The
Baku-Tbilisi-Ceyhan Pipeline: Oil Window to the West
2005 Central Asia-Caucasus
Institute & Silk Road Studies Program -A Joint Transatlantic Research and Policy Center
Johns
Hopkins University-SAIS, 1619
Massachusetts Ave. NW, Washington,
D.C. 20036
Uppsala
University, Box 514, 75120 Uppsala, Sweden www.sais-jhu.edu/caci; www.silkroadstudies.org©
"The Baku-Tbilisi-Ceyhan Pipeline" is published by the Central
Asia-Caucasus Institute & Silk Road Studies Program.
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The Baku-Tbilisi-Ceyhan Pipeline: Implications
for Turkey
Zeyno Baran
Zeyno Baran is Director of
International Security and Energy Programs at The Nixon Center. She joined the
Center in January 2003 and established the Eurasia
and Turkey Projects.
Her current research
focuses on strategies
to thwart the spread of radical Islamist ideology in
Europe and Eurasia. Previously, Ms. Baran was
Director of the Caucasus Project at the Center for Strategic and International
Studies (CSIS). She received her M.A. in international economic development and
her B.A. in political science from Stanford
University. In 2003, she
was awarded with the Order of Honor by former Georgian President Eduard
Shevardnadze.
Despite enjoying the myriad
benefits of its strategic location - at the crossroads of Western
Europe, Russia,
the Caucasus and the Middle East - and of its significant mineral reserves and
its young, dynamic population, Turkey
is yet faced with a serious long-term strategic threat: energy dependence.
Lacking major oil and gas reserves of its own, Turkey is nearly 650/0 dependent on
imported energy supplies. Worse, this figure is expected to increase to 75°/o
over the course of the next two decades. In order to contend with this growing
threat, over the last decade Turkish policymakers have wisely chosen to take
full advantage of their strategic location. Recognizing
that control of energy transport corridors can be almost as important as
control of energy supplies, they turned their attention towards one of the most
important projects that Turkey
has ever undertaken: the Baku-Tbilisi-Ceyhan (BTC) oil pipeline.
The pipeline, which will transport
up to 50 million tons per year starting at the end of 2005, runs from the
Azerbaijani capital on the Caspian Sea, up through Georgia,
and down to the Turkish Mediterranean port of Ceyhan.
Together with a parallel gas pipeline, it is undoubtedly the key link in the
so-called "East-West Transportation Corridor" planned by Turkish and
other government officials to connect the oil and gas fields of Central Asia
and the South Caucasus with the markets of Western Europe.
For Turkey, the BTC pipeline project
has from the start been seen as a project primarily of geopolitical importance.
In fact, the issue of direct economic benefits to Turkey was barely even mentioned in
the initial discussions. Despite the absence of strong economic arguments in
favor of the project, the strategic and security advantages of BTC were widely
recognized by the public. In turn the BTC pipeline was greatly supported by
majority of the Turks and has encountered no perceptible political opposition.
This essay briefly
discusses the geopolitical relevance of BTC for Turkey, including an overview of
how and why Turkish decision-makers ensured its commercial viability.
It then evaluates
the prospects for
direct and indirect economic and social benefits to Turkey of the BTC project, before in the end
addressing the impact of the BTC project on Turkey's
relations with various players in the region as well as the EU and the U.S.
Geopolitical Pipeline
By the early 1990s, a
consensus had emerged in Turkey
regarding the necessity of constructing a major new oil pipeline on the
East-West route. It did so for several reasons: first, following the Gulf War,
the Kirkuk-Yumurtalik pipeline that had been transporting Iraqi oil to the
Turkish Mediterranean port
of Ceyhan was closed in
August 1990 under UN Security Council resolution 661. 1 As a result,
the Turkish economy suffered hugely from the loss of revenues. Realizing that
the Ceyhan port, controlled by the state-owned pipeline company BOTAS, is a
world-class facility at which large tankers can easily and efficiently load cargo
and transport it to world markets, urkey has long wanted Ceyhan to eventually
turn into a major international oil hub.
The second reason was based on a
realization that the potential value of Central Asian and Caspian oil reserves
would be tremendously greater if Western consumers were to have access to them.
Without a safe and secure route out of the landlocked Caspian
Sea, these reserves have little value. With that safe and secure
route terminating in Ceyhan,
Turkey would
also receive enormous leverage in the region.
A third and related reason
was that, as a NATO ally and strategic partner of the United States and Western Europe, Turkey
believed that it was best suited to enjoy such leverage. Unlike competing
potential suppliers such as Iran and Russia, a Turkish partnership with the
newly independent states would help to cement their future integration into
regional and international institutions—and also increase Turkey's strategic
importance. Indeed, this project has during the last decade been the anchor in
U.S.-Turkey relations as well as the key glue of the Turkey-Azerbaijan-Georgia
trilateral partnership.
