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Turkish–Azerbaijani EnergyCooperation and Nabucco:Testing the Limits of the NewTurkish Foreign Policy RhetoricSaban Kardas aa International Relations , TOBB‐University ofEconomics and Technology , Ankara, TurkeyPublished online: 25 May 2011.

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Turkish StudiesVol. 12, No. 1, 55–77, March 2011

ISSN 1468-3849 Print/1743-9663 Online/11/010055-23 © 2011 Taylor & FrancisDOI: 10.1080/14683849.2011.563503

Turkish–Azerbaijani Energy Cooperation and Nabucco: Testing the Limits of the New Turkish Foreign Policy Rhetoric

SABAN KARDAS

International Relations, TOBB-University of Economics and Technology, Ankara, Turkey

Taylor and FrancisFTUR_A_563503.sgm10.1080/14683849.2011.563503Turkish Studies1468-3849 (print)/1743-9663 (online)Original Article2011Taylor & Francis1210000002011Dr SabanKardasskardas@etu.edu.tr

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BSTRACT

This article examines the prospects of the Turkish government’s rhetoric offollowing zero-problems with neighbors and pursuing ‘positive-sum’ strategies to fosterregional cooperation. Through a detailed examination of the Turkish–Azerbaijani energycooperation in the context of the Nabucco natural gas pipeline, the article concludes that thispolicy is unsustainable and Turkey will come under pressure to set a more realistic foreignpolicy agenda that prioritizes among the country’s strategic relationships. Moreover,although many believe that Turkey’s overtures to Armenia lie at the heart of the troubles inTurkish–Azerbaijani energy talks, this article suggests that the real causes are the diverginginterests between the two countries due to the underlying incompatibilities of their energypolicies, breeding a ‘negative-sum’ game.

Two remarkable developments in Turkish foreign policy have been the increasedactivism observed in energy policies and the initiatives toward resolution ofconflicts with neighbors. The Justice and Development Party (AK Party) govern-ment has been capitalizing on various oil and natural gas pipeline deals with theEuropean Union, Russia, Iran, Iraq, Qatar and Syria to hail Turkey’s emergence as anew energy terminal. These developments coincided with a parallel set of stepsundertaken by the government toward the resolution of the disputes and the estab-lishment of high level strategic cooperation councils with neighbors, coupled withAnkara’s desire to act as a peace-broker in regional crises.

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The government publi-cizes energy cooperation and conflict resolution as the most important vindicationsof Turkey’s rising profile in regional and global diplomacy; hence the proof ofsuccess for the new Turkish foreign policy.

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A unique characteristic of the Turkish foreign policy doctrine is its all-inclusiveness. Highlighting, among others, the interrelated notions of promotingwin-win strategies and zero-problem with neighbors, the new foreign policy elitein Ankara view multi-dimensional partnerships with all neighbors and other major

Correspondence Address:

Saban Kardas, TOBB-ETU, Sogutozu Cad. No.43, Ankara, 06560, Turkey.Email: skardas@etu.edu.tr

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powers, as well as participation in rival projects, in non-exclusionary terms.

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Theyperceive themselves capable of improving relations with the Islamic world andMiddle Eastern neighbors without compromising the country’s dream to join theEuropean Union. They reject the depiction of Ankara’s growing ties with Tehranas detrimental to its relations with Washington. They believe closer ties withRussia are not threatening Turkey’s Western-orientated foreign policy andcommitments under NATO. They argue the several energy deals with the EU andRussia complement each other, rebuffing the critics who view some of theseprojects as archrivals.

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There remains one notable exception to this trend towards convergence withneighbors and the rhetoric of pursuing positive-sum foreign policy strategies. Indefiance of Turkey’s rediscovery of its regional depth and fostering integration withneighbors, Turkish–Azerbaijani relations went through rough episodes. Both dimen-sions of Turkey’s new foreign policy, energy projects and resolution of conflictswith neighbors, took their toll on the collegial ties between Turkey and Azerbaijan,arguably the most solid partnership Turkey has developed in recent decades. First,Ankara’s attempts toward rapprochement with Yerevan shook the trust betweenBaku and Ankara, as Baku vocally raised its objections to such normalization takingplace at the expense of its interests

vis-à-vis

Yerevan. Second, Turkey and Azer-baijan were embroiled in negotiations on two inter-related energy issues, whichlasted over two years: the price revision for Turkish natural gas imports fromAzerbaijan and the regulations to govern the passage of Azerbaijani gas exports toEurope via Turkish territory.

