RUSSIA GAS WEAKENS

Summary

Turkey's relationship with Russia is changing significantly. A domestic economic crisis, low energy prices and European energy diversification efforts have weakened Russia. Moscow is also heavily involved in the ongoing crisis in Ukraine — right across the Black Sea from Turkey. Russia's weakened position and the trouble in Ukraine have made Turkey's leaders much more active in the region, a development that has altered the way in which they engage their Russian counterparts. This development could ultimately compel Turkey to be more assertive against Russian activity in the Caucasus and the Black Sea. Turkey may also play a role in the emerging U.S.-led alliance in Central and Eastern Europe.

Analysis

Russia and Turkey sit on opposite coasts of the Black Sea. Geographically, this has made them historic competitors. The Russian Empire and Turkey's predecessor, the Ottoman Empire, competed for control and influence along the sea's shores in Crimea and the Caucasus, fighting a total of 12 wars over a four-century period. In 1952, Turkey joined NATO and, because of its control of the Bosporus, became a critical part of the Western Cold War alliance, allowing the country to cut off Soviet access to the Mediterranean Sea. Over the past decade, Turkey's increased political and economic strength has enabled it to define a regional policy independent of the United States but has not yet directly challenged Russia. Turkey continued to rely on imports of Russian natural gas, and it was further dissuaded from taking an assertive role in the Caucasus and Black Sea by Russia's regional resurgence in the past decade.

However, tensions between Russian and Turkish officials have been pronounced in recent weeks. Over the past year, Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan remained in close contact and minimized public disagreements. But this changed in early April, when Turkish Foreign Minister Mevlut Cavusoglu publicly criticized Russia. He condemned Russia's treatment of Turkic minorities in Crimea — the Crimean Tatars — and called Moscow's shutdown of a Crimean Tatar television station "oppression." Putin's spokesman, Dmitri Peskov, responded by saying the Russian government provides "exhaustive information" to Turkish officials. Russian Foreign Minister Sergei Lavrov responded, in turn, by reminding Turkey that Ankara's insistence on traveling to Crimea through Ukraine was the only thing preventing closer monitoring of the situation there.

This exchange between Moscow and Ankara came as Turkey's senior leaders traveled through Europe's borderlands, visiting the countries most involved in the U.S.-led efforts to boost defense cooperation along NATO's eastern edge. On March 20, Erdogan visited Ukraine, and Polish Foreign Minister Grzegorz Schetyna visited Ankara three days later. From late March to early April, top Turkish leaders visited Slovenia, Slovakia, Romania, Moldova and Lithuania. Prior this set of visits, Turkey had largely kept its distance from the U.S.-led European alliance, preferring to remain on good terms with its Russian neighbor.

Black Sea Shifts

Turkey's stance continues to change in response to changes in the security environment of the Black Sea. Russia's participation in the Ukraine crisis saw the country flexing its muscles along the northern stretch of the Black Sea coast by annexing the strategic Crimean Peninsula. Russia then strengthened its position on the sea by upgrading the majority of its Black Sea Fleet with new and advanced equipment. These moves have worried Turkish strategists, bringing back memories of centuries-old struggles for control of the region and Russia's historic encroachment on Ottoman lands.

Of the countries Turkish leaders recently visited, Lithuania and Romania have been particularly open to working together with their neighbors, alongside NATO and the United States, to shore up defenses, set up new coordinating structures and add troop rotations. Some within this emerging alliance are making an effort to include Turkey. If their efforts are successful, Turkey would be the southern anchor of a band of countries — spanning the Baltics in the north down to the Mediterranean — forming strategic protection from Russia. The United States is especially interested in including Turkey in this alliance and bringing it closer to its NATO partners.

The changes in Turkey's regional behavior are also tied to shifts in energy dynamics. Turkey imports half of its natural gas from Russia. In 2014, Turkey paid about $418 per 1,000 cubic meters for Russian natural gas — a much higher rate than some European countries. This high price was a function of Turkey's dependency on Russian energy. Negotiating a significant discount on natural gas prices has been among Turkey's highest priorities. At the same time, under a 2010 agreement, Russia's state-owned Rosatom is set to build Turkey's first nuclear power plant in the southern town of Akkuyu. But the $22 billion project, which would be financed by Russia, has been beset by delays, reportedly for environmental and financial reasons, and could now be completed in 2022 instead of 2019.

During his Dec. 1 visit to Turkey, Russian President Vladimir Putin announced the cancellation of the planned South Stream pipeline project. The South Stream project was cancelled as a result of rising costs and regulatory hurdles from the European Union. Moscow instead commenced planning for a new pipeline that would cross the Black Sea to Turkey and carry Russian natural gas to the Greek border, a project known as the Turkish Stream. For Turkey, a new pipeline would bring extra revenue and boost the country's energy security, since half of the natural gas Turkey currently imports from Russia flows through volatile Ukraine. Putin added that Turkey would receive a 6 percent discount for natural gas purchases from Russia in 2015, while also importing an extra 3 billion cubic meters that year from Russia, an expansion of Blue Stream.