As suggested, Turkey
was not the only state whose thinking was rooted primarily in geopolitics. The
Russian government pushed for the entirety of Azerbaijani and Kazakh oil
production to be sent to markets via Russian networks (whether existing or
newly-created) so that it maintained its monopoly over these countries'
political and economic futures. For its part, Iran hoped to use its geographic
location (the route across Iran
to the Persian Gulf is the shortest distance
to open waters from the Caspian) to achieve its geopolitical goal of greater
influence over its northern neighbor.
The young states were too weak to on their own resist the pressure and the
temptation these two oil-producing countries offered.
At the same time, they knew
that shipping their oil to markets via countries that themselves had huge oil
fields would not provide them with long term energy security. Hence, the
leaders of Azerbaijan
and Kazakhstan
decided that a routing through a non-oil-producing, NATO member country would
provide them with the best long-term energy security. However, even with this
decision, only direct, high-level U.S. involvement ensured that the
BTC pipeline would work for Azerbaijan.
As explained below, the Kazakhs chose the Caspian Pipeline Consortium (CPC) as
their first major pipeline to carry Kazakh oil via Russia to the Black
Sea, and Kazakhstan
is currently in serious negotiations to send significant volumes of oil from
Aktau to the BTC pipeline.
The decision of whether or
not to invest in the BTC ultimately had to be reached by the oil companies
operating the Azeri-Chirag-Guneshli (ACG) field in Azerbaijan. The Azerbaijani
International Operating Company (AIOC) consortium clearly preferred the
cheapest option for exporting oil to the markets and initially balked at the
cost of the BTC, especially when they considered the shorter Baku-Supsa option.2
This would entail the construction of a relatively short pipeline from Baku to
the Georgian Black Sea port of Supsa, where the oil would be loaded onto
tankers and then transported via the Turkish Straits to world markets. Turkey had
initially promoted this route also, believing that any East-West option was
preferable to shipment north to Russia
or south to Iran.
They hoped that once companies were accustomed to shipping oil westwards, it
would then be easier to subsequently shift supplies to a BTC pipeline.
In 1995 the AIOC
consortium chose Baku-Supsa as well as the Baku-Novorossiysk route (that would
transport Azerbaijani oil to the Russian Black Sea port of Novorossiysk)
as "Early Oil" pipelines to transport initial production to markets,
thus satisfying both Russian and Turkish interests as well as their own
commercial ones. The U.S.
became actively engaged in the pipeline projects following the celebration of
the beginning of the Early Oil project in Baku
in November 1997, attended by the U.S. Energy Secretary as well as the Turkish
and Russian prime ministers. The presence of such high-level officials clearly
underlined the geopolitical importance of the projects.
Once these two shorter pipelines began operation, the Turkish Foreign
Ministry began to strongly promote the BTC pipeline. One of Ankara's key
arguments in favor of the rapid construction of the main BTC pipeline was based
on the logistical, environmental, and security problems raised by a dramatic
increase in traffic through the
Turkish Straits. With additional oil coming to the Black
Sea from these two pipelines, as well as from the CPC pipeline,
the narrow and overcrowded Turkish Straits linking the Black
Sea and the Mediterranean would
be clogged by increased tanker traffic—at levels which would eventually become
unsustainable. In addition to the environmental health and security of the
Straits themselves, the physical security of Istanbul, a city of close to 15
million people and of incomparable world cultural heritage, could be damaged in
case of a major accident. The BTC pipeline would provide an alternative to
transporting large amounts of crude oil through the Turkish Straits, and most
importantly, directly through the heart of this huge city poised on both sides
of the Bosporus. BTC would bypass this choke
point, delivering oil directly to a safe, deep-sea port.
Hence, the Turkish approach
was to consider the Turkish Straits not solely as a transportation corridor,
but rather as a highly sensitive lifeline of Istanbul and the Black
Sea region. The companies, on the other hand, considered the
Straits to be commercially the cheapest option as opposed to pipelines for the
transportation of Caspian oil. It took several more years for the companies
internalize the risks associated with the Straits and recognize that the BTC
pipeline was in the long term commercially a more sustainable option.
The BTC pipeline project
gained momentum following the October 29, 1998 Ankara Declaration by
Azerbaijan's Heydar Aliyev, Georgia's Eduard Shevardnadze, Kazakhstan's
Nursultan Nazarbayev, Turkey's Suleyman Demirel and Uzbekistan's Islam Karimov,
witnessed by then-U.S. Energy Secretary Bill Richardson. This declaration,
which expressed strong support for the BTC main pipeline, was notable most
especially because of Kazakhstan's
participation. It was important because, at the time, it was unclear whether
there was sufficient oil in Azerbaijan
to justify a major new pipeline. (Today, such fears have been revealed as
unwarranted—in fact, in order to accommodate eventual Kazakh participation over
the next decade, the pipeline may need to be expanded.) For Turkey, the
extension of the oil pipeline to Kazakhstan also meant that Ankara would have an
important connection to Kazakhstan.
