**New in the Jamestown blog on Russia and Eurasia (http://jamestown.org/blog): Ukraine Allows Gazprom to Upgrade Its Gas Pipelines
StatoilHydro-Azerbaijan president Kristian Hausken and the company's vice president for gas Olav Skalmeras have announced that the consortium must postpone the start of Phase Two of production at Shah Deniz until 2016, due to lack of a transit agreement with Turkey. According to the Norwegian executives, the issue of transit via Turkey remains a challenge to the Shah Deniz project. They said that Phase Two can only take place -and its timeframe clarified- after the transit problems will have been resolved with Turkey (Reuters, April 24; Trend Capital, April 28).
Phase Two of Shah Deniz gas production had been envisaged to start in 2013-14, its timetable correlated with that of the Nabucco pipeline's construction. Turkish-imposed delays in field development and production at Shah Deniz would correspondingly delay investment in the Nabucco project and its construction.
The consortium, headed by BP and StatoilHydro, owns and operates the Shah Deniz project and the dedicated South Caucasus Pipeline (SCP) for gas export. The line, known also as the Baku-Tbilisi-Erzurum (BTE) pipeline, was conceived as the first section of a major gas export route via Turkey to Europe. The existing line should feed into the planned Nabucco pipeline on Turkish territory. The SCP (BTE) consortium's ownership and operating rights on the pipeline, however, stop at the Georgia-Turkey border. Beyond that border, Turkey's state company Botas owns and operates the pipeline to Erzurum and onward to Nabucco's starting point. Thus, when Nabucco is built, the two internationally-owned pipelines -SCP and Nabucco- will have to be linked with each other through the Turkish-owned pipeline situated between them; and Nabucco itself would run through Turkish territory.
This situation and the perceived lack of alternatives to the Turkish route are tempting the AKP government to seek concessions at the expense of Azerbaijan, the Shah Deniz consortium, and the two pipeline consortiums. Ankara seeks unilateral advantages on the terms of gas transportation and pricing simply by stalling on the transit agreements. Stalling on these projects is also the AKP government's way to seek political concessions from the EU. As the EU-Turkey accession negotiations are a long-term process, the stalling may also turn out to be a long-term process, if the EU tolerates such behavior.
Phase Two of production at Shah Deniz is planned to reach 20 billion cubic meters of gas annually in the plateau years, double the volume of Phase One which is currently in progress (Trend Capital, April 29). Investment in Phase Two is estimated at $16 billion, compared to the $5 billion invested in Phase One. Facing such investment costs, the international consortium as well as the Azerbaijani government needs long-term stable arrangements for transit via Turkey and marketing in Europe.
Meanwhile, Russia proposes to buy up all available volumes of Azerbaijani gas at attractive prices. Following repeated offers since June 2008 from the Kremlin, a memorandum of understanding was signed on March 27, 2009, by the Azerbaijan's State Oil Company with Gazprom. Faced itself with a gas shortfall in the years ahead, Gazprom could use Azerbaijani gas either for consumption in southern regions of Russia or for re-export to Europe as "Russian" gas through the Gazprom-planned South Stream pipeline. Russian officials have alluded to both possibilities.
Underscoring Moscow's interest, Valery Yazev -head of Russia's Gas Society and vice-chairman of the Duma- proposes that "Russia must offer the highest possible price for Azerbaijani gas," finance modernization of the Soviet-era gas pipeline from Baku to the Russian border, and sell Azerbaijani gas in Europe as Russian gas. As Yazev makes clear, Moscow seeks to draw Azerbaijan into some bilateral price-fixing arrangement at Europe's expense: "What is Europe's game? It tries to crush the gas producers. Our countries need to coordinate their positions. Azerbaijan is geographically closest to Europe among gas-producing countries of this region. Therefore Moscow wants to develop close interaction with Baku" (Interfax, Trend Capital, April 22, 24).
