strategy vis-à-vis Russia and Eurasian oil and gas supplies has evolved from participation in the East-West corridor to an aspiration of becoming an outright ‘energy hub’.  This means applying the model of Ceyhan as an export center to Turkey’s entire energy security strategy.  As a key transit state, Turkey envisions itself importing hydrocarbon resources from Russia, the Caspian region, and the Middle East, and re-exporting the oil and gas as a market aggregator to a diverse set of consumer states.  This would firmly entrench Turkey as a dominant regional actor but would also further secure Turkey’s own energy supply as well as give Turkey leverage over gas prices it currently does not have.

At the root of the strategy of becoming an energy hub lies a fundamental principle of Turkey’s current foreign policy – “strategic depth”.  This concept was elaborated by political scientist Ahmet Davutoglu in his 2001 book Stratejik Derinlik, and since Davutoglu was named Foreign Minister on 1 May 2009 has become a driving factor of Turkey’s foreign and energy policy.

There are two key components to strategic depth.  The first component is that “a nation’s value in world politics is predicated on its geo-strategic location and historical depth.” ¹⁹ The second component is Turkey-specific.  Essentially, the Ottoman Empire emerged as a historical force precisely because of its key geographical location, at the crossroads between Europe, Asia, and the Middle East, and that in the 21^st century the Turkish Republic is the natural successor to the Ottoman Empire in terms of its regional engagement.  The implications of this idea is that Turkey should pursue a “zero-problems” policy with its neighbors, seeking to develop deep complex relations with multiple partners, thereby ensuring Turkey’s optimal independence and accumulating regional leverage.

The fundamental objective of achieving optimal independence and accumulating regional leverage translates in the energy sphere into the desire to become a regional gas hub, or market aggregator.  This begs the obvious question, then, what is a “gas hub”?  This has been a cause of misunderstanding among both scholars and policymakers.  In a recent article in the journal Turkish Studies, for example, Catherine Saivetz writes, “Turkey’s geography makes it ideally situated to be an energy hub,” without explaining how Turkey would differ from any other transit state.²⁰ Additionally, EU Special Coordinator for Nabucco Jozias Van Aartsen seems unclear on the implications of being an energy hub, suggesting in that “four alternative natural gas hubs should be developed for the Southern Corridor in Azerbaijan, Romania, Greece and Austria.”²¹ By definition, four alternative natural gas hubs are infeasible, as a hub would be the nexus of multiple import pipelines, significant enough in volume to justify exporting the gas to a diverse set of consumers.  The hub state itself would have its own consumption needs satisfied, while maintaining the flexibility to import surplus gas either for storage or re-export.  This requires significant investment as well as sufficient demand downstream to justify re-export and generate transit fees to support the requisite infrastructure.

Just as in the case of transforming Ceyhan into an international energy center, a number of steps would be required for Turkey to become a natural gas hub.  Turkey would need to complete construction of all of the Southern Corridor gas pipelines (primarily Nabucco), including additional linkages with pipelines to and from the Middle East.  It would have to consider the feasibility of building storage facilities to manage excess gas.  It would have to ensure favorable upstream pricing with producers, guaranteeing long-term imports sufficient to cover its domestic needs.  At the same time, Turkey would have to find willing buyers for its gas re-exports and secure appropriate transit fees.  Taken as a whole, these steps would fulfill the promise of ‘strategic depth’.  First of all, Turkey would have secured its own energy independence, seemingly insulated from potential supply disruptions and pricing disputes.  Second, Turkey would also have expanded its leverage over supply states such as Russia, as well as the less powerful Central Asian producer states.  The enabling environment for potential re-export is actually a legacy of the Soviet Union, as Turkey would be exploiting a significant pricing differential between what the Caspian producer states receive and what the European consumer states pay for gas.  Coupled with the institutionalization of long-term, take-or-pay contracts, the energy-hub strategy would make Turkey a powerful regional actor.