(A second part of the Ankara
declaration was support for the Turkmenistan-Caspian-Caucasus-Turkey-Europe gas
pipeline project to enable Turkey
to diversify its gas supply and turn itself into a major gas hub and transit
country for European markets.)
Despite the political
support behind the BTC project and the increasing understanding of the danger
of the Bosporus chokepoint, the oil companies
remained reluctant. They needed commercial incentives to commit to a
complicated pipeline project that would cross three countries with various
economic and political difficulties. They were relieved when the Baku-Supsa
pipeline became operational without incident in April 1999, marking the
completion of the first non-Russian East-West pipeline. After BP completed its
acquisition of Amoco in April 1998, it became the principal operator of the
AIOC consortium— simplifying operations, as political leaders only had one main
company to deal with. The strong commitment of the three countries to make the
BTC pipeline commercially viable, as well as the continued close participation
of the United States,
played a huge role in the companies' final positive decision.
The Turkish government
realized that, in order to convince the companies to agree to the pipeline, it
needed to make serious concessions, especially a guarantee of coverage for cost
overruns. While the Turkish section of the BTC, like the other sections, would
be fully financed by the BTC investors, given that the pipeline is longest in
Turkey (of the pipeline's 1,768 km, the Turkish section is 1,076 km in length),
and that BOTAS was to be the turnkey contractor, Turkish concessions were key
to make the project work.
After several months of
negotiations, the intergovernmental agreement in support of the BTC pipeline
was signed by Azerbaijan,
Georgia,
and Turkey
on November 18, 1999,
during the OSCE Summit in Istanbul.
In addition, there were three Host Government Agreements (HGAs) supporting BTC
investors in Azerbaijan,
Georgia
and Turkey,
as well as a Fixed Price Lump Sum Turnkey Agreement and a Turkish Government
Guarantee for the Turkish section of the pipeline. At the same summit
presidents of Azerbaijan,
Georgia,
Turkey
and Kazakhstan
signed the Istanbul Declaration in further support of the BTC. President Bill
Clinton of the U.S.
witnessed the ceremony and later said that the completion of these agreements
was one of his "most important foreign policy achievements of 1999".
Indeed, these agreements
provided the political and commercial reassurance necessary for oil companies
to take BTC seriously as it committed the governments to ensure that oil out of
the Caspian Sea would be developed and transported along commercially viable,
secure and environmentally safe routes in a timely manner. The IGA signaled the
support of three governments for the project, ensured commercial terms for work
in the countries, provided for the application of European-quality
environmental and technical standards, and obliged each state to provide
security for the project. The HGAs are more specific agreements reached between
individual governments and the project investors to provide uniformity and
consistency across the three countries in technical, environmental, safety and
security standards. These agreements clearly placed regional cooperation ahead
of extracting maximum commercial terms for each individual country, further
underlining the importance of the BTC project to all three countries.
In the Turkish case, since
BOTAS was for the first time going to be a turnkey contractor, the HGA also
included the Turkish government's assurance to the investors on its
performance. On October 19,
2000, the MEP participants signed the Turnkey Agreement with BOTAS
that assigned it responsibility as the turnkeycontractor for the engineering,
design and construction of the Turkish section of the BTC pipeline. The Turnkey
Agreement is a lump-sum fixed price contract, and contains a $300 million
Turkish government guarantee of compensation for investors in case of a cost
overrun.
After these important agreements,
studies were completed and financing was arranged, enabling construction to
begin in 2002 in time for the first tanker to be loaded from Ceyhan in the fall
of 2005.
As this brief background makes
clear, the BTC project cannot be considered just as a commercial project, but
is a key part of a broad vision for Turkey and its regional allies.
Economic Impact
The BTC pipeline was
conceived and promoted by Turkey
mainly for geopolitical reasons, with economic arguments largely absent from
the decision-making process. Nevertheless, for Turkey the long-term economic
outlook for BTC is positive; over the full 40-year term of the project, the
economic benefits will gradually become visible.
Relative to the size of its
GDP, the direct revenue that Turkey
will receive from the project is admittedly small and is certainly not
comparable to the impact it will have on the public finances of Azerbaijan and Georgia. Turkey is
expected to receive between $140 and $200 million annually from transit and
operating fees after the pipeline begins operation. However, this amount is
guaranteed to increase after 16 years, to between $200 and $300 million per
year. As shown in the table below, these fees are based upon the amount of oil
transported. The maximum amounts are based on the pipeline's maximum capacity
of 50 million metric tons per annum (MTA), which is approximately 1 million
barrels per day.