The parties’ failure to bridge differences over price revision and transit regula-tions first and foremost posed a threat to the energy partnership between Turkey,Azerbaijan and the West. Turkey’s position on the negotiations with Azerbaijanfueled suspicions over the future of the Nabucco natural gas pipeline project whichwill transport gas from the Caspian basin and the Middle East to Europe via Turkey.The two sides’ inability to reach an agreement, even at the expense of throwingserious doubts over the viability of Nabucco, was all the more puzzling consideringthat Turkey and Azerbaijan had been, along with the EU and the United States, themain promoters of Nabucco, and treated this project as a strategic priority. Thedisagreements in energy issues, moreover, strained the Turkish–Azerbaijani bilat-eral relations. Taken together with other crises simultaneously taking place betweenBaku and Ankara, Turkish–Azerbaijani ties moved away from their usual collegiallevel a few years earlier. Although those crises are slowly overcome following theresolution of the gas disputes and stalling of Turkish–Armenian normalizationprocess, competition increasingly became a component of Turkish–Azerbaijanirelations.

This article will examine energy-related aspects of the troubles encountered inTurkish–Azerbaijani relations in order to answer the following question: why hasthe solid partnership between Ankara and Baku deteriorated rapidly; especially at atime when Turkey claims to be developing friendly relations with all neighbors andpursuing win-win strategies to foster cooperation with multiple regional and global

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players? Many people assume Turkey’s overture to Armenia lies at the heart of theenergy-related problems between Turkey and Azerbaijan. According to the domi-nant narrative, Baku is using the energy/gas card to gain leverage over Turkey’spolicies toward Armenia. Although there is some truth to this explanation, the realcauses are to be found elsewhere.

This article, in contrast, asserts that the deadlock in the Turkish-Azerbaijani gastalks has more to do with the diverging interests of Turkey and Azerbaijan inenergy policies rather than other bilateral problems caused by the Turkish–Arme-nian diplomatic thaw. It is argued that the stalling of the gas negotiations withAzerbaijan was a result of the growing incompatibility between the two countries’energy policies, which bred a negative-sum game. The resulting competition wasfurther exacerbated by the diminishing power of shared strategic perspectivebetween the two countries, which traditionally helped mitigate conflicts of interestand facilitate cooperation. As such, this case demonstrates the limits of the rhetoricof limitless cooperation advocated by the Turkish government. This leads to themain argument of the article: such an overly optimistic foreign policy doctrine isunsustainable and the government will come under pressure to readjust its rhetoricto reality.

Throughout the article, the Turkish–Azerbaijani energy cooperation is locatedwithin the context of the East–West energy corridor idea, a US-led project originallydeveloped in the mid-1990s to diversify export routes for the transportation of theCaspian basin hydrocarbons to Western markets. Since the Turkish–Azerbaijanienergy cooperation developed within this broader framework, such an exercise willfacilitate our inquiry into the roots of the diverging interests in the energy partner-ship between Ankara and Baku. By comparing their increasingly competitive rela-tionship within the Nabucco project to their previous record of rather collegialcooperation, it will be possible to discern the extent and causes of the recent riftbetween the two countries.

The article proceeds in six sections. It starts with an analysis by reviewing howthe compatible commercial interests and overlapping strategic perspectives betweenTurkey, Azerbaijan and their Western partners fostered a conducive environment toinitiate closer cooperation in energy projects within the context of the East–Westenergy corridor. It then discusses the Turkish–Azerbaijani cooperation in the processleading to the completion of the Baku–Tbilisi–Ceyhan (BTC) crude pipeline,considered as the first stage of the East–West energy corridor idea. In the followingsection, the policies of the EU, Turkey and Azerbaijan in the context of the secondstage of the East–West energy corridor for opening a natural gas route from theCaspian basin to European markets are analyzed. After demonstrating the growingrift between the positions of Turkey and Azerbaijan toward the Nabucco project, thisarticle focuses on the unfolding of the Turkish–Azerbaijani gas row and proposes anexplanation for the underlying reasons for this dispute. A discussion of the implica-tions of this case for the Turkish–Azerbaijani bilateral relations and for the discus-sions concerning the recent direction of Turkish foreign policy is presented in theconclusion.

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The East–West Energy Corridor Idea: The Basis of Turkish–Western–Azerbaijani Energy Partnership

The major objectives of Turkey’s external energy policies were the prime engine ofits energy cooperation with Azerbaijan and the West. Turkey’s external energy poli-cies have been driven by two complementary goals.

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First, as an emerging economy,Turkey has had an increasing appetite for oil and gas, which elevated the country tothe status of a significant consumer in the hydrocarbons market. Considering itslimited proven domestic hydrocarbon reserves, it depends heavily on imports fortwo-thirds of its energy consumption.

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Second, the geographic location it occupiesbetween the producers and the consumers affords Turkey the function of a transitcountry. Western policies to diversify energy supplies by importing oil and gas fromthe Caspian basin and the Middle East have rendered Turkey an alternative corridor,hence boosted the Turkish leaders’ inclination to emphasize the country’s role as astrategic bridge. Gradually, Turkey has sought to expand its role beyond a plaintransit country by capitalizing on its geographic position to assert itself as a majorenergy hub.

To realize these objectives, Turkey actively engaged in projects for developingextensive pipeline infrastructure and maritime transportation routes for the import aswell as transit of foreign energy resources through its territory.

