Turkey Takes Gazprom to Court

Last December, Vladimir Putin announced Russia would no longer be pursuing the construction of the so-called “Southern Stream” gas pipeline, meant to connect Gazprom with its southern European customers through the Black Sea, through Bulgaria. Southern Stream’s scuppering was seen as a diplomatic defeat for Putin and a win for the West—the project was unpopular in both Washington and Brussels—but in response Vlad proposed a new pipeline project through Turkey. Now, that “Turkish Stream” project seems all but dead. This week Ankara announced it would be taking Gazprom to court to secure cheaper gas prices. The FT reports:

Turkish state-owned pipeline company Botas this week filed a case for international arbitration to seek a price discount for Russian gas supplies, Gazprom confirmed…Turkey is Gazprom’s second-largest export market after Germany, accounting for 27.3bn cubic metres of its gas sales last year, while Russia supplies more than half of Ankara’s gas imports. […]

Gazprom, which had already spent billions of dollars improving infrastructure on the Russian side of the Black Sea and ordering pipes for the project, had wanted a rapid agreement. But Turkey’s insistence on a discount slowed down the negotiations.

Both sides said this summer they had agreed on a 10.25 per cent price discount for Gazprom’s supplies to Turkey, but no agreement was signed and Moscow scaled down its vision for the pipeline, cutting its planned capacity in half.

Russia needs this pipeline. It pursued first the South Stream and now the Turkish Stream in large part because it wanted to insulate itself from the risk that Ukraine would siphon off gas meant for customers farther to the West (it’s fair to say that Ukraine and Russia’s energy relationship has never been amicable and is volatile of late, for obvious reasons). It’s put up huge amounts of money to install preliminary infrastructure, so Moscow is now especially keen to see something concrete come of all of this time and effort.

Turkey, of course, knows this, and has sought to leverage its unique position in the form of pricing discounts. Now it’s apparently willing to resort to legal arbitration to secure better prices. Hanging over these proceedings is Turkey’s unhappiness with Russian air strikes in Syria, but even before that aggression this looked like a partnership born of circumstance rather than a natural pairing. For Gazprom’s part, it’s finding yet another European partner dissatisfied with its terms, and these niggling rebellions are starting to add up to one massive headache for the state-owned gas firm.

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