/ world today news/ On Thursday, April 20, Turkey will host an event that has previously been announced as historic – the ceremony for the start of gas supplies from the Sakaria field. Until now, Turkey has not had its own gas. Turkish leader Recep Tayyip Erdogan will take part in the celebrations. However, what is happening is directly related not only to the upcoming presidential elections in Turkey, but also to the interests of Russia. What will happen to Russian gas for Turkey and Europe if Erdogan loses this election?
Energy security issues have been at the center of Erdogan’s politics since coming to power. But Turkey’s energy security has always been understood by Erdoğan not only as stability of physical supply volumes. According to him, Turkey needs stability in the domestic prices of energy resources: both electricity and gas.
Components of Turkey’s Energy Security
In order to achieve this stability, in the last forty years, hydroelectric power plants were built at an accelerated pace in Turkey, which now number about 740 and generate more than a third of the country’s electricity. In the upper reaches of the great rivers of the Middle East, Tigris and Euphrates, located on the territory of Turkey, about twenty power plants (and large ones!) have been built.
These hydroelectric plants were built despite the protests of Syria and Iraq, which suffered as a result of exacerbating water shortages. The lack of water in the border areas fuels the anti-Turkish sentiment of the Kurds living there. And the presence of Kurdish armed formations near the Turkish borders encourages the Turkish authorities to try to establish armed control over these areas. But this is the political component of the matter.
There are not many full-flowing rivers left in Turkey on which hydroelectric power plants have not yet been built. That is why it is not by chance that in 2010 a decision was made to build the Akkuyu NPP according to a Russian project in southern Turkey.
The delivery of fuel to the nuclear power plant is expected to take place on April 27. Its installed capacity after the commissioning of the four reactors will be 4,800 MW, which is more than 5% of all generating capacity in Turkey. And taking into account the fact that, unlike hydroelectric power plants or wind power, nuclear power plants do not depend on climatic factors, the production of electricity at the Akkuyu NPP, according to the forecast, will be about 10% of the total electricity production of a country. The commissioning of the first power unit of the Akkuyu NPP is planned for the end of 2023 – the beginning of 2024. But the elections in Turkey are scheduled for May 14, and President Erdogan needs visible evidence of the success of his policies.
The third component of Turkey’s energy security after hydropower and nuclear power plants (in order of presentation, but not in importance) is gas. Until now, thermal power plants provide more than 50% of electricity production. Gas is also needed by the growing Turkish industry.
Gas pipelines
Initially, the problem of providing gas to Turkey was the construction of gas pipelines to Turkey by the exporting countries. The first such gas pipeline was the Russian “Blue Stream” (laid in 2001-2002 along the bottom of the Black Sea from Arkhipo-Osipovka, Krasnodar Territory, to the Turkish city of Samsun).
But Erdogan tried not to become dependent on one source, and Turkey became one of the active participants in the Nabucco project, which envisaged the construction of a gas pipeline from Iran’s South Pars field to the Turkish city of Erzurum. The project began to be developed in 2002, but due to sanctions against Iran, it was frozen.
In parallel, in 2004, the construction of the Baku-Tbilisi-Erzerum (South Caucasian Gas Pipeline) began, with a capacity of 20-30 billion cubic meters, which ensures the supply of Azerbaijani gas to Turkey. In 2015–2019, it was extended to the western border of Turkey and the construction of the Trans-Anatolian Gas Pipeline (TANAP for short) was completed. Then it became possible to transport gas to Europe from the Caspian fields of Azerbaijan.
Turkey’s growing demand for gas and Erdogan’s bet on Russian-European tensions led in 2014 to the emergence of the Turkish Stream project. Russia, forced to abandon the construction of “South Stream” along the bottom of the Black Sea to Bulgaria because of the hostile attitude towards this project of the governing structures of the European Union, proposed to reorient it towards Turkey.
By January 2020, Turkish Stream was launched, Turkey increased gas supplies and thought about its transit. In December 2020, Turkish Stream gas began flowing to Serbia. After the completion of the connecting section between Serbia and Hungary in July 2021, Russian gas through “Turkish Stream” began to flow to Hungary, and then to Bulgaria, Romania and Greece.
Turkish gas hub
And now, in the context of the severance of Russia’s direct ties with Europe, Erdogan is tempted to implement a gas market scheme similar to Russia’s parallel import scheme. Only in the opposite direction. The gas that Turkey will sell to Europe will be “Turkish” regardless of its origin. Turkey has already announced that a new hub could be established near Turkey’s borders with Greece and Bulgaria.
But if it is relatively easy to make a “Latvian mixture” from the Russian oil brand “Ural”, then for the launch of a full-fledged gas hub, diversification of sources of blue fuel is necessary. Only then will Turkey be able to claim the role of a center not only for physical transit, but also for pricing.