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Consequently, jointenergy projects with the Western world and Caspian basin countries have increasinglyoccupied the center place of Ankara’s foreign policy agenda. On the one hand, energycooperation facilitated Turkey’s relations with Western powers. On the other hand,shared interests in energy cooperation became one of the major factors shapingTurkey’s relations with countries in the Caucasus and Central Asia. Turkey had anambitious vision to foster closer ties with the energy-rich Turkic-speaking countriesin Eurasia. However, Turkey’s influence remained limited beyond the eastern shoresof the Caspian Sea. Despite some oil and gas agreements with Turkmenistan andKazakhstan, Turkey has not been able to gain access to Central Asian producers, duepartly to the problems stemming from the unresolved status of the Caspian Sea.Granted, given Turkey’s dependence on imported oil and gas, securing the stabilityof the origin and transit countries evolved into an important goal of Turkish foreignpolicy, which in turn rendered Turkey an indispensable stakeholder in regionalsecurity. As a result, Turkey’s regional alliances developed in line with, if not asextensions of, its energy policies, as reflected in its ties to Azerbaijan and Georgia.

Azerbaijan’s role in Western energy security further helped consolidate Turkish–Azerbaijani energy cooperation. Given its vast deposits, Azerbaijan is a majorsupplier in its own right, and, given its location, it serves as a strategic pivot for thetransfer of resources from the eastern shores of the Caspian via the prospective pipe-lines running through the seabed (notably gas from Turkmenistan and oil fromKazakhstan).

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These dual roles of Azerbaijan, combined with Turkey’s energydemand and desire for playing a hub role, fostered a mutual interdependencebetween the two countries. On the one hand, for Azerbaijan, Turkey became a majorcustomer of Azerbaijani exports and the Georgia–Turkey transportation corridor

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offered a viable alternative export route to the existing export options inherited fromthe Soviet era. On the other hand, Azerbaijan emerged as a potential energy supplierand, most importantly, a strategic gateway, for Turkey to access to the Caspianbasin and Central Asian resources.

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Such overlapping perspectives tied Turkey and Azerbaijan together and spurredthem to align their policies with the Western energy agenda. The case in point wherethe commercial and political objectives of Turkey and its Western and regionalpartners coincided was the East–West energy corridor idea.

The East–West Corridor

The idea of an East–West energy corridor, which was dubbed as the modern day silk-road in the mid-1990s, emerged as an outgrowth of converging commercial perspec-tives to reduce dependence on monopolies by diversifying suppliers and transportationroutes. In what came to be called as “multiple-pipelines” strategy, developed byAmerican policy makers,

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oil and gas from the Caspian basin and Central Asia wouldbe transported to the West through the use of the existing and new routes bypassingthe Russian-dominated traditional pipeline systems. Moreover, the corridor wasassigned broader political objectives, for it was viewed as the most effective tool toensure the integration of the post-Soviet nations into the global networks and theirtransformation toward democratic market economies. As a corollary to their goal ofensuring the secure flow of energy, both Turkey and its Western partners invested inthe stability and political transformation of the energy-producing nations, which even-tually led to the forging of a common strategic vision toward the region.

For the countries in the region, the Western interest to develop such alternativeprojects offered a window of opportunity to achieve their economic and politicalindependence from Russia and monetize their deposits at competitive terms. They,therefore, preferred a multi-vector policy to diversify export options for their naturalresources. In the Caucasus, especially Azerbaijan, as a producing and transit coun-try, and Georgia as a transit country, reoriented their foreign policies toward theWest, of which Turkey became a major conduit. Valuing the political and strategicgoals of the East–West corridor, Turkey worked hard to promote the project. Turkeyused this project to cement strategic ties with the Western world, as well as withcountries in its neighborhood, in order to advance both its energy interests andpolitical objectives.

The East–West energy corridor was conceived in two stages: oil and a natural gastransportation corridor.

East–West Oil Corridor: Baku–Tbilisi–Ceyhan

The first component of the East–West corridor concerned the transportation of crudefrom the region to world markets. The conclusion of the BTC pipeline in 2006 wasan outcome of a shared strategic vision between the regional countries (most notablyAzerbaijan), Turkey and the West. Following an agreement on the allocation of

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Azerbaijani oil deposits in 1994, dubbed as the contract of the century, the attentionincreasingly shifted to the determination of the main export route for the Azerbaijanicrude. Turkey and Azerbaijan developed the idea of a pipeline carrying oil fromBaku to Ceyhan as early as 1992. Despite several declarations of intent and signingof agreements, the project could be finally approved only in 2002. Initially, oilcompanies and investors preferred alternatives other than the BTC as the mainexport route, due to concerns over adequacy of reserves, feasibility of the pipeline,and security of the pipeline route. Occasional conflicts of interest between Turkeyand Azerbaijan also caused delays in the realization of the project. Economicimpediments lost their relevance in response to the developments in the interveningperiod, raising the prospects of the project.