In sum, Turkey’s energy security strategy is notable for being directly linked to its foreign policy.  For a long period of time, this meant that Turkey has been a strong supporter of the EU’s Southern Corridor strategy, driven by aspirations for EU membership.  Since the construction of the BTC oil pipeline, however, this strategy has evolved significantly beyond just the Southern Corridor.  The story of Ceyhan, the terminus of multiple oil pipelines and the site of numerous planned refineries, has been taken as a model for Turkey’s energy policy in general.  This new strategy, of becoming an energy hub, is linked to the foreign policy principle of ‘strategic depth’.  The danger, however, is that this evolution is not accompanied by an evaluation of the strategies themselves.  As the next section will discuss, a number of institutional constraints – primarily related to Turkey’s relationship with Russia – pose significant obstacles to the achievement of Turkey’s goals.

Turkey-Russia Relations: Institutional Constraints

When examined in the context of mutual dependence, it becomes clear that the “energy hub” strategy pursued by Turkey is infeasible.  In particular, Turkey’s ambitious energy policy, based on the foreign policy premise of strategic depth, overestimates the degree to which Turkey is free to initiate and complete energy projects.  Due to a series of contractual and supply constraints in the Eurasian oil and gas sectors, Turkey cannot reach its strategic objectives without making concessions to actors further upstream.  Further, it is evident that in cases where projects have gained momentum, the principles of engagement and compromise have replaced the notion of strategic depth.

Institutional constraints in the oil sector are easier to address than constraints in the gas sector because they do not actually prevent Turkey from achieving its stated goals.  In particular, Turkey has three goals, one is a security objective, one is project-specific, and one is an aspiration.  The broader, more achievable security objective is to ease the flow of tanker traffic through the Bosporus and Dardanelles.  The project-specific goal is to complete the construction of the Samsun-Ceyhan Pipeline (Trans-Anatolian Pipeline), and the aspiration is to turn Ceyhan into an international energy center.

Surrounding these objectives are two constraints: Turkey is bound to the terms of the 1936 Montreux Convention which permits free passage for commercial ships through the Bosporus.  Unless Turkey is prepared to contravene the terms of these agreements, its leverage as an oil transit state, already reduced by its high dependence on oil imports, is seen as weak.

This perceived weakness has characterized Turkey’s efforts to move forward on a Bosporus bypass pipeline over the past several years.  There are many Bosporus bypass options, as depicted in the below map, but the only one that meets all three of Turkey’s goals is the Samsun-Ceyhan pipeline.  The Samsun-Ceyhan pipeline, in turn, has been weakened by the second constraint that Turkey faces in the oil sector – it does not own any of the oil to be transited.

As a result, Turkey, the country most vulnerable to the transit glut in the Bosporus Straits, has been left out of the discussions concerning a possible bypass.  Instead the pipeline proposals have resembled a microcosm of the Great Game, as the US and Russia vie for influence in the Black Sea Region.  The pipeline favored by the United States government is the AMBO pipeline, named after the transit states of Albania, Macedonia, and Bulgaria.  The proposed AMBO pipeline would run from Burgas in Bulgaria to Vlore in Albania, transporting up to 750,000 bpd.   Despite the fact that in 2004 officials from Bulgaria, Macedonia, and Albania signed a Memorandum of Understanding affirming their commitment to the pipeline, without any commitments from the Caspian oil producers themselves prospects for AMBO are unrealistic.  The same can be said of the Pan-European Oil Pipeline, proposed to transport 1.2-1.8 mln bpd of Caspian oil from Constanta in Romania to Trieste in Italy.

Instead, the Bosporus bypass option with the most upstream support and therefore until recently the most realistic has been the Burgas-Alexandropolis pipeline.  Russia for a variety of reasons, had thrown its weight behind the Burgas-Alexandropolis option, which would transport Caspian oil through Bulgaria and Greece, countries with which Russia has particularly close ties.  On 15 March 2007, Russia, Greece, and Bulgaria signed an Intergovernmental Agreement regarding the 750,000 bpd pipeline, and Russia has publicly tried to influence other oil producers, for example by promising to oil for the expansion of volumes shipped across its territory by the Caspian Pipeline Consortium only if CPC members such as Kazmunaigaz agree to participate in the construction of the Burgas-Alexandropolis pipeline.²²

