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Analysis: Turkish-Armenian Thaw And Energy

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  • Analysis: Turkish-Armenian Thaw And Energy

    ANALYSIS: TURKISH-ARMENIAN THAW AND ENERGY
    By John C.K. Daly

    UPI Energy
    April 27, 2009 Monday 6:22 PM EST

    During the past year, at a time of record-high energy prices,
    many European officials have decried what they see as Russia's
    state-owned Gazprom natural gas company being used as a tool to
    promote the Kremlin's policies by indulging in hardball quot;pipeline
    politics.quot; Gazprom's favored tool is variable prices being used
    to send political signals to recalcitrant former Soviet republics
    such as Ukraine and Georgia, with the pressure ramping up in direct
    proportion to a government's inclination to look westward.

    Of all the former Soviet republics, Armenia receives the most
    preferential pricing; effective April 1, Armenia pays a mere $154 per
    thousand cubic meters for Russian gas. In contrast, three months ago
    Gazprom Deputy Chairman Alexander Medvedev noted, in reference to
    Gazprom's intention to ramp up Ukraine's cost from $179 per tcm to
    $250 per tcm, quot;The rest of Europe pays more than $400 for each
    thousand cubic meters of gas it gets from Russia.quot;

    However, great political changes are moving in the southern Caucasus
    under one of the region's last quot;frozen conflicts,quot; which may
    well spell the end for Armenia's cozy arrangement for subsidized
    Russian gas. The longstanding triangular dispute between Turkey,
    Azerbaijan and Armenia over the 1988-1994 Azeri-Armenian conflict,
    during which Turkey in 1993 closed its border with Armenia in a
    show of solidarity with Baku, has recently seen Ankara and Yerevan
    tentatively moving toward normalizing relations.

    On April 24, the Turkish and Armenian foreign ministries announced,
    quot;The two parties have achieved tangible progress and mutual
    understanding in this process, and they have agreed on a comprehensive
    framework for the normalization of their bilateral relations.quot;
    After the implosion of the Soviet Union, Turkey was the first
    country to recognize Armenia's independence, but the positive
    relations were short-lived, and they were subsequently subsumed
    into the Azeri-Armenian conflict. After the Armenian-Turkish road
    map was announced, the Azerbaijani Foreign Ministry said, quot;The
    normalization of Turkish-Armenian relations must proceed in parallel
    with the withdrawal of Armenian troops from the occupied lands of
    Azerbaijan.quot;

    Should the framework result in full normalization of relations, it will
    represent yet another turn in the kaleidoscope of Caucasian politics,
    and Baku, worried about potential abandonment by its erstwhile ally
    Turkey, is making its displeasure widely known. If the discussions
    result in normalization, then it will prove a major step toward
    resolving a 20-year-old dispute, the longest remaining quot;frozen
    conflictquot; on former Soviet territory, which predates the collapse
    of the Soviet Union by three years.

    A shooting war between Armenia and Azerbaijan broke out in February
    1988 as both nations claimed the Nagorno-Karabakh enclave, then
    administered by Baku. By May 1994, when Azerbaijan and Armenia signed a
    cease-fire agreement ending active hostilities, the conflict had caused
    thousands of casualties, created hundreds of thousands of refugees on
    both sides and left Armenian armed forces occupying swaths of Azeri
    territory, including Nagorno-Karabakh and seven neighboring districts.

    The conflict was used by Russia as a bargaining chip to retain
    influence in the Caucasus, liberated from Soviet control by the 1991
    collapse of the Soviet Union. As both Georgia and rising petro-state
    Azerbaijan drifted out from under Moscow's control, Armenia by default
    became Russia's major Caucasian ally. A thaw between Turkey and Armenia
    would recast this strategic reality, but, as with most issues in the
    Caucasus, they remain complex as Azerbaijan remains deeply unhappy
    with the recent Turkish-Armenian rapprochement.