Transit and operating fees payable to Turkey:
Years 1 - 16: Years
17-40:
35 MTA $140 million 35 MTA $204 million
40 MTA $160 million 40 MTA $234 million
45 MTA $180 million 45 MTA $263 million
50 MTA $200 million 50 MTA $292 million
Even at
$300 million per
year, however, these
revenues will be
relatively insignificant. For a $300 billion economy that recorded a 10%
growth rate in 2004, this revenue may barely register. In order to draw a more
complete picture of the economic impact of BTC on Turkey, however, one must look
beyond transit revenues. The Turkish national oil and gas company TPAO has a
6.5% share in the BTC pipeline and will also receive additional revenue from
its investment. In addition to what BOTAS estimates will be an inflow of $1.4
billion in foreign capital, there will also be employment and other economic
benefits from the construction and operation of the pipeline.
In fact, the construction
of the BTC pipeline has had a very positive impact on unemployment. According
to BOTAS figures, BTC employed over 5,000 people during construction. This is
an important figure given high unemployment numbers in the eastern and southeastern
parts of Turkey.
Furthermore, 400 full-time positions will be retained once operations begin. In
addition to direct employment, the construction and operation of the pipeline
have stimulated the creation of jobs in support industries, as well as in the
general economy.
A further long-term economic
benefit will be infrastructure improvements. According to World Bank estimates,
BOTAS is likely to generate significant profits. If invested wisely, these
funds can turn BOTAS into a world-class pipeline operator, increasing its
chances for participation in future major pipeline projects. Furthermore, the
process of constructing and operating the pipeline will greatly improve the
technological capability and know-how both of BOTAS and of other Turkish
contractors, who for the first time ever are completing a project in full
compliance with the highest international environmental, health, and security
standards. They are likely to transfer this knowledge to many other domestic
projects in the future.
The work has also thus far complied with
international norms against corruption. As the single-most-scrutinized
public-private partnership to date in Turkey, it has set a new standard.
In the words of the BOTAS leadership, "This is the single most challenging
project done by BOTAS: and we have done it for the most demanding client [BP]
in the world." While corruption has been endemic to the Turkish energy
sector, there are no serious reasons to doubt that the work of the BTC project
has been carried out transparently and professionally.
One very important element
of BTC for the broader Turkish economy will be the ability to purchase crude
oil at a lower price thanks to reduced transportation costs. When the maximum
capacity of 50 million tons per annum is reached, Turkey plans to purchase up to 20
million tons of oil for domestic consumption. It also plans to increase its
strategic petroleum reserve capacity, which amplifies the value of BTC to
supply security and price stability in the country.
Environmental and Social
Impact
The BTC partners have
conducted a detailed Environmental and Social Impact Assessment (ESIA) in
accordance with the requirements of international financial institutions.
Together with BOTAS, they tried to follow these guidelines as closely as
possible, thus reducing any serious negative impact. In environmental terms, on
balance BTC will be a net contributor to environmental health, since it reduces
the volume of oil transiting the Turkish Straits, as mentioned above. The BTC
companies have also made significant investments, as required by the World Bank
and other international financial institutions, to ensure that the BTC pipeline
is constructed with the "best available" environmentally-friendly
technologies. Unlike other pipelines in Turkey, the BTC pipeline is buried,
in part to minimize environmental damage. The project partners have also
engaged in regular consultations with NGOs and with the local population. These
meetings have served to increase local residents' awareness of environmentally
sensitive issues that many had not considered before. This has, in turn,
increased their commitment to protect their environmentally sensitive areas.
The key agreements and
significant documents on local impact are available at the "Caspian
Development and Export" website. This level of disclosure has made the BTC
project the most transparent pipeline to date.3 Since the posting of
these critical documents in 2000, local and international NGOs have been able
to study these documents and question the BTC Corporation, the Turkish
government, and BOTAS when necessary. This level of openness has ensured that
the project will maintain local support for the next four decades.
To promote sustainable social
and economic development within the communities affected by the pipeline's
construction, the BTC Corporation established a Community Investment Program
(CIP) focusing on sustainable development, particularly agriculture. The CIP
has allocated approximately $9 million for social and economic development
along the pipeline's route in Turkey.
This is a much-needed investment in one of Turkey's least developed regions.
The BTC pipeline has
ironically also helped Turkey
to deal effectively with international human rights NGOs who have tried to
prevent the project on grounds of potential impact on Kurdish human rights.