None of these pipelines involve Turkey, and as of 2010 none of these pipelines have been built.  The longer the Bosporus is used as a major transit point for oil, the greater the likelihood of a worst-case scenario unfolding for the Istanbul metropolitan area.  Turkey’s strategic priority of easing Bosporus traffic is both necessary and feasible.  Unfortunately, up to this point the interests of all the main parties have not been aligned.  This is a danger of pursuing an energy policy based on the notion strategic depth, which points first and foremost to the development of Ceyhan as an international export center.  In this case, although the Bosporus bypass is primarily of interest to Turkey, other relevant actors include the upstream oil producers – those extracting oil in Russia, Kazakhstan, and Azerbaijan – as well as the companies with the technical capacity to build pipelines in the geographic conditions of the Black Sea region.

The most straightforward way to align the interests of such a diverse set of parties would be to bring them all together.  This is a strategy based on engagement and cooperation, and not necessarily strategic depth.  Indeed, it would appear that this is how headway has been made in recent months.  The initial agreement for the construction of the 1.5 mln bpd pipeline was signed by Eni and Calik in 2005, when the two companies finalized a Memorandum of Understanding.  Neither of these companies is responsible for the actual shipping of oil volumes, though, and it is commercially infeasible to go forward with building a pipeline unless there is going to be oil shipped through it.

The Samsun-Ceyhan project is a 50-50 partnership between Calik Enerji and Eni, yet had stalled because a lack of commitments by upstream producers to supply the pipeline with oil.  Then, in October 2009, Russian Deputy Prime Minister for Energy Igor Sechin announced that Russia is both interested in providing oil to supply the Samsun-Ceyhan pipeline and joining the partnership to construct the pipeline itself.  In Milan, Vladimir Putin, Recep Tayyip Erdogan, and Silvio Berlusconi signed an Intergovernmental Agreement outlining the possible terms of trilateral cooperation on a pipeline.  Moreover, Russian companies such as Rosneft and Lukoil, who are expanding oil development in the Black Sea and Caspian Sea regions, are prepared to supply the eventual pipeline with additional oil volumes.²³ Thus, more than ever before, constructing a Bosporus bypass has aligned the interests of all parties.

Although the Samsun-Ceyhan pipeline has not yet been built yet, these recent developments are evidence that Turkey can achieve its goals only within the limited framework of cooperation.  This is in fact a positive step, as it moves the language of energy security away from the typical zero-sum game mentality.  At the same time, however, the picture is complicated by the fact that it is impossible to tell exactly what factors led to this new cooperation between Turkey and Russia.  For example, perhaps Russia shifted its priorities from Burgas-Alexandropolis to Samsun-Ceyhan after other projects (such as Nabucco) gained momentum in 2009.  Regardless of what caused the shift in thinking, though, it is possible to identify conclusions from the current outcome.  Those conclusions are that given Turkey’s obligations under the Montreux Convention, and given that Turkey does not control the Caspian oil being shipped through the Black Sea, within the current rules of the game Turkey cannot achieve any of its objectives without embracing Russia as a partner.

These sorts of institutional constraints are more pronounced and more complicated when it comes to the gas sector.  Turkey’s ability to act independently is significantly restricted by its current import arrangements with Russia – not just the supply amounts but the contractual terms themselves.  A further constraint on Turkey’s aspirations of becoming a gas transit hub is the uncertainty surrounding gas pricing and transit pricing in the former Soviet space.  This has a particularly profound impact on trans-boundary disputes and the role played by existing pipelines in exacerbating or alleviating regional tensions.  Turkey must re-develop its energy hub strategy in this context.

A final major constraint on Turkey’s independence as an actor in the Eurasian sphere concerns the cornerstone of its energy hub plan – the Nabucco gas pipeline.  As currently envisioned, the project is constrained by major uncertainties about upstream supply. This supply uncertainty has a significant impact on Turkey’s leverage as a transit state.  In particular, the supply uncertainty, along with the lack of transit fee standards or downstream pricing agreements, undermines Turkey’s strategy of becoming a market aggregator.  In order to overcome these obstacles and develop objectives that are actually achievable, Turkey should work within this framework of constraints and adopt a more cooperative stance, especially towards a major player like Russia.