    Last but hardly least, a normalization of Turkish-Armenian relations,
    if Azerbaijan could be mollified, could have a dramatic impact on any
    potential future export routes for the rising volumes of Caspian oil
    and natural gas, as routes transiting Armenia would be far shorter
    and less expensive than those developed up to now.

    The crown jewel of Western investment in the Caspian is the $3.6
    billion, 1,092-mile, 1 million-barrel-per-day Baku-Tbilisi-Ceyhan
    pipeline, which became operational in May 1996. BTC transits
    high-quality Azeri crude from Azerbaijan's Caspian offshore
    Azeri-Chirag-Guneshli fields to Turkey's deepwater Mediterranean
    terminus at Ceyhan.

    Given the state of relations between Armenia and Azerbaijan at the
    time of BTC's construction, Armenia was excluded from hosting the
    pipeline, but Azerbaijan in turn was forced to pay a price for its
    unwillingness to negotiate, as BTC was forced to take a lengthy
    detour around Armenia, adding substantially to the project's cost
    and construction delays.

    The pipeline's contorted geography dovetailed nicely with Washington's
    support for multiple pipelines, so long as they avoided both Russia
    and Iran. BTC proved a financial windfall for both producing nation
    Azerbaijan and transit nations Georgia and Turkey. In the first half
    of 2007, BTC revenues boosted Azerbaijan's gross domestic product
    growth to an astounding 35 percent, while Georgia received annual
    transit fees averaging $62.5 million. Given that BTC covered 155
    miles of Georgian territory but 669 miles across Turkey, Ankara's
    share of transit revenues was projected at approximately $200 million
    per year. Yerevan could only sigh and watch from the sidelines.

    Not that Western pipeline schemes have ended; following the recent
    Gazprom-Turkmenistan dispute, interest is reviving in a Trans-Caspian
    Pipeline from Turkmenistan passing through Azerbaijan. While TCP was
    initially proposed as running through Georgia, a thaw in Turkish and
    Armenian relations could divert it southward, cutting many miles and
    millions of dollars off construction costs.

    Such a change would not be without political risk, however. The BTC
    could afford to divert around Armenia since it was not, in any military
    sense, a significant threat to the project or the states involved,
    but in the case of the TCP, it is most unlikely that either Russia
    or Iran would stand idly by while the TCP was built.

    Azeri displeasure with quot;blowbackquot; from the discussions
    is already evident. Gazprom is on the verge of new deals with
    Azerbaijan that promise to bring Azerbaijani gas back into Russian
    pipelines, specifically its envisioned South Stream pipeline, which, if
    constructed, would transit under the Black Sea from Russia to Bulgaria
    and then split into two pipelines -- one through the Mediterranean
    to Italy, the other through Serbia and Hungary to Austria.

    Not wishing to be left out in the cold, Azerbaijani and Armenian
    Presidents Ilham Aliyev and Serzh Sargsyan have agreed to meet in
    Prague, Czech Republic, on May 7 to continue the direct negotiations
    to settle the Nagorno-Karabakh conflict.

    Russia's reaction to the Turkish-Armenian thaw? For those reading
    ulterior political motives into Gazprom policies, ArmRosGazprom
    spokeswoman Shushan Sardaryan announced last week that gas supplies
    to Armenia would be halted from April 23 to 26 for quot;maintenance
    work.quot;

    Baku is not above sending an energy signal to Ankara, either, as
    Azerbaijan decided to the raise the price of the natural gas supplied
    to Turkey as of April 15. Turkish Prime Minister Recep Tayyip Erdogan
    responded that for Baku to raise natural gas prices when oil prices
    were falling was quot;bizarre.quot;

    Throw in Armenia's insistence that Turkey recognize the events in
    eastern Anatolia in 1915 as genocide, and the adjective seemingly best
    suited for prospects for a final pacification of the southern Caucasus,
    despite its energy potential, would seem to be quot;murky.quot; As
    geopolitical alliances thaw and shift, the only apparent certainty
    is that Caspian energy producers will signal their displeasure to
    neighboring client and transit nations with more quot;bizarrequot;
    behavior.
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