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Let's Talk Turkey

Written by Brian Hicks
Posted June 15, 2006

My oil world expanded about five years ago. I sat in a solarium just off the food court at the University of Kansas student union, talking with two men who said they were from Turkey and Azerbaijan, respectively. They wore suits, unlike most of the foreign students I conversed with. When I asked why, they told me, "We are petrochemical engineers, and we're here because we need help building a pipeline."

My curiosity piqued, I asked for more information, and they provided it.

This was in early 2002, when gasoline prices had not yet begun the tremendous and traumatic spike that has befallen consumers in the past year or so. But the US government was already hedging its bets - wisely, I might add - on the Caspian Sea region and its wealth of natural resources.

Today, and in next week's part two, I will focus on Turkey, the occidental end of this Azeri-Turkish link.

In May 2005, a consortium led by British Petroleum began pumping oil from the southern portion of the Caspian Sea to the Turkish port of Ceyhan. Now Turkey is reprising a role it has played throughout history, as keystone between the continents of Europe and Asia.

As Byzantium, Constantinople, and now Istanbul, the city that straddles the straits (Bosporus and Dardanelles) has been mildly schizophrenic.

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"Am I Asia or am I Europe?"

Fortunately, in these times of national identity crises (the US and France are struggling to find their true faces), Turkey's position is rather normal, and even advantageous.

As an Islamic nation on the periphery of the EU, Turkey bears the stigma of its religion's radical components. This suspicion persists despite the fact that the country is soundly grounded in the secular ideology of Mustafa Kemal Ataturk, founder of the modern state.

The recent ascendancy of Prime Minister Recep Tayyip Erdogan and his Justice and Development Party has made some European leaders uneasy, since this government takes a more-Islamic (but by no means Islamicist) tack than previous ones. Its election is more a reflection of previous governments' failures on economic fronts than any radical swing on the part of the electorate.

Though Turkey bears the Muslim crescent and star on its flag, its political face bears more resemblance to the Swedes than the Saudis. The October 2005 initiation of talks on entry into the European Union confirmed that the continental body is not as skittish about its southeastern fringe as one might think, though talk of "absorption capacity" is in fashion as many European countries forecast heavy migration from Turkey across their national frontiers.

In terms of energy policy, Turkey has aligned itself firmly with EU consensus, ratifying the Energy Charter Treaty and passing a law in 2001 to liberalize the energy sector and end government monopoly in order to attract foreign investment.

Moves by the government in Turkey's capital Ankara to raise taxes on refined petroleum products and natural gas have helped to lower the hyperinflation that plagued the country for a full three decades. But Turkey's internal energy policy is secondary to the role it can play as an "energy bridge" between Caspian and Middle Eastern suppliers on the one hand, and European consumer economies on the other.

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Say What? Ceyhan!

The Baku-Tbilisi-Ceyhan pipeline (BTC as the cool kids call it), connects the Caspian port of Baku, Azerbaijan in the east with the Turkish port of Ceyhan on the Mediterranean shore.

Stretching across a rather narrow band of the Southern Caucasus, the BTC runs near the Georgian capital of Tbilisi before passing along to Turkey. The route is salient here, because BTC is not BYC, as it would be if the pipeline's midpoint ran close to the Armenian capital of Yerevan.

Back to my petrochemical engineer friends and the regional education they gave me, I was not aware before meeting them that Georgia, Armenia, and Azerbaijan have been flashpoints for ethnic conflict throughout recent years and indeed much of the history of the Caucasian region.

A news search for "Baku Tbilisi Ceyhan" yields the headline, "No One except Baku to Benefit from Baku-Tbilisi-Ceyhan." This banner on www.panarmenian.net reflects a bitter displeasure with the pipeline route, and foreshadows what could potentially be a petropolitical mess down the road. But is the potential throughput worth the potential problems?

Many say yes, including Kazakhstan, who today announced that their eastern-Caspian oil will be pumped from the Kazakh port of Aktau to Baku, and then on through the BTC line.

Total Caspian Sea oil production could rise astronomically with infrastructural advances and maintenance, where the BTC figures most prominently. About 1.5 million barrels a day is anticipated, with approximately 220 billion barrels of total reserve capacity. This would put the region on par with Mexico, not the Persian Gulf, but certainly every bit of an oil option helps at this point in the market's trajectory.

Next week we will delve further into Turkey's domestic energy economy, what other geopolitical factors may affect its development, and where you should keep your focus as this "energy bridge" extends its span.

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