Saturday, September 20, 2014

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Turkey’s Cross-Border Energy Policy’s Tone Shifted

An energy-hungry Turkey is betting on Kurdistan Regional Government (KRG) oil and gas to multiply its supply sources, raising concerns about Washington's power to exert influence in the region.

Last week, news leaked that Istanbul-based company Siyah Kalem was issued a license to import natural gas directly from the KRG. This comes on the heels of a joint Turkish-British venture announced in January 2013, which saw Genel Energy awarded the right to ship oil directly from Northern Iraq. Both deals will help Turkey wean itself off costly and politically-risky Russian and Iranian energy supplies, but might also jeopardize its relations with Iraq’s central government. Baghdad has condemned the KRG’s direct deals as illegal, and the US is backing up Baghdad as Washington attempts to calm down internal Iraqi tensions.

Experts approximate that the KRG’s oil and gas supplies could be three times cheaper than the prices Turkey pays for Caspian, Russian, and Iranian sources—especially important as Turkey’s annual energy demand annual growth rate is 4% and its power generation largely relies on supplies imported from Russia and Iran. This situation has become more tenuous with the Arab Spring and the Syrian crisis--Turkey has found itself politically opposed to its main energy suppliers, increasing concerns about energy security vulnerabilities. 

This new environment may have caused Turkey to spurn an old ally. As of a year ago, Turkey was set to reject extending its oil and gas exports from the KRG, citing respect for Washington's recommendations concerning a unified Iraq. US authorities have warned on several occasions against independent energy deals with Erbil, as Baghdad and Erbil have not yet resolved a long-standing feud on oil and gas revenue sharing legislation.

In a sign of respect for Washington's policy, when Istanbul-based Siyah Kalem submitted its license application to import natural gas from the KRG in December 2012, Turkey's Energy Market Regulatory Authority (EMRA) required Siyah Kalem to sign a purchase agreement with Baghdad’s federal government as well, in order to ensure Baghdad's approval of the deal. Since Siyah Kalem was never able to get Baghdad to agree to this, its application for a license was not granted, and many had assumed the license would not be coming anytime soon.

This all changed last week, when a leak revealed the EMRA had awarded Siyah Kalem a license valid for 26 years, despite the lack of any Baghdad agreement. 

This license paves the way for increased energy imports from Iraqi Kurdistan—something Turkey already began flirting with earlier this year when Genel Energy began exporting crude oil from the KRG’s Taq Taq fields to Turkey’s Ceyan port by truck, bypassing the Baghdad-controlled Kirkuk-Yumuratlik oil pipeline network. Even though the level of exported oil is negligible (some 30,000 to 40,000 barrels per day), it has became a symbol of KRG oil export independence. Genel also recently announced it had made a significant oil discovery in the KRG’s First Chia Surkh field, suggesting its activity in the KRG may not stay negligible for long.

These KRG-linked projects seem set to expand. For example, Ikideniz Petrol ve Gaz Sanayi, a Calik Group company, recently applied to Turkish authorities for permission to construct a 640-kilometre long pipeline that would run parallel to the existing Baghdad-controlled Kirkuk-Yumurtalik oil pipeline—a clear blow to Baghdad's policy objectives. 

As opposed to last December, Turkey's government is now showing support for investments like these. This tone shift started to become evident in May 2013, when Turkey’s Prime Minister Recep Tayyip Erdogan announced a Turkish state-owned oil firm would work with ExxonMobil to develop oil in the KRG.

When journalists asked how Ankara would justify this decision to Baghdad and Washington, Erdogan punted the question, saying “countries from various parts of the world are taking steps to explore and produce oil in different parts of Iraq, and then deliver it to world oil markets. There's nothing more normal and more natural than Turkey, which provides all kinds of support and aid to its next-door neighbor, taking a step based on mutual benefit.”

The May 2013 announcement, recent investments, and the license issuance to Siyah Kalem all demonstrate Ankara is now treating US objections to KRG-linked energy deals with the same respect it gives sanctions against Iran. In spite of US sanctions in place since 1996, Turkey remains Iran’s biggest natural gas customer. It imports about 40% of its gas from Iran by using a gold-for-gas formula to bypass sanctions, though the US has tried to prevent this by widening controls on precious metal sales to Iran.  

So far, the US has not announced any direct reaction to Turkey’s recent energy deals with the KRG. But Baghdad has. In early September Iraqi Parliament Speaker Osama al-Nijaifi handed a message to Erdogan from Iraqi Prime Minister Nouri al-Maliki. Al-Nijaifi invited Turkey to open a new page with Iraq by respecting its sovereignty and abstaining from interfering in its affairs—i.e., by not making any more independent energy deals with the KRG.

EMRA’s leak about Siyah Kalem receiving its license came the day after this Iraqi statement--a sign that Ankara-Baghdad partnerships may be a thing of the past, and that Washington's role in the region continues to be diminishing rapidly. 

Olgu Okumus

Olgu Okumuş is an affiliated lecturer in energy diplomacy at Sciences Po, Paris and director of strategy development at LEO Advisors. She is also a PhD candidate at Sciences Po, Paris, where her research focuses on Turkey’s energy transit policy.

She can be reached at olgu.okumus@sciences-po.org

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