Publication: Eurasia Daily Monitor Volume: 4 Issue: 165

The good news in Ankara is that Turkey has one of the most dynamic economies of the Middle East, with an extraordinary GNP growth rate estimated at 6.7% for the first quarter of 2007.

The bad news is that the rapid rise in oil prices over the past year to record high levels of over $78 has hobbled Turkey’s growth potential, as currently around 90% of Turkey’s oil supplies are imported (mainly from Saudi Arabia, Iran, Iraq, Syria, and Russia), leading to a serious hemorrhage in the country’s balance of payments. In 2006 Turkey’s bill for its foreign energy exports was $29 billion, which this year’s record high prices will doubtless exceed.

Turkey’s gross domestic product has expanded an average of 7% a year since Prime Minister Recep Tayyip Erdogan’s AKP party was first elected in 2002. Inflation has fallen from triple digits in the early 1980s and the mid-1990s and bottomed out at 6.9% in July, the country’s lowest rate since 1970, despite rising energy costs.

The country’s energy shortfall has spurred Turkey to aggressively seek both additional outside sources of energy and to ramp up its indigenous production of hydrocarbons, with both policies unsettling her neighbors and allies.

Striving to lessen dependency on imports, domestic production, which in 2006 generated a mere 6% of the nation’s crude oil and 1% of its natural gas needs, has risen to 8.7% and 2.6% respectively (Today’s Zaman, August 14). The Turkish State Petroleum Company (TPAO), and foreign operators Royal Dutch/Shell (Shell) and ExxonMobil currently account for the majority of the country’s oil production. While TPAO’s efforts currently pump about 80% of Turkey’s production, they remain the proverbial drop in the bucket, at about 44,000 barrels per day.

Turkey’s relentless efforts to secure energy supplies have been ambivalently regarded by its allies, most notably the United States.

On the positive side, last month Turkish Energy and Natural Resources Minister Hilmi Guler said that Turkey would cooperate with Iraq to transfer Iraqi natural gas to Europe via Turkey after signing a memorandum of understanding with Iraqi Oil Minister Husayn al-Shahristani during his visit to Ankara (Haberler, August 7). Turkey already benefits from the Iraqi-Turkish Kirkuk-Yumurtalik oil pipeline, which intermittently runs at a capacity of 400,000 barrels per day. Turkey’s support for stabilizing Iraq’s damaged energy infrastructure greatly contributes to the Bush administration’s efforts to stabilize the country and provides much needed revenue for rebuilding.

Washington also strongly supported Turkey’s bid for the Baku-Tbilisi-Ceyhan pipeline, which began operations in May 2006. BTC has proven a windfall for Turkey and now contributes more than $200 million annually in transit fees to the Turkish treasury, an amount certain to increase as projected throughput of BTC is slated to rise to 200 million tons of crude flowing into Ceyhan annually. The Bush administration has also persistently championed Turkish efforts to position itself as an essential east-west energy transit corridor, a policy that undercuts both Russian and Iranian influence over burgeoning Caspian hydrocarbon exports.

Washington is much less happy with Ankara’s determination to press ahead with a controversial deal signed in July with Iran to develop three gas projects in the giant South Pars offshore gas field in the Persian Gulf and build two pipelines to transport an estimated 30 billion cubic meters of Iranian and Turkmen gas annually through Turkey for resale to Europe. The Bush administration is fearful that the Turkish action could weaken — or perhaps fatally damage — its economic blockade of Iran as embodied in the 1996 Iran-Libya Sanctions Act.

Washington’s unease over Turkey’s energy rapprochement with Tehran, however, paled into insignificance to the outrage from Ankara when Nicosia announced in February that it would begin to grant energy exploration licenses for southern Cypriot Mediterranean waters. Ankara countered by promptly granting TPAO licenses to explore in Turkey’s Mediterranean coastal waters. Farther north, TPAO reports that first gas is imminent from its East Ayazli and Ayazli fields in the Black Sea, according to TPAO’s partner Stratic Energy (Offshore, August 27).

In direct contrast with policies in Russia and much of the Middle East, Turkey is also opening up its domestic energy market to foreign investment. In an effort to secure much-needed foreign investment in its energy infrastructure Ankara will hold a second tender for the sale of Turkey’s natural gas distribution grids before the end of the year, according to BOTAS general manager Saltuk Duzyol. The sale follows the recent passage of a new law requiring BOTAS, Turkey’s state-owned pipeline company, to reduce its ownership of gas contracts to below 20% of national consumption by the end of 2009 (, September 6).

While Ankara’s primary goal is to reduce its dependence on foreign oil and gas, its increasingly sophisticated energy policy is unlikely to completely alienate any of its allies or suppliers. With increasing exploration onshore and in the Black and Mediterranean Seas, Turkey’s efforts, combined with opening up its energy sector to increased foreign investment and its growing role as a primary east-west energy transit corridor, seems certain to meet its energy requirements for the foreseeable future. It is hardly a surprise that Erdogan’s AKP party, primarily responsible for the country’s dynamic growth over the last five years, chose a glowing light bulb as its symbol (EBRU TV, September 6).