In effect, Russia is racing against the EU in Azerbaijan. Meanwhile, Turkey's AKP government is making it more difficult for the EU and Azerbaijan jointly to win this race.
Azerbaijan Looking at Narrow Gas Export Options
At the oil and gas conference just held in Baku, Industry and Energy Minister Natig Aliyev, confirmed that Azerbaijan strives for access to European markets as the main export destination for Azerbaijani gas and, potentially, for Turkmen gas via Azerbaijan to Europe (Turan, April 27).
The significant message in that remark is that Azerbaijan will not willingly sell its gas to Gazprom at Azerbaijan's border, as the Kremlin proposes. Moscow offers to pay European netback prices for Azerbaijani gas. Assuming that the offer is genuine, it would make little commercial sense for Russia to re-export Azerbaijani gas to Europe as "Russian" gas at the same European netback prices. Moscow's offer is calculated strategically, not commercially. It seeks to pre-empt Azerbaijani gas, diverting it from the European Union's Nabucco and Southern Corridor projects before these get started. In effect, Moscow is racing against the EU in Azerbaijan.
Moscow and Turkey's AKP government are each proposing to buy Azerbaijani gas on the basis of delivery-at-frontier arrangements, whereby the purchasing country becomes the owner of the gas, with an option to re-export it. Such arrangements would be disadvantageous to Azerbaijan economically and strategically, depriving it of access to European end users of its gas.
Moscow at least promises to pay European netback prices for Azerbaijani gas. Meanwhile, ironically, Turkey's AKP government insists that Azerbaijan should accept a price far below market levels for its gas. Azerbaijan's President Ilham Aliyev discussed these issues with Russian President Dmitry Medvedev in Moscow on April 16-17 and with European Commission President Jose Manuel Barroso in Brussels on April 29.
In Moscow, Aliyev quietly declined a delivery-at-frontier arrangement. Instead, he asked that Russia provide transit services for Azerbaijani gas to reach Europe. Such a role would be fully in keeping with European norms, but is highly unusual for Russia. Unlike Ukraine, Georgia and many other countries, which provide transit service through pipelines on their territories, Russia buys up Central Asian gas at those countries' borders and re-sells most of it westward as Russian gas. Moscow now proposes a similar arrangement for Azerbaijan. Isolating Caspian producer states from European consumer countries, such arrangements enable Moscow to control the gas flow, with scope for manipulations at either end.
In Brussels, Barroso expressed appreciation for Aliyev's "difficult and courageous decisions." That discussion focused on supplies to the Nabucco and Southern Corridor projects and on the Turkish transit problems (ANS TV, April 29). Indeed, awaiting progress on Nabucco and the Southern Corridor, Azerbaijan would not enter into large-scale or long-term commitments with Russia. Nor would it commit gas volumes from future production at Shah Deniz (see article above), but only from fields that are not earmarked for westbound pipelines. Production from such fields could potentially be exported via Russia, if necessary to reduce Azerbaijan's now-total dependence on the Turkish route.
Meanwhile, Norway's StatoilHydro, commercial operator of the export pipeline from Shah Deniz, has more than once hinted at the possibility of dealing with Russia as an outlet for Shah Deniz gas, if Turkey keeps stalling on the transit agreement or if Nabucco continues to stagnate.
Turkey buys Azerbaijani gas on the basis of an agreement signed in 2001, which set the price at $120 per thousand cubic meters. Ultimately, international market prices for gas climbed above $400 per thousand cubic meters while Turkey was still paying $120 for Azerbaijani gas. Deliveries to Turkey from Shah Deniz began in 2007 at that price, an undeclared subsidy to Turkey at the expense of Azerbaijan and the Shah Deniz project. The old agreement expired in April 2008, but the old pricing seems to have continued since then (Trend Capital, www.day.az, April 29).