As stated above, the first significant constraint in the Eurasian gas sphere is the take-or-pay nature of all major import contracts.  Under take-or-pay provisions, which are common in the gas sphere, consumer states are required to pay for a minimum amount of gas regardless of whether or not that gas is actually consumed.  When take-or-pay provisions became standard practice in the 1980s, the dynamics of the gas market were much different than they are today.  At a time when the prospects of sufficient demand for high gas volumes were in doubt, take-or-pay provisions offered a form of insurance for suppliers about to make high-risk and capital-intensive investments in the development of their hydrocarbon deposits.  Since take-or-pay became the standard, however, and demand for gas has only increased, this contract structure has shifted leverage to the large suppliers.

In Turkey’s case, all of its large gas import contracts are subject to take-or-pay provisions.  The 10 bcm/yr contract with Iran has full take-or-pay provisions, meaning that regardless of how much gas Turkey actually consumes, it is liable for the total contract value.  With drop-offs in demand (due to economic conditions), Turkey paid Iran $704 mln for unused gas in 2008.  Turkey’s contracts with Russia are equally problematic in terms of restricting Turkey’s independence as an actor.  Turkey is obligated to pay Russia a minimum of 75% of the value of the total gas specified in its contracts regardless of domestic consumption needs.²⁴ Taken together, these potential financial liabilities are like a massive elephant in the room.  How can Turkey justify building a new pipeline, much less becoming a transit hub, if it is concerned with meeting its own contractual obligations?  What happens in extreme circumstances, such as drastic declines in demand or a financial crisis?

These sorts of scenarios have been foreseen by the World Bank.  In a 2007 analysis of Turkey’s gas sector, the World Bank compared high and low demand projections to Turkey’s known contractual obligations.  The result – in the case of low-demand – is a “supply overhang” beginning in 2008 in which import obligations outweigh consumption needs.  The consequences of this overhang are to “liabilities ranging from US$1 billion to US$5 billion.”²⁵ 

The consequences of this overhang for strategy and policy could be drastic.  For one thing, a failure to comply with take-or-pay provisions could generate a reputation for Turkey as an “unreliable consumer.”  The Eurasian gas sector has seen unreliable suppliers and unreliable transit states, but non-payment on the scale envisioned by the World Bank has not been an issue outside of the former Comecon countries in the 1990s, when barter deals were still part of the gas trade.  Because Turkey and Russia are mutually dependent, an unreliable consumer would pose a significant risk for Russia as well, which could either seek to sell its gas elsewhere or could seek to pressure Turkey into compliance.

Turkey has been fortunate thus far not to become embroiled in the sorts of trans-boundary oil and gas disputes that have occurred throughout the former Soviet Union.  This does not mean, however, that Turkey is immune from the same contextual factors that contribute to such disputes, nor that these disputes cannot affect Turkey indirectly.  Indeed, in January 2008 Turkey became exposed to a glimpse of what the future of its relations with unreliable suppliers may look like when Turkmenistan, citing technical difficulties, reduced the flow of gas to Iran in the midwinter months from 20 to 5 million cubic meters of gas per day.  Gas flows did not restart until April 28 when Iran agreed to double the price that it paid Turkmenistan, from $75/mcm before the cutoff to $130/mcm in the first half of 2008 and then $150/mcm in the second half of 2008.  The underlying trend is that in parts of Eurasia contingent prices are more likely to be influenced by pipeline politics, including supply disruptions, than by market forces, and that these prices are subject to renegotiation at any point in time.