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Despite the alterations in the economic environment, what really affected the fateof the project was the political support of the US, which changed its position in thesecond half of the 1990s and threw its weight behind the BTC. Having developed theEast–West corridor idea, the US supported it in international platforms, and facilitatedrelations between Turkey, Azerbaijan and Georgia to forge closer partnership amongthese countries as well as with the US. When the construction of the pipeline receivedthe green light in 2002, again strong backing of the American administration wasdecisive, which largely owed to Turkey’s renewed strategic relevance to US politicalagenda following the changing geopolitics of the region after 9/11.

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In order to realize the project, political interests in some cases overrode economiccalculations.

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Committed to the political objectives of the East–West idea, for itspart, Turkey promoted the BTC through adverse times. When investors expressedreluctance, Turkey even went as far as declaring its readiness to bear some of theeconomic costs in order to generate incentives to make the BTC commerciallyattractive. For instance, Turkey forewent some tariff revenues and declared its readi-ness to cover the additional construction costs of the pipeline passing through Turk-ish territory, if the costs exceeded $1.4 billion.

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Through such determined action onthe part of Turkey, Azerbaijan and the United States,

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the project could be material-ized in 2006.

The successful conclusion of the project and the flow of crude from the pipelinewere considered a success, as it provided a non-Russian alternative for the export ofthe region’s riches. Azerbaijan and Georgia’s adaptation of pro-Western policieswere attributed to the interdependencies created through this pipeline, hence taken asevidence that the political objectives of the East–West corridor were also accom-plished to some degree.

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By building on their partnership in energy transportation,Turkey, Georgia and Azerbaijan undertook other regional cooperation schemes, suchas the construction of the Baku–Tbilisi–Kars railway connecting the three countries,further deepening regional cooperation and their pro-Western orientation.

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East–West Gas Corridor: The Nabucco Pipeline Project

Building alternative gas transportation networks to carry Caspian basin gas to Westernmarkets was the second-leg of the East–West corridor, which proved more difficult

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to realize. The landlocked Caspian basin producers, Turkmenistan, Kazakhstan andAzerbaijan, are estimated to possess large natural gas deposits. Turkmenistan andKazakhstan sell their gas to Europe via the Soviet-era pipelines controlled byGazprom. Through its monopoly over the transportation of the Russian and theCaspian gas, Gazprom exerts leverage in upstream and downstream markets. Sinceconstruction of new routes will reduce their dependence on Gazprom and enhancetheir place in energy markets, regional countries also are supportive of diversificationefforts. As a latecomer to the club of gas suppliers, Azerbaijan particularly resistedRussian pressures and became an ardent advocate of alternative projects.

Given the overlapping interests between producers and consumers, as the oil fromthe region reached global markets through the BTC, the work on projects to tap theregion’s gas reserves was accelerated. In fact, the beginning of the East–West gascorridor idea could be traced to the plans for the construction of the Trans-Caspianpipeline (TCP) underneath the Caspian Sea to transport the Turkmen and Kazakhgas to Europe through Azerbaijan and Turkey. The ongoing dispute concerning theterritorial boundaries in the Caspian Sea, the problems between Azerbaijan andTurkmenistan, and objections from Russia and Iran prevented the realization of thisproject. Also, Turkey’s decision to sign the Blue Stream agreement with Russia hit aserious blow to the TCP, and due to the lack of political support and investor inter-est, the project was shelved in the early 2000s.

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Turkey’s efforts to purchase gas from Azerbaijan and Iran kept the idea of theEast–West gas corridor alive.

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In 1996, Turkey signed a gas import agreement withIran, despite opposition from the United States. This project was realized when theTabriz–Erzurum pipeline became operational in 2001. Despite its objections to theTurkish–Iranian cooperation, the United States did not sever ties with Turkey andmaintained cooperation in the East–West corridor to bring Caspian gas to Europeanmarkets. Although Azerbaijan was not originally considered a major supplier for theEast–West gas corridor, the confirmation of substantial gas reserves in Azerbaijan’soffshore Shahdeniz field in the Caspian Sea made the country a player in the gasindustry. Turkey and the United States worked closely on this project, parallel totheir collaboration in the BTC. Turkey committed to purchase the Azerbaijani gaswhich made the development of the first phase of the field feasible and led to theconstruction of the BP-operated South Caucasus Pipeline (or the SCP; also knownas Baku–Tbilisi–Erzurum: BTE), which came on stream in 2007.

Such connections Turkey built helped it solidify its position over energy diplo-macy, and provided a basis for starting the work on onward pipelines to carry theCaspian basin and Middle Eastern resources to European markets. The completion ofthe Turkey–Greece interconnector (TGI) in 2007, which connected Turkish andGreek gas grids, enabling the export of the Azerbaijani gas to Greece, was welcomedbecause it carried the first shipment of the Caspian gas to the EU avoiding Russianterritory. However, the project that will make a sizeable impact by transporting gasto the heart of Europe was Nabucco.

