Geo-economic and energy dimensions of Turkey’s Caspian Sea policy

With its dynamic economic infrastructure, Ankara has viewed its geoeconomic role in the Caspian Sea region in terms of promoting regional economic cooperation in the region since it is well placed to reap the benefits of increased economic activity in the region. Therefore, Turkey’s foreign policy towards this region has been determined basically by an economic priorities and energy needs. There has been a consensus among the foreign policymaking elites in Turkey that the promotion of regional economic cooperation in the Caspian Sea region would benefit both Turkey and its partners in the region. In this context, geo-economic and energy dimensions of Turkey’s Caspian Sea policy include the issues of trade, investments, energy diplomacy, the development of energy pipelines as well as transportation corridors between the Caspian Sea region and Turkey. In fact, trade and foreign direct investment constitute key dimensions of Turkey’s relations with all of the littoral states in the Caspian Sea region.

Turkey’s trade volume with the countries in the Caspian Sea region (around $58 billion) constitutes a significant share (14%) of its overall trade volume of $400 billion in 2013. Among the Caspian Sea countries, Turkey’s largest trade partner is Russia. In 2013, Turkey managed to export goods and services to Russia with the total value of almost $7 billion while its imports from Russia reached $25 billion with the net trade deficit of $18 billion. In the same year, Turkey’s second largest trade partner in this region was Iran with the export volume of $4 billion as compared to the import volume of $10 billion in 2013. Taken together, Turkey had the net trade deficit of $24 billion

vis-a-vis Russia and Iran, forming almost 25% of its total deficit of $99 billion in 2013.[1]

Remarkably, Turkey’s trade volume with all of the Turkic states in this region combined (nearly $11 billion) is considerably lower than its trade volume with the above-mentioned non-Turkic states taken separately. Among the Turkic states in the Caspian Sea region, Turkey’s largest trade volume (around $4.7 billion) is with Azerbaijan. In 2013, Turkey’s exports to Azerbaijan has the total value of around $3 billion while its imports from Azerbaijan is slightly above $1.7 billion. Turkey’s trade volume with Kazakhstan ($4.1 billion) is also as large as its trade volume with Azerbaijan. Turkey’s exports to Kazakhstan has the value of $1 billion while its imports from Kazakhstan reached $3.1 billion in 2013. The smallest share in Turkey’s trade with the Caspian Sea countries belongs to Turkmenistan. Although Turkey’s exports to Turkmenistan reached almost $2 billion, twice higher than its exports to Kazakhstan its import volume was the smallest (only 650 million) as compared to all regional countries in 2013.[2]

Concerning the levels of Foreign Direct Investment (FDI), Turkey makes considerable amount of FDI in the Caspian Sea region with the total value of $3.6 billion for the period between 2009 and 2013, Turkey’s largest FDI is attracted to Azerbaijan with the total value of $2.7 billion, followed by Russia ($340 million), Kazakhstan ($300 million), Iran ($200 million) and finally Turkmenistan ($60 million).[3] These figures demonstrate that Turkish businessmen experience relatively friendly foreign direct investment environment in most of the Caspian Sea countries, with the exception of Turkmenistan.

Likewise, Turkey has also attracted large FDI from the Caspian Sea region with the total value of $2.6 billion for the period between 2009 and 2013, Turkey attracted the largest amount of FDI from Russia with the total value of $1.7 billion, followed by Azerbaijan (around $800 million), Kazakhstan ($90 million), Iran ($45 million) and finally Turkmenistan ($500 thousand). [4]As these figures demonstrate Turkey has more outgoing FDI to the Caspian Sea region than incoming FDI during the period between 2009 and 2013. Probably, Ankara needs to more financial and legal reforms to attract more FDI from these countries. It should also be mentioned that a considerable FDI flow from Azerbaijan to Turkey is expected to come from the construction of TANAP pipeline and STAR refinery in the Turkish territory by

SOCAR - billions of USDs which promise to make Baku one of the biggest foreign investors in Turkey.

Geo-economic dimension of Ankara’s policy towards the Caspian Sea region has been shaped also in interaction with the energy policies of Russia, Azerbaijan, Kazakhstan, Turkmenistan and Iran, which found themselves in a very harsh struggle for the control over the energy resources of the region in the post-Soviet era. In fact, Iran and the post-Soviet states of the Caspian Sea region have developed increasingly uncompromising positions concerning the status of the Caspian Sea itself and the exploitation as well as transportation of the hydrocarbon resources of the Caspian Sea region.[5]

Russia and Iran’s energy policies contradicted with the policies of Turkey towards the Caspian region because of the commitment of Moscow and Tehran to the policy of keeping the influence of external powers, including Turkey to a minimum. As part of its policy of keeping the post-Soviet Turkic states under its own sphere of influence, Russia accommodated some of the interests of the Turkic states either by supporting their policies of extracting their energy resources in the offshore areas of the Caspian Sea as with Azerbaijan and Kazakhstan or by importing their natural gas as with Turkmenistan in order to re-export this natural gas to the lucrative European markets. Iran has been largely sidelined by Moscow in this geo-economic dimension due to its lack of significant leverage over the post-Soviet Turkic states, let alone Russia.[6]

Turkey’s energy policy towards the Caspian Sea region has been based on the creation of East-West energy corridor, since the potential major energy consumers are concentrated in the west, while producers are located in the East. Thanks to energetic policies of Turkey and its closest regional ally Azerbaijan, the western route bypassing both the northern Russian-controlled and the southern Iranian-controlled options prevailed in becoming the main export pipeline for the hydro-carbon energy resources of Azerbaijan. Consequently, following the inter-state agreement on the construction of the Baku-Tbilisi- Ceyhan (BTC) pipeline, this oil pipeline became operational finally in the summer of 2006.[7] This was a huge success for Azerbaijan and its partners in this project: Georgia, Turkey and the United States and an important step for strengthening European energy security.