Azerbaijan seeks to redefine the price, in line with existing market prices and on the basis of valid contracts. Turkish Prime Minister Recep Tayyp Erdogan and Energy Minister Hilmi Guler, however, have publicly shrugged off the proposal. President Aliyev hinted in Brussels that such attitudes "might have a negative impact on future cooperation" with Ankara. Negotiations are ongoing, however (Anatolia News Agency, April 25; Hurriyet, April 26; UPI, April 27; ANS TV, April 25, 29).
Azerbaijan and the international consortium signed the contract on the Shah Deniz project in 1996 in expectation of a large oil find, instead of which a giant deposit of natural gas and condensate was discovered. The field's recoverable gas reserves are estimated at 1.2 trillion cubic meters. The consortium includes BP (as project operator) and Norway's StatoilHydro with stakes of 25.5 percent each; Azerbaijan's State Oil Company, the Russian-Italian joint venture LukAgip, the National Iranian Oil Company, and Total of France, with 10 percent each; and Turkish Petroleum with 9 percent. A separate consortium with identical structure owns and operates the dedicated export pipeline from the field via Baku and Tbilisi to Turkey (South Caucasus Pipeline), with BP as technical operator and StatoilHydro as commercial operator.
Phase One of commercial production at Shah Deniz started in 2007 and jumped to 8.5 billion cubic meters in 2008, but is expected to grow only slightly to 9 billion cubic meters in 2009. Of this amount, 6.6 billion cubic meters are due for export annually through the Baku-Tbilisi-Erzurum pipeline. Phase Two of production at Shah Deniz is expected to reach 20 billion cubic meters in the plateau years, now deferred beyond 2016 (Trend Capital, April 29; see article above).
--Vladimir Socor
Ukraine Witnessing Rise of Radicalism
As elections approach in Ukraine, controversial historical and linguistic issues are high on the agenda within a country divided along regional and cultural lines. The nationalists including President Viktor Yushchenko, often perceive Moscow's hand behind this, while their opponents complain that the Ukrainian language and right-wing values are being imposed by the authorities. This confrontation rarely results in violence but this year might prove an exception as the impact of the global financial crisis has hit Ukraine especially hard -radicalizing society. Incidents have thus far included a radical youth fatally stabbed and two bookshops vandalized. This situation may further deteriorate as the government fails to respond to the problem while the Russian media, popular within eastern Ukraine persistently hypes the issue.
On April 17 in Odessa a youth from a radical leftist group calling themselves Antifa (from anti-fascists) stabbed to death Maksym Chayka, a 20-year-old Ukrainian nationalist. While the incident is now the subject of a police investigation, Antifa claims this was done in self-defense. But nationalists and their opponents have already delivered their own verdicts, judging by the far from neutral newspaper headlines reporting on "a patriot stabbed" or "a neo-Nazi stabbed" depending on the ideological sympathies of individual journalists.
The Russian media hurried to portray Ukrainian nationalists as "blood-thirsty neo-Nazis," similar to their handling of the story of Hitler dolls found on sale in a small Kyiv shop last year, which made the headlines across the world after it had whipped up interest. Reports about the alleged links between Antifa and the pro-Russian Motherland group -denied by Antifa- prompted Yushchenko to take sides (www.samozahist.org.ua, April 20). He instructed the law-enforcement agencies to find links between the Antifa "extremists" and pro-Russian groups (www.president.gov.ua, April 22). Human rights activist Volodymyr Chemerys, expressed his doubts over the investigation's impartiality because of presidential interference. He openly accused Yushchenko of sympathizing with neo-Nazis (www.samozahist.org.ua, April 24).
People's deputy Oleksandr Feldman, who chairs the Association of Ukrainian Ethno-Cultural Associations and the Kharkiv Jewish community, warned Yushchenko in an open letter on April 27 about the "fascistization" of Ukrainian society. He mentioned the tragic incident in Odessa and reports about anti-Semitic leaflets distributed in the central Ukrainian city of Cherkasy, and recalled that the "neo-Nazis" from the Freedom party won a recent election in Ternopil (EDM, March 24). Feldman drew analogies with Germany in the 1920's and 1930's, where a crisis that he compared in scale to the current Ukrainian situation, had brought Hitler to power (Delo, April 27).