In 2002, five companies from the transit countries, Turkey, Bulgaria, Romania,Austria and Hungary, led by Austrian OMV and Turkish BOTAS, signed a declaration

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of intent to construct the Nabucco pipeline to carry Caspian basin and Middle Easterngas to the markets in Central and Western Europe. Despite the initial optimism of theNabucco consortium partners to make the pipeline operational by 2009, it has facedmany financial and political hurdles and the project has still yet to reach investmentstage.

Nabucco: A Strategic Challenge

It became a daunting task to achieve convergence of political will among theproducers, transit countries and consumers to materialize Nabucco. This outcomewas somehow puzzling, given that there existed strong demand- and supply-sideincentives to diversify transportation routes.

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The dilemmas before the project werefurther aggravated, because it faced competition from a monopolistic rival,Gazprom, which worked hard to preempt entry into market. The realization of theproject, thus, needed a strong political backing to bring on board the producers,consumers and transit countries, as well as addressing the financing challenges.Such a political leadership role was increasingly assumed by the EU. Turkey, too,played a leading role in the initiation and later promotion of the project, whichreflected how the EU’s attempts to explore new suppliers and transportation routesfor gas overlapped with Turkey’s goal of acting as an energy hub and meeting thedomestic demand. Perhaps more importantly, Turkey expressed a keen commitmentto Nabucco, for it viewed such partnership with the EU as an instrument to facilitatethe EU accession process.

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The divisions inside the EU concerning how to deal with Russia and the lack of acommon external energy policy, however, hindered the EU’s leadership role. Preoc-cupied with the war on terrorism and the post-Iraq war challenges in the MiddleEast, the United States could not provide the political leadership, either. TheRussian counteroffensive to forestall the construction of Nabucco by proposing itsalternative supply routes and manipulating its advantageous position over theupstream and downstream markets exacerbated the troubles of the Nabucco consor-tium. The EU’s decisive involvement came only after the Russian–Ukrainian rowsthat resulted in gas shortages in Europe in the winters of 2006 and 2009.

Nabucco finally was considered a realistic possibility and came to be embraced asa “strategic European project” following the Russian–Georgian war of August 2008and the Russian–Ukrainian gas crisis of 2009. These episodes exposed Europeancountries’ vulnerabilities stemming from their dependence on Russian-controlledlines, and reduced the internal disagreements among the EU members before theadaptation of a common position on external energy policy. As part of the emergingEU external energy policy, Nabucco was subsumed under the “Southern gas corri-dor” (SGC), a common framework for several projects to supply gas from Caspianand Middle Eastern sources, tagged as “one of the EU’s highest energy securitypriorities.”

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Meanwhile, Turkey’s position on Nabucco changed remarkably, as it ceased itscooperative attitude toward its partners in Nabucco. It rather started to approach the

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project from a pragmatic and utility-maximizing point of view, and demanded specialconcessions from its Nabucco partners, such as a fifteen percent lift-off from the gasflowing through the pipeline at discounted prices. Thus, the negotiations leading tothe Nabucco intergovernmental agreement (IGA) among the transit countries and theEU came to hinge on how to obtain Turkey’s commitment to the Nabucco project.The EU could not muster political clout to provide the necessary incentives for Turkeyto drop its demands for a long time. Turkey came under criticism, because its stallingof this strategic project was believed to have curbed the commitment of potentialinvestors and suppliers; hence, undermined both the European energy security andthe interests of the key supplier, Azerbaijan.

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The Unfolding of the Turkish–Azerbaijani Gas Row

As the Turkish–EU energy cooperation deteriorated in the first half of 2009, the Turk-ish–Azerbaijani energy partnership also started to shatter. There emerged a perceptionthat Turkey was seeking to use its position as the main export route and major customerof the Azerbaijani gas to extract favorable terms from Azerbaijan in the ongoing gasnegotiations with this country. The resulting delays forced the Azerbaijani leadershipto vocally complain about Turkey’s policies and demonstrate a willingness to use the“energy card” more aggressively toward Turkey and the West.

Before a detailed elaboration of the Turkish–Azerbaijani gas row, it will be inorder to review the importance of Azerbaijan for Nabucco.

Azerbaijan’s Crucial Position in Nabucco

The importance of Azerbaijan for Nabucco stems from the dual roles it plays inEuropean energy security highlighted before: as a supplier in its own right, and agateway to other Caspian basin producers. Most studies on Nabucco and otherdiversification projects focused on Azerbaijan’s giant Shahdeniz field and the role itcould play in feeding the pipelines from the Caspian basin, for several political andtechnical questions surrounded the Middle Eastern options.

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According to theconsortium’s plans,

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Nabucco is expected to develop in two phases. In the firstphase, carrying around 8 billion cubic meter/year (bcm/y) of gas will make the pipe-line feasible, which is projected to come from Shahdeniz-II, expected to be opera-tional by 2015, and possibly from Northern Iraq and Egypt (through the Arabpipeline) at lesser volumes. Although Azerbaijan’s commitment would be enough tostart the project, Nabucco’s feasibility in the long-term is believed to depend oncontributions by other producers. Therefore, in the second phase, tapping Turkmen-istan’s resources is considered vital so that the pipeline could reach its full capacityof 31 bcm/y. Given its geographic location which allows access to the Turkmen gas(through the TCP), Azerbaijan will also be the key to the second phase of the projectas a transit country.