What consequences did this brief but significant episode have for Turkey? Turkey was affected both directly and indirectly.  The direct consequences were that Iranian gas exports to Turkey were cut, as a domino effect of the Turkmen gas cut.  The same thing happened in December 2006.  Upon the death of President Niyazov, Turkmenistan halted exports to Iran under the premise that the new circumstances called for a renegotiation of the gas contract.  The crucial difference is that in 2006, to overcome the shortfall of gas supplies to eastern Anatolia, Russia increased the flow of gas through the Blue Stream pipeline, smoothing over Turkey’s consumption needs.  In 2008, however, Russia refused to cover all the shortages, meaning that residents of Anatolia were in the same predicament as the Eastern European states dealing with the indirect fallout of the Russia-Ukraine disputes.²⁶

Thus, in 2008 the constraint of contingent prices and Russia’s ability to leverage its gas supplies came to the forefront.  Again, as stated earlier, the driving mechanism behind these constraints for Turkey is its ability to meet its obligations under its take-or-pay contracts.

One of the first signs that Turkey is coming to grips with this reality is that in February 2010, Energy Minister Taner Yildiz confirmed that the Turkish government had asked both Russia and Iran to revise the terms of their take-or-pay contracts.²⁷ The last time Turkey tried to renegotiate contractual terms – in 2003, before the official opening of the Blue Stream pipeline – Russia filed suit in the Stockholm International Court of Arbitration Court.  Russia, as demonstrated by its refusal to increase gas flow through Blue Stream during the 2008 shortage, is too dependent on its gas trade with Turkey to allow for unilateral maneuvering by Turkey.  This goes both for new pipelines and pricing negotiations.  In short, Yildiz’s request for renegotiations is an admission that Turkey faces severe constraints, but such a request cannot be made without offering concessions to Russia given the mutual dependence.

The 2008 Blue Stream episode, in which Russia declined to increase its exports to Turkey to cover the shortage in Eastern Anatolia reflects the fact that the Eurasian gas sector is still characterized by enormous pricing uncertainties and a lack of standardization.  When these pricing uncertainties are coupled with existing supply uncertainties, then the prospects of Turkey emerging as an energy hub are seriously thrown into question.  By supply uncertainty, one can easily point to the lack of transparent auditing of reserves in the former Soviet states as a major question mark for energy security.  But beyond actual oil and gas reserves, one only has to remember the mysterious April 2009 explosion on the pipeline connected Turkmenistan to the CAC trunkline, or the stoppage of oil and gas flows through Georgia during the 2008 conflict with Russia to realize that there a still security risks upstream.  It is hard to imagine, given the constraints listed above, what leverage Turkey could exert to ensure gas flows as an energy hub when the current situation is characterized by uncertainty and extreme events.

In short, three intermediate tasks that are required for Turkey to become an energy hub look like serious obstacles to manage individually: finalizing surplus upstream supply contracts with competitive prices, guaranteeing that domestic consumption needs are met, and coordinating downstream prices to reflect desired transit fees in Turkey.

Finalizing surplus upstream supply contracts with competitive prices is difficult in its own right.  As described earlier Turkey may have overplayed its hand with the potential supply overhang.  It also seems that Turkey’s strategy of becoming an energy hub is based on the assumption that prices for Caspian gas are static, caught in the post-Soviet trap of non-standardization and neither cost-plus nor netback pricing.  Low prices are a relic.  This relic is disappearing, as a result of haphazard competition but also possibly due to a move towards standardization.  This is how the March 2009 Memorandum of Understanding between SOCAR and Gazprom could be interpreted.  The volumes discussed are not very large: the initial MoU specified that Gazprom would purchase 0.5 bcm of gas from SOCAR, and a later supplement to the agreement doubled the volume to 1 bcm in 2010 and then 2 bcm in 2011.²⁸ What is important is that Gazprom will be paying ‘market’ prices to Azerbaijan – a floating price adjusted quarterly according to movements in oil prices.  This is the same formula used in European netback pricing arrangements and signifies a move towards price standardization in the former Soviet Union.  Gazprom has agreed to similar price changes with the other Caspian gas producers, though the significance for Turkey is not as high because there are no direct purchase agreements between Turkey and the Central Asian states as of yet.  Thus, as a result of Gazprom’s apparent flexibility, Turkey’s existing relations with gas suppliers have come under pressure.  As recently as October 2009 Azeri President Ilham Aliyev criticized Turkey for not offering to increase the price of gas it pays to similar ‘market’ levels.29