Following the war against the Kurdish PKK terrorist organization in Turkey, many
human rights organizations have characterized the Turkish state's human rights
record, especially regarding its Kurdish citizens, as rather dismal. After the
prospect emerged of a major oil pipeline crossing ethnically-Kurdish parts of Turkey, these organizations immediately assumed
that Turkish security forces would violate Kurdish human rights under the
pretext of "pipeline security".
However, following the ESIA
findings, the pipeline's route did not take it into the most sensitive areas in
Turkey,
and in areas where there could have been ethnic tension, the Turkish government
has committed itself to following highest international standards. Turkey has
signed onto the Voluntary Principles on Security and Human Rights within the
framework of the international agreements to which it is party; these
agreements have been entered into national legislation. Turkey, Georgia and Azerbaijan have
also signed a joint statement on May 16, 2003 to reaffirm their commitment to the respect
of human rights.
The three countries also have
cooperated on pipeline security as part of their HGA commitments to ensure
security in their own territories. The BTC pipeline is buried in all three
countries, which is an essential element of pipeline security. All three states
desire to prove to the international community that they will indeed be able to
provide security, while simultaneously respecting internationally acknowledged
human rights principles.
For Turkey,
transforming its image as a human rights violator into one of a state that
assures its security while conforming to international standards is also
crucial as it proceeds with its EU accession talks, expected to start in
October 2005.
Impact on Foreign
Relations
By fundamentally altering the
Central Eurasian energy architecture, the BTC project, together with a parallel
gas pipeline, has had an enormous impact on Turkish relations with all the key
actors in the region: the South Caucasus
states (Azerbaijan,
Georgia
and Armenia),
the Central Asian republics, the EU, Russia, Iran and the US.
In developing the pipeline, Turkey has
formed a strategic partnership with Azerbaijan and Georgia that
will tie the three countries more closely together over the course of the next
four decades. This long-term linkage has caused all three states to be more
cautious in their mutual interaction. Even at times of particularly harsh
economic or political disputes, leaders have been trying to resolve them
quickly. Thanks to regular meetings in each other's capitals, government
officials from the three states have become much more familiar with one
another. This familiarization process has been enhanced by a variety of
additional measures, such as the extensive military and technical assistance Turkey has
provided to both nations.
Azerbaijan
Throughout the ups and downs
of Turkish-Azerbaijani relations in the 1990s, Turkish policy towards its
related eastern neighbor has for some time been influenced by the possibility
of the BTC project. In the early 1990s, when it was not clear whether the MEP
would even be built at all, Turkish decision-makers acted with caution in
relations with Azerbaijan, in order not to provoke a hasty "no"
decision. At times, bilateral relations were so close that the leaders of the
two Turkic countries would pronounce themselves to be "one nation, two
states." There were also periods of tension, but then-President Suleyman
Demirel of Turkey
kept bilateral relations on an even keel due to his strong personal
relationship with Heydar Aliyev. Demirel, always concerned about broader
strategic issues, well understood that the loss of close relations with Azerbaijan
'would have meant the loss of access to the Caspian and Central
Asia. Thus, Ankara
has refrained from involvement in Azerbaijan's domestic affairs over
the last decade, even during the latter's contested presidential or
parliamentary elections.
Turkey has also provided military
training to Azerbaijan
under NATO's Partnership for Peace (PfP) program, and is a supporter of Azerbaijan's
eventual NATO membership. There have even been talks of establishing NATO bases
in Azerbaijan,
given that there are Russian military bases in Armenia, and given America's
post-September 11 desire to keep Azerbaijan as a key regional
strategic ally. Turkey
also supported Azerbaijan
when in July 2001 Iranian military gunboats confronted a BP research vessel
exploring the Araz-Alov-Sharg field in the Azerbaijani section of the Caspian Sea, which Iran claims as its own. The Chief
of the Turkish General Staff, General Huseyin Kivrikoglu, visited Baku soon after the
event. While his ostensible reason for visiting Baku was the Azerbaijani
military academy graduation ceremony, the timing was such that •when the show
team of the Turkish Air Forces (Turkish Stars) made its display, it was
perceived in Tehran (and in Yerevan) as a clear signal that Turkey was standing
by Azerbaijan.
Georgia
Turkish relations with Georgia have
also been very positively affected as a result of the BTC project. Following
the breakup of the Soviet Union, Turkish
political leaders were at first only interested in the Turkic and Muslim states
of the region and did not pay much attention to mainly Christian Georgia. The
General Staff, on the other hand, considered this country strategically
important as a key buffer zone with Russia, its Cold War enemy. It quickly
realized that any instability in Georgia would have a strongly negative impact
on Turkey's ability to get to Azerbaijan
and Central Asia,
and could draw
in Russia and
NATO as wellConsidered to be the "weak
link" in the East-West corridor, Georgia's stability and security was
critically important to the success of the BTC pipeline as well.