Since Nabucco was considered a non-starter without Azerbaijan’s participation,Russia has worked aggressively to prevent Nabucco’s access to the Azerbaijani gas.

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Starting in the summer of 2008, Russia approached Azerbaijan, through a combina-tion of commercial proposals and political pressures, to purchase the whole volumeof gas from the Shahdeniz-II, similar to other agreements it signed with Turkmenistanand Kazakhstan.

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Such moves were part of Gazprom’s strategy of denying Nabuccoaccess to upstream markets, hence scuttling non-Russian lines from the Caspianbasin. Though not completely closing the door on Gazprom, Azerbaijan declined suchoffers and sustained its interest in the EU’s diversification efforts. Azerbaijanattended the Budapest, Sofia and Prague energy summits held by the EU in the firsthalf of 2009 to realize the Southern Corridor, where it reiterated its commitment tosupply Nabucco, provided transit problems with Turkey were resolved.

Turkish–Azerbaijani Row as an Extension of Turkish–EU Talks

Initially, the Azerbaijan–Turkey row was largely an outgrowth of the stalematebetween Turkey and the EU over the IGA negotiations. Several of Turkey’s demands,most notably the fifteen percent lift-off, were in direct conflict with Azerbaijan’sinterests. Moreover, according to the Azerbaijani side, the delays in Nabucco and thelack of certainty regarding export routes were discouraging potential buyers, henceforcing the operators of the Shahdeniz-II field to postpone the development of thefield. Although Azerbaijan reaffirmed its support for Nabucco in Budapest, it alsourged the EU to intensify efforts toward the realization of the project, indicating thatif the EU failed to do so, Azerbaijan could no longer be taken for granted and mightconsider alternative Russian proposals for westbound flow of its gas.

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The concern to keep Baku committed to the project provided an additional imper-ative for the EU to resolve transit problems with Turkey. As a matter of fact, underthe “Southern Corridor” concept, the EU expressed support for other projects toexport gas from the Caspian basin that are developed to bypass Turkey, such as theWhite Stream. Nonetheless, the Turkish territory remained as the most viable alter-native for the transportation of the Caspian basin resources, as other SouthernCorridor projects, such as the Trans-Adriatic Pipeline (TAP) also relied on the sameroute and the Turkey option allowed for access to the Middle Eastern producers aswell. The delays in the negotiations with Turkey, coupled with the advancesachieved by Russia’s South Stream project, were putting the fate of Nabucco atjeopardy. Taking advantage of the divisions on the Nabucco front, Gazprom, whichhad managed to sign several critical agreements with transit countries to elevate theSouth Stream’s position in the pipeline derby, accelerated its efforts to wooAzerbaijan into the project.

The uncertainty over Nabucco led Azerbaijan to relax its policy on energy cooper-ation with Russia and play the “gas card” more aggressively, although AzerbaijaniPresident Ilham Aliyev indicated that Baku remained committed to its pro-Westernenergy policies.

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Following his meeting with Russian President Dmitri Medvedev inmid-April, Aliyev indicated that he did not see any restrictions on gas sales to Russia.During the same meeting, the two leaders also discussed possible Russian mediationin the Nagorno-Karabakh conflict.

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Meanwhile, Azerbaijan signed a memorandum

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of understanding with Russia, under which SOCAR would export a small volume ofgas to Russia at competitive international prices. This decision was intended as atactical move to spur the West and Turkey to resolve their remaining differences andprovide Azerbaijan with a clear prospect. Russia later reiterated its proposal to buyall of Azerbaijan’s production from the Shahdeniz-II.

30

Azerbaijan’s indirect threatto its Nabucco partners and Russia’s courting of Azerbaijan served as a wake-up callfor Turkey and other European countries, and helped convince Ankara to end itsstalling and open the way for the IGA. Soon after the announcement of the Russian–Azerbaijani deal, Turkey reached a compromise deal with the EU and finallyannounced that it was ready to hold the signing ceremony for the IGA in Ankara onJuly 13, 2009.

Azerbaijan welcomed Turkey’s announcement. At the signing ceremony for theNabucco IGA in Ankara, Azerbaijani Minister of Industry and Energy, NatiqAliyev, was saying that “I am sure that the project will be realized successfully.Azerbaijan is the corridor for this project … [which] will strengthen Azerbaijan’sposition in the world market.”

31

Still, Baku maintained a distance with Ankara, asPresident Aliyev refrained from attending the IGA summit. Despite heightenedexpectations for a quicker resolution of the transit issues, the ensuing developmentstook an unexpected turn. Turkey also went ahead and declared its readiness to coop-erate with Russia’s rival project, South Stream, and focused its efforts on signingnew energy cooperation agreements with Middle Eastern suppliers. The Turkish–Azerbaijani disagreements continued even after Turkey and the EU bridged theirdifferences, reheating concerns over the viability of Nabucco.