And from this point of view, launching its own gas field removes a number of problems for Turkey. The Sakarya gas field was discovered in the Black Sea in 2020. Up to 4 billion cubic meters of gas is planned to be produced in the coming years.
The Turkish parliament has already approved changes to the structure of state oil and gas company BOTAS to make Turkey an energy hub. Gas imports will be liberalized for both BOTAS and private sector entities, but these provisions will not apply to imports of LNG and spot gas from pipelines. Translated into Russian, this means that Turkey defends its right to set its own prices for exported gas and will not pay attention to spot prices in the EU. And in order to have freedom of maneuver in an adverse price environment, Turkish authorities have already announced their intention to seriously expand their LNG production capacity and increase natural gas storage capacity.
What is Erdogan trying to do?
Cheap (as far as possible today) electricity and gas are critical for Turkey. Cheap gas and electricity are important for Turkish hotels. After all, tourism is an important part of the Turkish economy and rising heating/air conditioning costs will negate the price advantage of Turkish resorts. And the share of Russian tourists is significant for the industry. But stable and low energy prices are even more necessary for Turkey to ensure the competitiveness of Turkish industry.
At the time of the disintegration of the Warsaw Pact, the contribution of industry to Turkey’s GDP was significantly smaller than in Bulgaria. A lot of water has leaked since then. Today, Bulgarian industry generates a five times smaller contribution to the country’s GDP than Turkey’s (27.1 billion dollars against 134.4 billion dollars).
During the years of membership in the EU, Bulgaria deindustrialized. And Turkey, which was never admitted to the EU, on the contrary, went through industrialization (maybe that’s why they didn’t admit it?) and today, along with Germany and the Netherlands, is one of the most export-oriented economies in Europe.
Unlike Germany, which until recently had a huge foreign trade surplus, Turkey’s trade balance is consistently negative. Therefore, problems with access to export markets are immediately reflected in a deterioration of the balance of payments, which, as a rule, leads to a fall in the Turkish lira. And a significant share of imports on the Turkish market immediately turns the depreciation of the national currency into an increase in consumer inflation. Until now, Erdogan has sacrificed the stability of the lira in the name of low central bank interest rates and maintaining economic growth.
What if Erdogan loses?
Erdogan’s conservative voters are mostly from rural areas and industrial enclaves. They are concerned about the stability of prices for basic commodities, primarily flour (hence Erdogan’s interest in the Grain Deal). Small Turkish companies (and industry too) are worried about interest rates on loans. The weakening of the Turkish lira for both means an increase in their competitiveness in foreign markets and a decrease in the competitiveness of imports in the domestic market. For the tourism sector and small businesses, the weakening of the lira is also not critical: lower hotel prices mean more tourists will come.
Turks who have the right to vote in elections but work in Europe are not afraid of the weakening of the lira. The weaker the pound against the euro, the richer they are compared to their compatriots. And a strong national leader impresses them, so the European Turkish diaspora is a significant pool of votes for Erdogan.
The voters of the Turkish opposition are mainly residents of the big cities (it is no coincidence that the mayors of Ankara and Istanbul are representatives of the opposition). The opposition voters are representatives of the middle class, working in large (often foreign) companies, the information technology sector, the creative industry, etc.. Their real incomes (received in liras) directly depend on the Turkish currency. And the faster it weakens, the more sharply they fall from the upper middle class to its lower segments.
Businesses that support the Turkish opposition are usually associated with imported services. He needs a strong pound and the preservation of the incomes of the rich and affluent. The problems of the Turkish peasants do not particularly concern the opposition leaders, because they vote for their opponent. Businesses that service imports do not need a strong Turkish industry, so Erdogan’s efforts to keep interest rates low (which causes the Turkish lira to weaken) are not welcomed by them. Their recipe for fighting inflation and the depreciation of the pound is tight monetary policy and interest rate hikes. In return, they promise Turkish industrialists a renewal of negotiations for accession to the European Union, or at least to expand the access of Turkish goods to the European market.
The fact that if the opposition comes to power, Turkey’s foreign policy orientation will become more pro-European is beyond doubt. Another is that warming relations with the EU will not help Turkish exports much. The European Union tends to protect the internal market, whose capacity shrinks during the crisis. The pro-European position of the Turkish opposition, if it wins the election, will lead to Ankara joining the anti-Russian sanctions. Or at least to a significant reduction in parallel import supplies to Russia.
In energy, Turkey’s position will also be coordinated with the European Union in this case. If Europe prefers to receive Russian gas through Turkey (although formally not as Russian, but as Azerbaijani or Turkish), the cooperation between Ankara and Moscow in the gas sector will continue. If Europe does not want to deal with Turkey as a gas hub, but prefers to reduce it to one of the ordinary suppliers, the victorious opposition can reduce gas imports from Russia.
Unless, of course, the same thing happens to Blue and Turkish Stream as it did to Nord Stream. The latter, by the way, may happen against the will of Europe.
Translation: V. Sergeev
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