Turkey provided training and
equipment to the Georgian military and has modernized the Marneuli airbase
south of Tbilisi.
Together with the U.S.,
Turkey
and Georgia
have also formed a Caucasus Working Group for improved cooperation and
coordination and further training for the Georgian military. Georgia has
long expressed interest in NATO membership, and following the peaceful Rose
Revolution in November 2003, it submitted its Individual Partnership Action
Plan (IPAP) to NATO at its June 2004 summit in Istanbul.
While Turkey's
relations with both Azerbaijan
and Georgia
are friendly, the quality of the relations has deteriorated since 2000. Demirel
was the anchor of the trilateral relations and personally was interested in the
BTC pipeline as a historic project that would change the geopolitics of the
region. He also had close personal relations with his two counterparts. His
successor, on the other hand, has not shown any real interest in these projects
and the South Caucasus beyond the requirements
of his post. In addition, the foreign-policy priorities of the current Turkish
government, led by Prime Minister Recep Tayyip Erdogan, lie elsewhere. Changes
in leadership did not help the project in either Azerbaijan or Georgia; the
death of Heydar Aliyev left a huge vacuum in Azerbaijan, while current Georgian
President Mikheil Saakashvili has also not expressed great interest in the BTC
project.
With the most senior government leaders in the three countries not
focused on the energy and transport corridor to the same degree as their
predecessors, there is also less care in keeping relations at the same level of
closeness. With Turkey hoping to enter the EU, Azerbaijan still unable to move
beyond the Nagorno-Karabakh dispute, and Georgia trying to normalize its
relations with Russia while moving closer to the EU, it may be only natural
that the East-West corridor and its key anchor, the BTC project, would not
forever remain on the agenda.
Armenia
Turkey has to a large degree tied
its relations with Armenia
to a solution of the Nagorno-Karabakh conflict between Armenia and Azerbaijan. In
the midst of the war in April 1993, Turkey closed its borders with Armenia, and
despite strong pressure from the EU and the U.S., will not open them unless Armenia and Azerbaijan
reach some sort of an agreement first. Currently, after many years of
negotiations, the two sides are close to an agreement, in which Armenia would
relinquish several territories it holds outside of Karabakh, with the region's
status to be decided at a later date.
At its inception, BTC was
conceived as a Baku-Ceyhan direct pipeline, which due to reasons of geography
would directly cross Armenia.
Heydar Aliyev hoped to use the prospect of the pipeline crossing Armenia as an
incentive for the latter to return Nagorno-Karabakh. When Yerevan refused, Azerbaijan (with support from Turkey) decided
to deny Armenia
integration into regional projects, and to deprive it of access to Western
markets via Turkey.
Clearly, Armenia
has suffered a significant loss due to the fact that the Baku-Ceyhan pipeline
now bypasses the country on the longer and costlier Georgian route.
Armenia has also been left out of
other East-West pipeline and commercial projects, thereby leaving it
increasingly dependent on Russian and Iranian support. This has caused serious
concern in Turkey,
especially among strategic thinkers and senior military officers. Believing
Turkish policy towards Armenia
to be held "hostage" to Azerbaijan, this group believes
that Turkish influence in the South Caucasus
is severely handicapped. This group may yet force change in Turkish policy;
however, it remains likely that until an agreement on Nagorno-Karabakh can be
implemented, Ankara
will not resume relations with Armenia.
European Union
The East-West pipelines are
also very important for Turkey
(and even Azerbaijan
and Georgia)
as it proceeds with negotiations to enter the EU. On the one hand, Turkey has
already adopted EU environmental, social and human rights standards during the
several years it has worked on the BTC and the gas pipelines. The transparency
and emphasis on community development brought by the extensive engagement of
NGOs in the pipeline project are already working to transform Turkish society,
bringing it closer to the EU.
The EU will also directly
benefit from the East-West energy corridor, as it seeks to diversify its own
energy sources—not just in oil, but also in gas. Turkey is in close proximity to
700/0 of world's proven gas reserves and is increasingly becoming a gas and oil
hub for world markets. It is already receiving gas from Russia, Iran and North Africa and in the future will be obtaining supplies
from Azerbaijan,
Central Asia
and even Iraq. Turkey,
Greece and Bulgaria
are already working
on connecting their gas
pipeline infrastructures to
transport Caspian gas
to EU markets; Austria,
Hungary, Italy are just
some of the countries
interested in receiving gas from
Turkey, thus increasing the security of their supplies.