Turkish–Azerbaijani Row as a Self-Standing Crisis

Over time, the Turkish–Azerbaijani row increasingly gained a momentum of its own,independent of the Turkish–EU disagreements. Despite Turkey’s adopting of a morecooperative attitude in the IGA negotiations, Turkish–Azerbaijani talks on pricingand transit fees continued to receive setbacks due to the two sides’ inability to bridgetheir differences. In substantial terms, the Turkey–Azerbaijan dispute concerned twointerrelated issues: price revision for Turkish gas imports from Azerbaijan, and settinga transit regime for the export of Azerbaijani gas through Turkey.

Under the terms of a 2001 gas purchase contract, Turkey annually imports 6.6bcm/y of gas from Azerbaijan’s Shahdeniz-I site through the SCP, at a price of $120per thousand cubic meters, which is far below current market prices. The 2001agreement stipulated that parties could renegotiate the price one year after it wentinto force. The price terms expired in April 2008, yet Turkey continued to importAzerbaijani gas at the old price. The two countries started negotiations on pricerevision,

32

a process which increasingly was mired with other problems. Bakudemanded the adjustment of the price to reflect the current market value, althoughAnkara was unenthusiastic to increase the price to a level that would satisfy Baku’sexpectations. Moreover, negotiations for the volume and price for Turkey’s plannedpurchase of up to 8 bcm/y of gas from the Shahdeniz-II were combined with the

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renegotiation of the Shahdeniz-I price. To complicate matters further, the discus-sions on the terms under which Azerbaijani gas would transit Turkey

en route

toEurope eclipsed into the Turkish–Azerbaijani talks. At the same time, Azerbaijanalso voiced its demands for the liberalization of the Turkish energy market, limitingthe monopoly of Turkey’s BOTAS over gas trade.

In addition to the low price, Turkey was also provided a leeway in the arrangementscovering the Shahdeniz-I. Since the Turkish–Azerbaijani gas purchase and sale agree-ment did not contain any destination clause, Turkey can sell the Azerbaijani gas tothird countries, which is the case for the TGI. The flexibility afforded by Azerbaijan,compared to Turkey’s other gas contracts with Russia and Iran which prohibit re-saleto third countries and require Turkey to pay much higher prices than what it pays toAzerbaijan, offers a great advantage to Turkey.

33

According to the Azerbaijani accounts, when Azerbaijan agreed to grant Turkeythese favorable commercial terms, it was expecting that Turkey would allow thetransfer of the future volumes from Shahdeniz-II on transit terms. Turkey, however,insisted on retaining its advantageous position. While Azerbaijan was eyeing unin-terrupted flow of its gas to Europe, Turkey sought to continue to purchase theAzerbaijani gas at lower prices and resell it onward to European markets on its ownterms. The IGA served as catalysts for Turkish–Azerbaijani talks. Turkey relin-quished its demand to purchase 15 percent of the gas transit at discounted prices,and agreed on cost-based transit. While Turkey still insisted on its demand for re-export rights for its imports from Shahdeniz-I and Shahdeniz-II, Azerbaijan inreturn expected Turkey to accommodate its concerns on the price, and the transitfees for Azerbaijan’s exports to Europe through Turkey. Azerbaijan’s unwillingnessto grant Turkey further concessions over the prices and the passage of its gasthrough Turkey turned into a major point of disagreement that stalled the progress ofTurkish–Azerbaijani talks until an agreement was reached in June 2010.

34

The Interplay between Gas Dispute and Turkish–Armenian Normalization

Although the disagreements in Turkish–Azerbaijani talks were known to insidersfor some time, they slowly came to public attention starting from April 2009. Corre-sponding roughly to changes in Azerbaijan’s position on energy cooperation withRussia, the Turkish press publicized that Azerbaijan might halt gas supplies toTurkey if the parties failed to bridge their differences over price revisions. Mostimportantly, since the Azerbaijani–Turkish row took place against the backgroundof the Turkish government’s efforts to resolve the long-standing problems withArmenia, the Turkish press speculated that Azerbaijan was using the gas as a tool toundermine the Turkish–Armenian thaw.

35

While Ankara and Yerevan announced ahistoric road map, Azerbaijani leaders and public expressed their dissatisfactionwith what they perceived as Turkey’s disregard of Azerbaijan’s interests, whichdealt a serious blow to the bilateral relations.

It took Prime Minister Recep Tayyip Erdo

[GBREVE]

an to pay an official visit to Baku inMay in order to calm the tensions between Baku and Ankara. In his address to the

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Azerbaijani Parliament, Erdo

[GBREVE]

an reiterated that Turkey would not proceed withnormalization with Armenia without the resolution of the Nagorno-Karabakh issue.Moreover, Erdo

[GBREVE]

an discussed energy issues with his Azerbaijani counterparts.Though he promised that a new and fair price would be found for gas imports fromAzerbaijan, a price satisfying Baku could not be agreed upon soon.