Unable to rely on low prices upstream, Turkey may concede that it is unable to achieve the goal of managing lucrative re-export contracts.  How can Turkey justify charging higher prices downstream when it has not yet secured any actual gas?  This was a sticking point throughout Turkey’s negotiations on Nabucco.  Leading up to the signing of the Intergovernmental Agreement in July 2009 (and its ratification by the Turkish parliament in 2010), Turkey continued to require that it receive a 15% take-off allotment for gas pumped through Nabucco, an amount that would total 4.65 bcm annually if Nabucco reached its peak throughput of 31 bcm.  Although this insistence upon this clause was abandoned, the point is that it reflected Turkey’s desire to meet its strategic depth-influenced goal of becoming an energy hub without taking into consideration interests further upstream.³⁰

This is the essential problem that strategic depth fails to address.  Unless Turkey opts not to renew its 6 bcm gas contract with Russia via the Western pipeline, it does not need any gas from Nabucco.  Especially in the case of low demand projections, it is hard to justify the demands on guaranteed supply from Nabucco given Turkey’s existing import obligations.  Nabucco therefore is only coherent in the context of Turkey’s re-export aspirations.  This just accentuates the supply uncertainty discussed above.  With Azerbaijan prepared to sell increasing volumes to Russia at ‘market’ prices and obvious political concerns jeopardizing potential gas supplies from Iraq and Iran, the notion of Nabucco as the centerpiece of a Turkish standalone strategy becomes highly doubtful. 

Nabucco has no commitments from suppliers.  The project company currently consists of six companies – BOTAS, Bulgargaz, Transgaz, MOL, OMV, and RWE – that represent either transit states or consumer states.  Only RWE has an upstream agreement – a deal with Turkmenistan to develop Block 23 of the Caspian Sea shelf.  It would be naïve to conclude that this guarantees Turkmen participation in the Nabucco project.

This is what is meant by constraints to Turkey’s energy strategy.  There are broader issues of price negotiations or even supply interruptions that may in fact outweigh the concerns of being a gas hub.  In this respect, Turkey may actually draw a lesson from the oil sector in its gas strategy – the momentum gained by the Samsun-Ceyhan pipeline through engagement and cooperation could be replicated when it comes to a large-scale gas project such as Nabucco.  In short, cooperation, not competition, should be the order of the new Great Game. 

Overall, the common underlying thread leading in the Eurasian hydrocarbon sector is that the concept of energy security is actually based on deeply embedded energy interdependence.  While in the long-run it is possible to envision critical junctures that will possibly alter the balance of interdependence, the current constitution of Turkey-Russia relations renders the strategy of becoming an energy hub based on strategic depth infeasible.  Thus far in the new Great Game, Turkey has based its actions on foreign policy goals that to date have not been achieved.  At this point it becomes increasingly clear that – given interdependence, and given institutional constraints – Russia should be viewed as a partner, not as an adversary, and that Turkey should re-prioritize its goals in the energy sector according to their feasibility.  Ultimately, the theme should be engagement and cooperation, and as energy relations continue to evolve and new pipelines continue to be planned, Turkey and Russia must remain aware of the extant uncertainties that pervade the Eurasian oil and gas sector.

End Notes

1. US Energy Information Administration. Russia Country Analysis Brief. http://www.eia.doe.gov/cabs/Russia/full.html Accessed 1 May 2010.

2. Duzyol, slides 4-5.

3. Elkind, 42.

4. IEA Energy Statistics.

5. Information on Turkey’s oil and gas imports and contractual arrangements are available at the website of BOTAS, the state-owned natural gas pipelines and trading company: http://www.botas.gov.tr/

6. Ibid.

7. European Union Member States encompass a wide range of dependency on Russian natural gas imports.  France, for example, imports 20% of all its natural gas from Russia, while Bulgaria and other Eastern European states import upwards of 90% of their gas from Russia: http://www.eia.doe.gov/emeu/cabs/Russia/NaturalGas.html

8. Further information about the Blue Stream pipeline is available at Gazprom’s official web site: http://old.gazprom.ru/eng/articles/article8895.shtml

9. The graph depicts Turkey’s contracted volumes according to BOTAS and the World Bank.  The portrayed dropoff can be compensated by renewing the 6 bcm Western Pipeline contract with Russia, or by the Nabucco pipeline if it is constructed.  The point of the graph is to show that with current contract terms Turkey’s dependence on Russian gas is set to naturally decrease in the coming years.