In this context, Turkey’s energy relations with the Caspian Sea countries have been determined by its overall objective of an energy corridor between the Caspian Sea and Europe that could serve as an alternative to the existing Russia-dominated energy corridor between the Caspian Sea and Europe. At present, the European Union countries receive energy from the Caspian Sea region through Russia which until recently imported energy from other postSoviet states in the Caspian Sea region; namely, Kazakhstan, Turkmenistan and Azerbaijan at relatively lower price levels, and re-exported these energy supplies to the EU member countries at relatively higher price levels. With the recent agreements this situation has changed considerably since the Caspian countries started to export their hydrocarbon energy resources to Russia for higher prices. The creation of an alternative energy corridor between the Caspian Sea and Europe could decrease the price for natural gas for European energy consumers by increasing the competition in the market.[8]

In this context, Turkey’s economic interests in the Caspian Sea region have increased significantly in the last decade when Turkey adopted a new trade policy which stressed the increase in its exports. Among the Caspian Sea countries, Ankara has prioritized economic cooperation with Kazakhstan and Azerbaijan particularly in the construction of oil and natural gas pipelines, namely BTC oil pipeline and its possible extension to Kazakhstan and Baku Tbilisi Erzurum (BTE) natural gas pipeline and the Trans-Anatolian Pipeline (TANAP) natural gas pipeline as well as construction of railways between Turkey and the Caspian Sea region, such as Kars-Tbilisi-Baku Railway, and the modernization of port facilities around the Caspian Sea. Turkey’s state owned enterprises such as BOTAS (Boru Hatlari ile Petrol Ta§ima Anonim §irketi) and TCDD (Turkiye Cumhuriyeti Devlet Demiryollari) played significant roles in the realization of pipeline and railway projects respectively since these projects required long-term guarantees from the states involved.[9] It should also be emphasized that Turkey’s private sector is also quite successful in winning major projects for modernizing Turkmenistan’s transportation infrastructure, airports and ports around the Caspian Sea basin.For example, according to Ministry of Foreign Affairs (MFA) of Turkey, during the postSoviet period, the total value of projects realized by contracting Turkish companies in Turkmenistan reached $40 billion.[10] This is partly related to more cost-effective nature of Turkish construction companies as compared to construction companies of other states in realizing major infrastructure projects in this region.

To summarize, although Turkey faces difficult challenges ahead to its own energy strategy, Turkey’s relative success in creating an alternative energy corridor between the Caspian Sea and Europe could have very positive impact not only on its relations withthe Turkic countriesin the Caspian Sea region, but also on Euro-Atlantic energy security as a whole.

  • [1] These figures are calculated by the author based on the dataof Turkey’s official statistics institution - Turki-yeUlusalistatistikKurumu (TUiK). This data is retrieved from the website of TUiK at http://www.tuik.gov.tr, (lastretrieved on 8 April 2014)
  • [2] Ibid.
  • [3] This data on outgoing FDI is taken from Turkey’s Undersecretary of Treasury officials on 7 April 2014.
  • [4] This data on FDI is taken from Turkey’s Central Bank officials on 7 April 2014.
  • [5] A. Ehteshamii, “Geopolitics of Hydracarbons in Central Asia and Western Asia" in S. Akiner (ed.), The Caspian: Politics, Energy and Security, Oxfordshire, Routledge Curzon, 2004, p. 63.
  • [6] O.F. Tanrisever, “Nagorno-Karabakh Conflict and Regional Stability in the Caspian Basin", EU4SEAS Papers. 22 October 2009, available at: http://www.eu4seas.eu/images/stories/deliverables/WP2/Caspian/eue4seas_oktay_tanrisever.pdf.
  • [7] O.F. Tanrisever, “Turkey and the Politics of Pipelines in the Black Sea Region", Energy Security and SecurityPolicy: NATO and the Role of International Security Actors in Achieving Energy Security, The NATO School,Ed. Phillip Cornell, Oberammergau, 2007, pp. 74-78.
  • [8] O.F. Tanrisever (2009).
  • [9] G. Gleason, Oktay F. Tanrisever, “A Bridge to Central Asia”, Concordiam: Journal of European Security andDefense Issues, vol.4, no.3, 2013, pp. 10-15.
  • [10] See MFA of Turkey, “Turkmenistan’in Ekonomisi”, available at: http://www.mfa.gov.tr/turkmenistan-ekonomisi.tr.mfa (last retrieved on 6 April 2014).
 
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