What the East-West gas pipelines will provide
the EU is gas diversification. Most European markets are controlled by the
Russian gas monopoly Gazprom; there is a desire
on the EU's
part to diversify,
which means finding
cheap and reliable alternatives. Turkey clearly
wants to present just such an alternative. While many in the EU bureaucracy
have not fully appreciated the importance of the Caspian and Central Asian gas
for their markets, the United
States has, believing that an East-West
energy corridor would tie the two regions closer to Turkey, a NATO ally and EU
candidate. Increased closeness between Turkey and the Caucasus/Central
Asia would assist both with the EU's energy-security goals and the region's own
reform processes. The challenge for the EU is to address Russian efforts to
avoid losing its monopoly power. The German firm Ruhrgaz has a strategic
partnership with Gazprom that it does not wish to upset; however, some new EU
members, such as the Baltic states, Poland, and Hungary, have a
different kind of relationship and experience with Russia and its use of energy
leverage. These countries want to see a closer partnership with Turkey (and via
Turkey,
with the Caspian and Middle Eastern gas producers) for their own political and
energy security and independence.
Russia
Turkey's relations with Russia at times
became very tense due to the BTC agreements. The Russian government perceived
the BTC pipeline to be 'against' Russian interests and opposed the project. Turkey feared
that Moscow
would prevent the pipeline's construction; after all, Russia was
actively involved in all the major conflicts in the South
Caucasus (supporting the Abkhaz and South Ossetian separatist
forces against Georgia
and assisting Armenia
in the war with Azerbaijan
over Nagorno-Karabakh) and could reignite them at any time, thus scaring away
international investors. Moscow
backed down on its vocal opposition to the BTC pipeline only after realizing
the depth of the U.S.
commitment to it. In fact, while accusing the U.S. of backing the BTC for
political reasons and claiming the project has no commercial viability, the Russian
government rejected the Russian Lukoil company's desire to participate in the
BTC project. Now that the BTC pipeline is almost complete, Turkey still hopes
that some Russian oil will flow through the pipeline—not because there is need
for throughput, but rather to increase regional cooperation.
The Russian opposition to
BTC was taken so seriously by the Turkish government that, in order to reduce
bilateral tensions, it agreed to the massive Blue Stream gas pipeline to
transport 16 bcm annually of Russian gas under the Black
Sea to Turkey.
The argument in favor of the project was that Turkey and Russia are two
giant neighbors that would gain from cooperation instead of competition.
Moreover, if Russia
were left out of the regional energy developments, Moscow could lash out and create instability
in the weak Caucasus region. Yet, by making
this concession, Turkey
endangered not only the diversification of its own gas supplies, but that of
the EU as well.
Since 1991, BOTAS has been
planning to transport Turkmen gas through Turkey to European markets. These
plans bore fruit in 1998, when Turkmenistan
agreed to supply Turkey
with 30 bcm of gas annually, of which 16 bcm were for domestic consumption, and
the remainder to be transported to Europe.
When Azerbaijan's Shah-Deniz field's major gas reserves were discovered,
Turkmenistan-Azerbaijan relations became tense as Azerbaijan was no longer
merely a gas transit country, but a gas producer with its own desire to export
to Turkey and to the EU. The signing of the Blue Stream gas pipeline agreement
at a time when the U.S., Azerbaijan, Turkmenistan and Turkey were actively
promoting a major gas pipeline to transport Turkmen and Azerbaijani gas to
Turkey was seen as a brilliant move by Russia to shut Turkmenistan out of the
game; there simply would not be sufficient room in the Turkish market for two
major gas deliveries.
Iran
Turkey's relations with Iran were
similarly tense over BTC and also over the Caspian gas pipeline. Turkey and Iran were clear
competitors for the MEP, but with U.S. sanctions on Iran,
multinational oil companies were unable to seriously consider Iran as an
alternative. The U.S.
remains opposed to investment in the Iranian energy sector, so long as that
country continues sponsoring terrorism, obstructing the Middle
East peace process, and developing weapons of mass destruction. Turkey also
opposed such investment, albeit for different reasons. Turkey also
suffered from Iranian-backed radical Islamist terrorism, and offered Azerbaijan a
much more secure option for the oil and gas pipelines. Relations over the gas
pipeline became more complicated, especially after Turkey and Iran reached an
agreement for a gas pipeline through Turkey to Europe—an
agreement blocked by the United
States. Yet, a solution was found: Turkey could
receive Turkmen gas swapped for Iranian gas, so that Turkey would be unaffected by the
sanctions.
United States
The BTC project and the
overall East-West energy corridor were at the heart of the Turkish relations
with the U.S.
from mid-1990s until zooo. It is important to keep in mind that without close
U.S.-Turkish cooperation, it would not have been possible to pull the
multibillion-dollar BTC project together. One of the reasons behind the strong U.S. support
for BTC was to ensure that Caspian oil reached markets via a stable NATO ally,
instead of through Iran
and/or Russia.