Feldman's exaggeration was probably due to the fact that he is a leading member of Prime Minister Yulia Tymoshenko's party, which was unexpectedly defeated in the Ternopil election by both Freedom and Yushchenko's United Center. Tymoshenko views both Yushchenko and Freedom leader Oleg Tyahnybok as her rivals in the upcoming presidential election. All three regard as their stronghold, the nationally minded western Ukraine including Lviv where advertising on matchboxes praise the SS Galichina World War II division -noted by the Russian media and pro-Russian news outlets in Ukraine in early April.
It turned out that the controversial advertisement campaign had been ordered by Freedom. Galichina fighters are respected by many in western Ukraine, where they have been viewed as freedom fighters against Communist Russia. But they are loathed within eastern Ukraine and Russia as Hitler's collaborators, as well as in neighboring Poland where they reportedly committed atrocities against the resistance. Polish officials reportedly expressed their concern (One Plus One TV, April 17).
The discovery of the controversial matchboxes was exaggerated by Russian TV channels which did not miss the opportunity to vilify western Ukraine in the eyes of Russians and eastern Ukrainians who traditionally prefer Russian to Ukrainian TV for language reasons. The Security Service of Ukraine (SBU) said that it did not find any violations in Lviv as the controversial adverts did not carry any SS emblems or slogans (UNIAN, April 27).
Freedom did not stop at glorifying the SS. The party urged ethnic Ukrainians to organize themselves for self-defense. Its press service has issued a veiled threat against opponents saying that the party's ruling body decided to take measures to prevent "systematic manifestations of Ukrainophobia" across the country like the killing of Chayka which, according to Freedom, had been inspired from abroad. Freedom said that it will monitor society for those manifestations. In the same statement Freedom pledged to prevent Ukraine's transformation into a parliamentary republic, which is something that Yushchenko suspects Tymoshenko of planning (www.svoboda.org.ua, April 25).
Meanwhile, two bookshops have been the target of recent arson attacks. Their owners said that they had received letters demanding that they stop selling Russian books allegedly detrimental to Ukrainian culture. No-one has so far claimed responsibility for these attacks. The owners of the shops claimed that other bookshops had been vandalized in Ternopil ahead of the recent election, reportedly also for selling Russian books (UNIAN, April 25).
--Pavel Korduban
Turkish-Syrian Security Cooperation Testing Turkish Foreign Policy
On April 27, Turkey and Syria launched their first joint military exercise on their border. The three-day long land exercises between border forces involved an exchange of units to enhance joint training and interoperability, and are expected to be followed by similar exercises in the future. On the same day, during the 9th International Defense Industry Fair in Istanbul, both countries signed a bilateral security cooperation agreement to deepen collaboration between their defense industries (www.tsk.tr, April 26, Hurriyet, April 28). These developments once again strained Turkish-Israeli ties, re-opening the debate on Turkey's commitment to its Western orientation.
Israeli Defense Minister Ehud Barak, called the exercises disturbing, though noting that Turkish-Israeli strategic relations will survive this challenge (www.ynetnews.com, April 27). Israel's Ambassador to Turkey, Gabby Levy, told reporters that Tel Aviv was following the drill closely to understand its goal and content (Cihan Haber Ajansi, April 28). DEBKAfile reported that, to protest against this development Israel was preparing to "slash its military exchanges with Turkey to prevent the leakage of military secrets to an avowed Arab enemy" and it would "discontinue sales of its ... drones and sharply reduce its military ties with Turkey" (DEBKAfile, April 27).
Moreover, an Israeli strategic analyst Efraim Inbar, referring to unnamed Turkish military officers, maintained that the joint exercise not only raised questions over Turkey's relationship to Israel, the United States and NATO, but also "the Turkish military is not happy about this. It does not like Syria, and views it as a problematic state" (Jerusalem Post, April 27).
