For the past year or so, relations between Russia and Turkey have been through a roller-coaster ride. Mere weeks before the Su-24 incident in November 2015, Turkish President Recep Tayyip Erdoğan was the guest of honor at the opening of a sumptuous mosque in Moscow, said to be one of Europe’s largest—if not the largest. Not long thereafter, he turned into the favorite punching bag of the Kremlin’s propaganda regime, the perfidious friend who had stabbed Russia in the back and colluded with Syria’s jihadists. But as of this past summer, in yet another dramatic turnaround, Putin and Erdoğan managed to patch things up. To be sure, a gradual rapprochement was not inconceivable, even back in November. But who would have thought that, in October 2016, Putin would be the headliner of the World Energy Congress in Istanbul, talking up the benefits of Russo-Turkish economic cooperation and praising Erdoğan on his handling of the failed military coup?
For all the positive vibes between Moscow and Ankara, Putin would not have bothered to come to the Bosphorus had it not been for TurkStream. Back in December 2014, he put forward the idea of a new gas pipeline as an alternative to the South Stream, blocked by the European Commission over non-compliance with the EU’s competition rules. His Turkish hosts were taken by surprise, as reportedly was the Gazprom management. What followed were the real negotiations where Turks drove a hard bargain on the discount on Russian gas, to be contracted by the Turkish state-owned utility BOTAŞ. The downing of the Su-24 fighter jet brought the talks to a premature end, with the Russians calling off the project—before it had even started in earnest. What we finally have now is a legally binding agreement signed by the two Energy Ministers, Berat Albayrak (who happens to be Erdoğan’s son-in-law) and Aleksandar Novak.
No doubt the TurkStream deal signals that Turkey and Russia are in alignment mode. Energy has always ensured a strong link between Ankara and Moscow, ever since Soviet gas started flowing Turkey’s way in 1986. Ties are furthermore cemented by each party’s grudges against the United States. Senior Turkish figures blame the United States for harboring the Muslim cleric Fethullah Gülen, whom the regime blames for the July coup attempt. More recently, presidential candidate Hillary Clinton has come under fire for her suggestion that the United States should arm the Syrian Kurds. Turks also deplore the Western powers’ reluctance to include the Turkish army in the forthcoming operation to dislodge the self-styled Islamic State from the Iraqi city of Mosul.
Though Russia and Turkey are rooting for the opposite sides in the Syrian conflict, paradoxically enough, they are still close to one another. There is a sort of a paradigm shift here, too. If before November 2015, Putin and Erdoğan agreed to disagree on Syria and forge ahead with bilateral cooperation in energy and trade, it seems that now they see TurkStream, and economic interdependence more broadly, as a stepping stone to greater cohesion in dealing with the war south of the Turkish border. Ankara’s reaction to the destruction of Aleppo is uncharacteristically muted, as is, of course, the Russian response to the ongoing Turkish military operation in northern Syria. What’s more, Putin’s visit gave a boost to defense cooperation. And Russia has shown interest in the modernization of Turkey’s air defense systems, too.
However, diplomatic rapprochement should not obscure the fact that the TurkStream saga is not over yet. Though the details are unknown, the deal will give Turkey an attractive discount on future gas deliveries, well above Russia’s initial offer and, in all likelihood, above 10 percent. Gazprom has a reason to keep the percentage secret as long as possible, in order to avoid a knock-on effect in its other major export markets in Europe. In any event, the deal is not final until BOTAŞ. signs a long-term agreement with the Russians. Turks have declined to renew the old 25-year deal once it expired at the end of 2011. The agreement for the future joint Turkish-Russian company to build TurkStream’s onshore section in Turkish Thrace is also outstanding. As ever, the fine print is key in order to determine who gets what from the protracted bargain. (On a related note: contrary to expectations, Putin’s visit did not lead to a major breakthrough on the nuclear power plant at Akkuyu built by Rosatom. The project has stalled due to legal and political wrangling.)
It is also worth noting that TurkStream has been scaled down. Its annual capacity was reduced from 63 billion cubic meters (bcm), delivered through four parallel strings, to 31.5. However, Turkey will only be willing to buy half of that volume, or 15.75 bcm. So who will buy the extra gas? The extension of the pipeline into Greece and further afield into the European Union will run into the same regulatory hurdles that brought about South Stream’s demise two years ago. Furthermore, Gazprom’s European customers would have to accept a revision of their outstanding contracts with regard to the point of delivery, which will not be an easy sell.
Long story short, Russia will be able to redirect the gas shipped to western Turkey, its second largest market after Germany, away from Ukraine by about 2019-20. But establishing Turkey and Southeast Europe as a new transit corridor for Russian gas remains a long shot.
Even in its watered-down version (one line, exclusively for Turkey), the new pipeline will deliver commercial and strategic gains for Russia. It will lock down the Turkish market and perpetuate dependence on Gazprom, which now accounts for more than two-thirds of Turkish gas imports. It will slow down the effort to diversify supplies by bringing in volumes from Iran (currently the second-largest source of imports), Azerbaijan, and elsewhere. Turkey also has liquefied natural gas (LNG) infrastructure and this past month Ege Gaz, a local company, imported its first cargo from the United States. Moreover, the new deal with Russia will inhibit the liberalization of the Turkish gas market, a necessary condition for achieving the coveted goal of turning Turkey into a regional trading hub. Last but not least, the continued reliance on gas means that the Turkish government’s ambitious plans to expand the share of renewables in the energy mix from 9.5 percent to 30 percent in 2023 (the centennial of the republic), particularly solar and wind, will likely proceed at a more sluggish pace.
TurkStream may bring Russia and Turkey closer together but it will not be a game-changer for Europe’s energy security. The fact remain that we live in an era of hydrocarbon glut. Gas is abundant, and prices are falling even in markets where Russia is a monopolist. Even without the EU-driven reforms to make European markets more flexible and interconnected, power has shifted from suppliers to consumers.
A new Russian pipeline to the European Union via Turkey, if it ever materializes, may seem the crowning achievement of a geopolitical genius. In reality it is a costly endeavor whose economic profitability is, to put it mildly, questionable. TurkStream’s putative extension into the European Union will have to be open to traders other than Gazprom. In other words, Russia will end up subsidizing its competitors, in addition to offering price discounts to downstream countries to enlist their support. But that is a discussion that will take off only in the next decade. In the meantime, let’s wait and see what happens between Moscow and Ankara.