9 September 2011By Betul Buke Karacin, JTW
Last week, Russian pipeline monopoly Transneft declared that the Samsun-Ceyhan oil pipeline project negotiations have been frozen. Transneft Vice President Mikhail Barkov stated that the project is not economically viable and present conditions do not make it profitable.
Hasan Selim Ozertem at the USAK Center for Energy Security Studies assessed Russia’s sudden decision regarding the Samsun-Ceyhan oil pipeline project.
Betul Buke Karacin: Recently, Russian pipeline monopoly Transneft declared that the Samsun-Ceyhan oil pipeline project negotiations have been frozen. How do you evaluate this decision? Do you think the future of the project is imperiled?
Hasan Selim Ozertem: It is difficult to say that the future of the proposed Samsun-Ceyhan project is in danger.However, the negotiations between Turkey and Russia still continue. In reality, the underlying reason of such a move is that Russia aims to increase her bargaining power in some aspects. First, Russia constantly mentions a possible tax reduction for huge transit costs. However, those Russian statements seem to be a facade. The major concerns are actually different in reality. Primarily, Russia does not want to be hasty in such a pipeline project that is not under its own control, and tries to buy some time in order toenhance its bargaining power in some certain points. The second real matter is that Russia wants to strengthen its position in the South Stream project for which Turkey already gave permission to conductfeasibility studies, and has not yet made clear statements regarding its construction. However, in the South Stream case, it is necessary to say that there are certain gaps. Until now, the essence of the bilateral relations between Turkey and Russia has been asymmetrical. Considering economic, commercial, and energy relations, although Russia has strengthened her position over Turkey through different channels, Turkey did not achieve the promotion of its relations in the same fashion. Considering this reality, the Samsun-Ceyhan project offers a critical alternative. Compared to agreements which provide important advantages to the Russian side in bilateral relations up until now, with the Samsun-Ceyhan project, those relations will reachthe level of cooperation. And what kind of cooperation will it be?
Since the beginning of the 2000s, there has been a huge increase in world trade volume and a subsequent rise in traffic in the strategically importantstrait. In order to reduce the traffic in the straits, Turkey pushed two alternatives. The Baku-Tiblisi-Ceyhan oil pipeline was the first move, and then when we come to the 2010s, Turkey needed further attempts and pushed two new initiatives. One of them was Canal Istanbul and the other was the Samsun-Ceyhan pipeline project. Although the history of the Samsun-Ceyhan project goes back, Canal Istanbul is a new one. However, the Samsun-Ceyhan pipeline will bring considerable benefits to the region. In particular, the transition of the Ceyhan Terminal into a world energy center and the direct transportation of Russian and Central Asian energy sources to the Mediterranean by bypassing the straits offer prominent opportunities for the development of the region. It will pave ways for Ceyhan becoming a crucial point in the Mediterranean market, especially in terms of refineries as well as oil pricedetermination. In order to attain this goal, new refinery and pipeline projects are planned to be constructed. However, the feasibility of those proposed projects seems difficult if the oil does not come from the Samsun-Ceyhan line. Therefore, Russian support to this project and the promotion of different partnerships to assist in such projects will be effective in furthering bilateral relations in the region. On the other hand, therealization of such projects will also lead to the outbreak of a confidence crisis between Turkey and Russia rooted in the Cold War years. Turkey’s insistence on this projects shows that this sense of no confidence diminished in the Turkish side. Also, Russian support for Samsun-Ceyhan will be a crucial step in that line. Furthermore, those attempts can possibly bring together the opportunity for balanced trade in bilateral relations as well as new initiatives for regional cooperation.
Betul Buke Karacin: Do you think it is possible thatthe decision of Russia can be an attempt to persuade Turkey on the South Stream project, as Turkey did not give its approval for it?
Hasan Selim Ozertem: It is quite possible. It is clear that the South Stream project has strategic importance for Russia. Russia is trying to be a monopoly power in the Eurasian geography without transit countries. Actually, dependence on transit countries became a problem after the Ukraine and Belarus crises. As Russia promotes its relations with those countries, at the same time, it uses energy as a diplomatic tool. However, the flow of energy, which is ambitiously used as a diplomatic instrument, highly depends on those countries. In that sense, dependence on those transit countries limits the effectiveness of Russia’s diplomatic capacity. In order to overcome this problem, first, Russia promoted the North Stream project which delivers Russian gas directly to Germany via the Baltic Sea. It was an important development. However, gas transit lines to Eastern and Central Europe, which have unstable markets and provide an easy-to-use energy card in political matters, still run through Ukraine. In this respect, completion of the South Stream project seems crucial for Russia in its efforts to bypass Ukraine.
However, Turkey has a critical position in the South Stream project, especially since it has been considered to run South Stream through the Turkish exclusive economic zone. If Turkey will not permit it, then inevitably it has to run through Ukraine, making it impossible to bypass it. On the other hand, South Stream is seen as an alternative to Nabucco. The fact that Russia has an aggressive stance in terms of protecting its monopoly position in Europe leads it to try to revise the alternatives through diplomatic maneuvers. The pro-active moves of Turkey started with the completion of BTC, which actually shook the Russian monopoly on the Caucasus. Additionally, Turkey’s new pipeline projects and initiatives have the possibility of negatively affecting Russian interests in the long run, hence Russia’s sensitivity to the South Stream project.
On the other hand, the proposed project has huge economic costs that Russia is trying to reduce. It does not behave hastily in that direction. Because following the 2008 financial crisis, there have been increases in the cost of construction materials. Apart from economic reasons, Russia also faces diplomatic problems as Turkey comes to the fore. Turkey permitted feasibility studies but not for construction, and Russia is trying to persuade Turkey. However, Russia always awaits the first attempt from the other side, and this brings some certain risks together. Considering this, at this time, if Russia take the first step in the Samsun-Ceyhan project, it will be effective in overcoming the confidence problem.
Betul Buke Karacin: Russia stated that the ball is on the Turkish side and added it could establish conditions which would make the project profitable. Do you think that Turkey will step back in that process?
Hasan Selim Ozertem: Russia seems to be taking no further steps. However, in the following period, agreements on Samsun-Ceyhan are on the agenda. During these meetings, tax reduction, transit costs, and other problematic issues will be clarified. There will be some developments, but the good will of both sides and subsequent attitudes may increase the chances of Samsun-Ceyhan.
Considering Turkey’s stance on that decision, the first statements of Energy Minister Mr. Yildiz is not very aggressive. He also gave signals that the issue can be bilaterally debated. The Samsun-Ceyhan project is critically important for Turkey in terms of regional development, integration, as well as for the protection of the straits. Pursuing relations on a win-win basis will bring together more reliable developments for both sides.
9 September 2011
Betul Buke Karacin, JTW