Russia's hard bargain jeopardizes Turkish Stream

It has been almost a month since Russian Energy Minister Alexander Novak said that Moscow and Ankara had agreed to a 10.25 percent gas price discount for Turkey, however the gas price discount agreement between Russian gas giant Gazprom and Turkey's Botaş has not yet been signed. Energy sector sources believe that Russia's hard bargain on the price discount is the main reason for delaying the agreement while they add that Russia's new conditions for Turkey also jeopardizes the Turkish Stream.

Turkish Stream, a natural gas pipeline project to deliver Russian natural gas to Europe via the Black Sea and Turkey through four pipelines with a capacity of 63 billion cubic meters, has drawn international attention since proposed last December by Russian President Vladimir Putin to replace the defunct South Stream project. The project is planned as four pipelines each with a capacity of 15.75 billion cubic meters. The pipeline will pass 660 kilometers under the Black Sea, followed by 250 kilometers in the Thrace region of Turkey until the Greek border. Turkey has been in favor of starting the first line of the Turkish Stream since its announcement, but the project could not start due to the failure of Turkey and Russia to reach an agreement.

According to the mutual agreement between Gazprom and Botaş, the price of natural gas purchased by Turkey must be updated every three years. Thus, since January Turkey has demanded a 10.25 percent discount and a $1 billion retroactive payment from the Russian side. However, Russia has been procrastinating, failing to sign the agreement and trying to link the discount issue to the Turkish Stream deal. According to sector sources, Russia is also imposing new conditions on Turkey since the country has been struggling to form a new government since the June 7 elections. To start the project, Turkey need to sign an intergovernmental agreement with Russia, which needs to be ratified by Parliament.. However, considering current political conditions, it is almost impossible for Turkey to sign and ratify the intergovernmental agreement with the country heading to another general election on Nov. 1.

Nevertheless, sector sources indicate that Russia is pressuring Turkey to find an intermediate solution to start the first phase of the project as soon as possible, and Russia's approach is considered as another problem. Moreover, some sector analysts claim that Turkey's recent agreement with the U.S., which includes deployment of U.S. warplanes at Turkish airbases to intensify efforts in the ongoing fight against the Islamic State of Iraq and al-Sham (ISIS), and disagreement over the Syria issue have further damaged bilateral relations and negatively affected the gas deal. There have been problematic areas on foreign policy issues between Russia and Turkey, but in recent years both countries have managed to improve cooperation in various field, especially in the energy sector, so this argument seems to be not credible.

While these problematic areas concerning Turkish Stream are waiting to be solved by Putin and President Recep Tayyip Erdoğan during their meeting in November, Russia is intensifying its diplomatic efforts to pave the way for the Balkan route of the project. Vedomosti, a Russian newspaper, reported in recent days that Greece, Serbia, and Hungary are about to sign joint memorandums of cooperation on the Turkish Stream and its route through their territories. The paper asserted that the Greek, Serbian and Hungarian foreign ministers would meet in Belgrade in September to announce an agreement that will see the exact route formalized.

The first line of the Turkish Stream is slated to cross the Black Sea and the length of the offshore part will be 910 kilometers. The length of the Turkish onshore section will be 180 kilometers and cost 3.3 billion euros. The first phase of the project was to be finished by the end of 2016, however how long these delays will postpone the project is not known.