10. Hurriyet Daily News. “Bargaining for Azeri Gas” http://www.hurriyet.com.tr/english/domestic/11660208.asp?gid=243 Accessed 1 May 2010. Negotiations between Turkey and Azerbaijan concerning the price of gas supplied from Shah Deniz via the BTE concluded on 27 April 2010.  BOTAS has agreed to pay nearly $360/mcm. 

11. Energy Information Administration.  Turkey Country Analysis Brief. 

12. Energy Information Administration.  World Oil Transit Chokepoints. http://www.eia.doe.gov/emeu/cabs/World_Oil_Transit_Chokepoints/Bosporus_TurkishStraits.html

13. This map is taken from http://europe.theoildrum.com/uploads/884/061118_Map_Caspian_oil_pipes.jpg 

14. The Contract of the Century is the name for the deal signed between Azerbaijan’s SOCAR and the coalition of international oil copmanies that would develop the offshore Azeri-Chirag-Guneshli field.  It is viewed as the first step towards the realization of the Southern Corridor strategy, as oil produced as a result of the contract supplies the Baku-Tbilisi-Ceyhan pipeline. 

15. Shaffer, 343.

16. Elkind, 43.

17. Thaindian News. “IOC and Calik Energy get green light to build refinery at Ceyhan.” 10 January 2008.  http://www.thaindian.com/newsportal/business/ioc-and-calik-energy-get-green-light-to-build-refinery-at-ceyhan_10012301.html Accessed 1 May 2010. 

18. New Europe. “Kazakhstan gives up push to build the Ceyhan oil hub.”  5 December 2009. 

19. See Walker, Joshua W. “Learning strategic depth: implications of Turkey’s new foreign policy doctrine.” Insight Turkey Volume 9 Number 3, July 2007, p. 1. 

20. Saivetz, 95.

21. Activity Report September 2007-February 2009, European Coordinator Jozias van Aartsen, Project of European Interest no. NG3, Brussels, 4 February 2009, pp. 9-10, cited in Winrow OIES, 26. 

22. Energy Charter Secretariat.  Oil Flows and Export Capacity in the Caspian Sea and Black Sea Regions. Brussels: Energy Charter Secretariat, 2008, p. 28.

23. Jewkes, Steven. “Russia to provide oil for Samsun-Ceyhan.” Reuters 19 October 2009. http://uk.reuters.com/article/idUKLJ7124020091019?sp=true Accessed 1 May 2010.

24. Tehran Times. “Turkey requests Iran, Russia to revise ‘take-or-pay’ conditions.” 7 February 2010.

25. ESMAP, 6. 
26. Daly, John C. K. “Turkmenistan Doubles Natural Gas Prices to Iran.” Eurasia Daily Monitor Vol. 5 Issue 81 (28 April 2008). 
27. Tehran Times. “Turkey requests Iran, Russia to revise ‘take-or-pay’ conditions.” 7 February 2010. 
28. IHS Global Insight. “SOCAR Agrees to Double Gas Exports to Russia Again in 2011.” 22 January 2010 
29. Radio Free Europe. “Azerbaijan Criticizes Turkey Over Gas Prices, To Seek New Routes.” 16 October 2009.  
30. The Nabucco Intergovernmental Agreement stipulates that 50% of total pipeline capacity or 15 bcm – whichever is greater – will be reserved for consortium members.  This guarantees Turkey 1.25 bcm/yr in the early stages of Nabucco, and then 2.5 bcm when the pipeline is fully operational.  If Turkey is serious about needing 15% of total volumes, then it must purchase 2-3 bcm from the pipeline’s providers via the as yet undefined Open Season bidding process.  The chart provided here is merely illustrative of the type of bargaining stance Turkey has adopted.  When compared to the actual demand of Turkey depicted in Table 5, the feasibility of Turkey’s strategy becomes doubtful.

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