Increasing Tensions May Hurt Turkish-Russia Energy Relations
On Tuesday morning, the Turkish Air Force shot down a Russian fighter jet after an alleged airspace violation on its southern border with Syria, where Russian jets have bombarded the area to support Syrian Army operations. In the context of increasing geopolitical tensions, energy relations between Turkey and Russia are likely to suffer.
Turkey is the biggest customer of OAO Gazprom--Russia's state owned gas monopoly--after Germany, and more than 50% of Turkey’s electricity production is dependent on imported Russian natural gas. Additionally, the two countries have shared intentions to build a new pipeline--the Turkish Stream pipeline, which Moscow wants to build to deliver gas to Europe, bypassing Ukraine--after Russian President Vladimir Putin shelved the South Stream Pipeline last December.
After talks between the two countries stalled recently, due to disagreements on a natural gas discount rate from Russia to Turkey, energy sector executives had suggested that talks could be re-started after Turkey's new government was elected in September.
After Russia's first incursions into the Turkish airspace in early October, however, Turkish President Recep Tayyip Erdogan threatened Moscow with diverting Turkey's natural gas purchases to other providers. Russia has responded to this bluff by announcing that it has cut the capacity of the Turkish Stream pipeline (also referred to as TurkStream) by half.
Natural gas projects are not the only energy projects that could be affected by the news on Tuesday. Currently, Russia's state-owned nuclear energy company OAO Rosatom is building a four-reactor nuclear power plant project in Akkuyu, in the Turkish Province of Mersin.
Tuesday's military incident throws all of those plans into question.
Analysts and academics said that tension between Russia and Turkey will ease gradually, if the U.S. can force them to share the same front against terrorism and against the terrorist group ISIS. "The U.S. can force Russia [to be transparent about] its forces and cooperation in Syria," said Nicholas Burns, a Harvard University Professor and former U.S. Ambassador to NATO, told Bloomberg TV.
"NATO should stand by Turkey even if the airspace not violated, another expert, Sinan Ulgen, a former diplomat and visiting scholar in Carnegie Europe, said. "Violation of Turkey's rules of engagement is the key consideration."
Analyst reactions are mixed regarding the implications of yesterday's events.
"Gazprom will not cut natural gas flow to Turkey. But, the talks about the proposed Turkish Stream project may not start until 2H [the second half] of the next year," Mustafa Salih, an independent energy analyst in Turkey-Russia relations, said in response to a question by Natural Gas Europe. "The complications in natural gas talks will not solve themselves. But it's in everyone's interests to de-escalate the situation," he added.
"Russia cannot afford to lose another market in natural gas, after losing Europe," said Philippe Dauba-Pantanacee, senior economist for EMEA at Standard Chartered in London, UK."There's going to be an engineered de-escalation in the coming days."
Natural Gas Europe also spoke to Head of European energy research at Citigroup, Seth Kleinman. He said, "I don't think it means anything in terms of energy flows per se, but it reflects the chaotic backdrop which could translate into a supply disruption at almost any time." The event could actually be bearish in terms of its oil demand implications, Kleinman said.
Soner Cagaptay, director of the Turkish research program at the Washington Institute for Near East Policy, also told Natural Gas Europe that he did not think that tensions would abate any time soon. "Both sides engaged dramatically with their positions, the escalation will not decrease in the near future," he said. "The shot down [plane] divided Turkey and Russia relations."
Separately, Russian Foreign Minister Sergey Lavrov has cancelled his visit to Turkey, which was due to take place today [Wednesday].
- Murat Tinas