In December, however, signs emerged that Russia may not be able to finance Turkish Stream either. The ruble's volatility and continued low energy prices have reduced Russia's funding capacity. Turkey is aware of Russia's vulnerable state and concerned about Turkey's own current account deficit. Ankara used the opportunity to press harder for a discount on natural gas. On Feb. 27, Turkish Energy Minister Taner Yildiz announced that Russia would give Turkey a 10.25 percent discount. Nevertheless, a few weeks later Yildiz clarified that while there is an agreement on a discount, the deal has yet to be signed by the two sides. It appears that the deal has encountered difficulties. There are some indications that Russia is looking for a firmer commitment from Turkey on Turkish Stream before it concedes. While in the past Turkey's dependence on Russia for most of its natural gas supplies led Turkish decision-makers to agree to high prices, Russia's growing financial constraints and inability to fulfill its pledged monetary support for Turkish Stream are strengthening Turkey's negotiating position.

The Kremlin's options, however, have been limited by low energy prices and an economic crisis at home. These have made Russia more dependent on its customers. When global energy prices were high, the Kremlin used natural gas a tool in its foreign policy, giving discounts to some countries or threatening cut-offs to others. But now, Russia cannot afford to lose revenue from energy cut-offs or from long-term discounts – a fact evidenced by recent events in Ukraine, where Russia allowed extended a temporary natural gas deal by three months after Kiev began to import more of the energy commodity from Europe.

Turkey's negotiating position regarding Russia has also been strengthened by the progress of negotiations between Iran and the West. New natural gas supplies coming from Iran would likely lower Russia's role as a major natural gas exporter to Turkey. New Southern Corridor projects are also set to come online over the next few years, and in 2018 Turkey is scheduled to receive about 10 billion cubic meters per year from Azerbaijan's Shah Deniz II field. Turkey could also import even more natural gas from Turkmenistan if a Trans-Caspian pipeline is built.

Supplies from countries such as Iran and Azerbaijan could greatly lessen Turkey's dependence on Russian energy imports – something Russian and Turkish negotiators have kept in mind as they discuss pricing and supply. The proposed Turkish Stream and Southern Corridor expansions are long-term projects that require significant financial and political support from outside players. Turkey's natural gas demand has increased by about 10 billion cubic meters since 2010, ensuring that Russia will remain an important energy partner for the country. Turkey will entertain every proposal, eager as it is to charge transit fees where it can, but the political will and potential financial burden of Southern Corridor projects will likely win out in the end.

New Considerations

The Kremlin recognizes the danger closer cooperation between Turkey and the West poses. Though Turkey is a NATO member and participates in naval exercises with Black Sea countries, so far it has been mindful of Russian security concerns. Turkey controls the Black Sea — and thus Russian access to the Mediterranean. Just as Russia is engaged in a conflict with the United States and Europe over the future of Ukraine, so, too, would it be challenged by greater Turkish participation in NATO.

Turkey tested Moscow's commitment to its bilateral relationship with Ankara by inviting the Russian president to a ceremony commemorating the anniversary of the Battle of Gallipoli. The Turkish government scheduled this event to coincide with a ceremony in Armenia for the 100th anniversary of the Armenian genocide. Armenia is a key Russian ally, and the commemoration brings up a historically fraught issue in Turkey. Putin's spokesman indicated March 19 that the president was going to the ceremony in Yerevan.

Russia's reaction to the ploy was telling. As Turkey's relationship with Russia grew more confrontational in late March and early April, Putin's plans appear to have changed. In what seems to be an effort to keep Russia's relationship with Turkey intact, Peskov backtracked from his initial confirmation of the Yerevan trip, saying that Russia's attendance at the centenary was still under consideration.

Meanwhile, Peskov emphasized in his April 9 statement that Russia will send a high-level representative to Turkey for the Gallipoli anniversary. The Kremlin's decision to emphasize the anniversary of the battle may have contributed to an April 10 announcement by the Turkish ambassador to Moscow that Erdogan will visit Russia by the end of the year.

Turkey could pose a significant threat to Russian interests in the region, especially in the Caucasus. Turkey has close political and defense ties with Azerbaijan. Tensions between Azerbaijan and Armenia over the disputed Nagorno-Karabakh region have risen in recent months, but conflict has not openly broken out, thanks in part to Russia's military presence in Armenia. A weakened Russia, combined with a more assertive Turkey, could aggravate hostilities between Azerbaijan and Armenia and could lead to Turkish involvement.

If Turkey move closer to joining the U.S.-led alliance in the borderlands, Ankara would aid the United States in its strategy of gradually increasing its regional presence. With Turkish cooperation, Russia would be largely encircled in the Black Sea. Turkey controls passage through the Bosporus and maintains its own naval assets in the Black Sea, along with those of Western-aligned Romania, Bulgaria and Ukraine.

Russia's internal problems and its forays in Ukraine have changed the way Ankara interacts with Moscow. For Turkey, Russia's moves in Ukraine are a threat to stability in the Black Sea region. Russia will be unable to meet Turkey's primary energy demands – namely, a discount on natural gas – as it continues to trudge through its economic crisis. At the same time, Turkey is set to become less dependent on Russian natural gas because of Southern Corridor projects and new supplies expected to come online from countries such as Azerbaijan and Iran. Turkey may opt to move closer to the United States and be more active in Western-backed efforts to boost defenses along NATO's eastern edge. If it does, regional dynamics would change accordingly.

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