During his second press briefing within the past fortnight, Turkish Chief of Staff General Ilker Basbug was asked to comment on Israel's reaction to the Turkish-Syrian exercise. Basbug criticized the remarks of the Israeli sources by saying "Shall we ask for Israel's approval? Israel's reaction does not concern us. This is between Turkey and Syria" (www.cnnturk.com, April 29). Other Turkish military officers talking to the press reportedly held similar views (Star, April 30).
In addition, though noting that it was only a small-scale exercise, Basbug described it as important because it was held for the first time. A Turkish military analyst Nihat Ali Ozcan, added that "Turkey has similar deals with more than 60 countries. Besides, the exercise involved at most a total of 60 men from both sides. If it is held only at platoon level as reported, then really it holds only a symbolic value aimed against smugglers and the Kurdistan Workers' Party, or PKK, operating along the border" (Hurriyet Daily News, April 29).
Although the exercise might be inconsequential militarily, it has enormous political significance, which partly explains Israel's reaction. Turkey and Syria came to the brink of war ten years ago over the latter's harboring of PKK militants, their new security cooperation heralds a significant transformation in Turkish foreign policy. More importantly, it highlights the changing alignments of Turkey within the region.
One explanation for the flourishing of the so-called Turkish-Israeli alliance throughout the 1990's, which led to the establishment of closer military cooperation, was the common threat perceptions concerning Syria. Turkey was so frustrated by Damascus supporting the PKK that in 1998 it had to amass its army along the border and threaten to use force unless Damascus ceased its support. Following the expulsion of the PKK from Syria in the late 1990's diplomatic relations improved, reflecting Turkey's new policy of normalizing relations with the Middle East. The real push came with the accession to power of the Justice and Development Party (AKP) in 2002. Fostering closer ties with Turkey's Middle Eastern neighbors became one of the cornerstones of the AKP's new multi-dimensional foreign policy -which is attributed to Ahmet Davutoglu, chief foreign policy advisor to the Prime Minister Recep Tayyip Erdogan (EDM, March 25).
Under the AKP, Ankara and Damascus have overcome their differences and promoted the growth of economic, social and cultural ties between the two countries, as expressed symbolically in the close personal ties between Erdogan and Syrian President Bashar al-Assad. Turkey resisted attempts to isolate Syria diplomatically, and has served as the conduit for opening Damascus to the outside world. Most significantly, it has acted as a mediator between Israel and Syria by arranging indirect talks between the two countries.
Diplomatic analysts had once discussed a Turkish-Israeli axis against Syria, while clearly the interests of Turkey and Syria are now converging, which permits the development of military cooperation. These alternating roles have naturally raised questions as to whether Turkey might be trading its strategic ties with Israel for a new partnership with Syria. Although many Western analysts argue that Turkey may be drifting away from the West under the AKP's new foreign policy, the crucial support of the secular Turkish military must be considered before reaching any conclusion.
Israeli and some Western sources criticize the AKP for following an ideological foreign policy agenda and seeking to decouple Turkey from its traditional transatlantic orientation, instead increasingly serving Islamist and Arab interests. The AKP, in contrast, presents its search for autonomy and normalization of its relations with its neighbors as reflecting geopolitical reality, and argues that this serves both Turkish and Western interests in the surrounding regions.
The military leadership's expression of support comes to the aid of the AKP as it pursues several controversial foreign policy initiatives. These include the rapprochement with Syria and criticism of Israel, notably during the Gaza crisis. This approach does not represent parochial "Islamist" concerns, but rather they enjoy the backing of broader segments of the Turkish political and military elite. Despite their occasional differences of opinion over domestic political issues, particularly on the question of secularism, the government and the military have managed to reach a consensus over foreign policy, which suggests that a simple distinction along Islamist versus secular might no longer be relevant to understand Turkish foreign policy.
--Saban Kardas