Another reason was to help Turkey
take some pressure off the already congested Turkish Straits. A third reason
was to help Turkey
compensate for the closure of the Kirkuk-Ceyhan pipeline following the Gulf
War. In short, U.S.
and Turkish interests in promoting the BTC pipeline were the same.
A second strategic project
that is at the heart of U.S.-Turkish energy cooperation is the Shah-Deniz gas
pipeline project to transport Azerbaijani gas again via Georgia to Turkey, and
later on to Southeastern European markets. From a U.S. perspective, this project will
help further solidify Turkish-Greek cooperation and also help European
countries with their own gas diversification. These two projects have brought Turkey to the
center of energy politics and were seen by the U.S. as primary engines of growth
for the Turkish energy sector. The expectation was that these two projects would
bring in more foreign investment into Turkey's energy sector.
Unfortunately, this has not materialized so far due lack of a coherent energy
policy in Turkey.
Moreover, the AKP
government that took office after the parliamentary elections of November 2002
showed little interest in keeping the East-West corridor on the world agenda.
With Turkey's
lack of visibility in the regional energy picture and its failure to keep
energy issues on the bilateral agenda, Washington
has gradually lost interest in the BTC project as well. For the project's
long-term success, however, which hopefully will include sustainable
development for Azerbaijan
and Georgia,
Turkey
needs to work closely with the region and the U.S. to ensure ongoing active
support.
Looking Ahead
While the BTC pipeline
will help reduce oil tanker traffic through the Turkish Straits, Straits
traffic continues to increase, posing continuing stress to Turks. A new vessel
traffic system (VTS) has become operational in Turkey to provide safe passage to
oil and other maritime traffic in the Turkish Straits; while the VTS system
helps, it does not solve the problem.
The increasing amount of oil
being transported from Russia
and the Caspian has caused the Straits to become a chokepoint, stalling traffic
in and out of this narrow body of water. In severe weather conditions, delays
can last for up to 30 days, which is hugely costly for the oil companies.
Especially after September
11, increasing traffic of oil and gas tankers and other dangerous cargo through
the Turkish Straits has forced Turkey
to increase safety measures. Some of the restrictions Turkey has
posed on tanker passage, especially the largest class allowed through the
Straits (the Suezmax with 120,000-200,000 dead weight tons), has led oil
shippers and a number of governments (especially Russia's) to claim that Turkey was
politicizing the Straits. Yet most observers believe that the limit for
trans-Bosporus oil traffic has been reached. When Russian oil companies
increase production and when the CPC pipeline starts its second phase, traffic
through the Straits may simply become paralyzed, necessitating a bypass
pipeline out of the Black Sea.
Moreover, any incident that
causes delays above and beyond those caused by traffic and weather would shut
down the passageway for a considerable period, with devastating effects for all
the countries in the region that rely on the Straits for transportation of
imported goods and exported commodities. The occurrence of such an incident,
whether a major oil spill or a terrorist attack, is a serious possibility.
After all, Istanbul
was already hit twice by terrorists in November 2003 and is a frontline state
in the war against terror. It is imperative that the Western alliance develop a
strategy to ensure the safety of the Black Sea
region's strategic chokepoint.
Once the East-West oil and
gas pipelines are fully complete, Turkey will be a key energy
terminal for oil and gas to be transported to Western markets. Following the
start of the BTC pipeline later in 2005, Kazakhstan is likely to finalize
agreements to send its oil from Aktau to the BTC pipeline. This would make
perfect sense for the producers in Kazakhstan, especially Eni and
TotalFinaElf, both of which are BTC shareholders.
As for the gas pipelines, the Shah-Deniz
gas pipeline should not, and are not likely to terminate in Turkey, but to
continue to European markets. Turkmenistan
is once again expressing interest in sending its gas via the East-West route,
and though this will not happen in the short term, it would make great
commercial and political sense in the longer term for Turkmenistan,
for the transiting countries, as well as for Western
Europe. A Turkey
that is an EU member, a close partner of Russia, and a strategic ally of the
U.S.
-would, with the realization of these projects, have enormous political and
economic pull for the South Caucasus and
Central Asian countries that also want to be closely associated with the
transatlantic alliance.
1.The Iraq-Turkey pipeline
was only partially reopened in 1996, and returned to full capacity only in
2000. It has been shut down since 2003 due to regular attacks on the pipeline.
2.The AIOC's first preference was to construct a pipeline from Azerbaijan to Iran, but the
sanctions on Iran
and tense Aaerbaijan-Iran relations ruled out this option.
3 http://www.caspiandevelopmentandexport.com. See:David
Blatchford's chapter in this
volume for a detailed discussion of this issue.