36

Turkish EnergyMinister Taner Yıldız repeatedly underlined on several occasions that Turkey waseyeing a price that was not completely disconnected from world markets, yet one thatis below the current market prices.

37

However, new rounds of talks did not suffice toreach an agreement, indicating the severity of the underlying disagreements.

Meanwhile, despite the objections coming from Baku and the Turkish public,Ankara proceeded with its rapprochement with Yerevan, by signing protocols forthe establishment of diplomatic relations and reopening of the common border inOctober 2009. The lack of explicit reference to the Nagorno-Karabakh issue inTurkish–Armenian accords again invited the ire of Azerbaijani leaders and public,as well as domestic opposition. Parallel to their efforts to reassure Baku about thelimits of Turkey’s normalization with Armenia, Turkish government officials indi-cated that they would restart price negotiations with Baku.

Such efforts, however, could not prevent further deterioration of the Turkish–Azerbaijani energy relations. The row gained a new dimension when Aliyevpublicly criticized Turkey’s position in the gas talks in October 2009, expressing hisdissatisfaction with the delays. Maintaining in an address to the members of his cabi-net that Baku had sold cheap gas to Turkey for years, he posed the question: “Whichcountry would sell their natural resources at 30 percent of international prices?”

38

This news came as a shock to the Turkish public and the government, especiallyconsidering that around the same time Azerbaijani–Turkish relations were strug-gling to overcome other crises, such as the disallowing of Azerbaijani flags in aTurkish–Armenian soccer game and the removal of Turkish flags from a cemetery inBaku, where Turkish soldiers who died while defending Baku were buried. Erdo

[GBREVE]

anexpressed his disappointment with Aliyev for his failure to reduce the tensionsbetween the two countries and to stand firm against “smear attempts to sow the seedsof mistrust between the two nations.”

39

While responding to Aliyev’s criticism aboutthe gas dispute, Yıldız downplayed disagreements arguing that Aliyev was misin-formed. Inviting his Azerbaijani counterparts to recall that Turkey stood behindthem in difficult times, Yıldız asked them to drop their demand to sell gas to Turkeyat the current world prices. Later he also added that if an agreement could not bereached, Turkey would not be devoid of alternative options.

40

Despite the resumption of a new round of talks, both sides also increasingly wenttheir own ways in natural gas projects. Turkey signed a new agreement with Iran todevelop Iran’s gas fields and supply Nabucco with Iranian gas, overlooking theobjections coming from Washington. As Turkey was, moreover, expanding itsenergy partnership with other Middle Eastern suppliers, Azerbaijan, too, continuedon its policy of deepening energy cooperation with Moscow, and diversifying itsexport options. Azerbaijan finalized the agreement for export of 500 mcm/y of gasannually to Russia soon after the Turkish–Armenian accords. Azerbaijan also signed

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other gas export agreements with Iran (500 mcm/y) and Bulgaria (one bcm/y), and itis even possible to hear Azerbaijani officials talking about the possibility of sellinggas to China. Moreover, Baku’s frustration over the delays in negotiations withTurkey and diminishing prospects of Nabucco forced the country’s leadership toexplore new export options circumventing Turkey, through the Black Sea in theform of liquefied or compressed natural gas.

41

Meanwhile, Turkish–Armenian normalization lost steam by the end of 2009, asthe two sides were unable or unwilling to confront domestic opposition. They bothdeclined to forward the protocols to their respective parliaments for ratification,which created a stalemate that was difficult to unblock. Rather than seeking ways toovercome this situation, the two parties further engaged in blame games, accusingthe other of having deviated from the mutual understanding and undermined thespirit of normalization. Despite US efforts to mediate and at times threaten to punishTurkey, the deadlock could not be unlocked and the normalization process practi-cally came to a halt in the first months of 2010. In these discussions, Turkey firmlyreiterated its position that progress in the Nagorno-Karabakh dispute will be aprecondition for the Turkish–Armenian rapprochement.

Turkish–Azerbaijani talks continued through the first half of 2010, despite theslowdown of the Turkish–Armenian normalization. As the talks were resumedfollowing Aliyev’s stern remarks, Turkish sources underlined on many occasionsthat they submitted an attractive proposal to Azerbaijan, which should facilitate asolution. A visit by Azerbaijani Foreign Minister Elmar Mammadyarov to Ankarain December 2009, where he met his Turkish counterpart and Turkish president andprime minister, raised expectations for a quick resolution of the negotiations. InFebruary 2010, Yıldız was arguing that “I am convinced that political issues, such asArmenia, will not hinder a conclusion with our brother country Azerbaijan,” andthey were close to a deal.

42

Nonetheless, although Turkey’s peace efforts withArmenia no longer held back a deal, it took several more months until Bakuaccepted Turkey’s terms in their entirety, which demonstrated the importance of thedisagreements in the gas negotiations.

Again, both Ankara’s position and the lack of a clear leadership in Europe to moveNabucco forward led to frustration among the officials in Baku. President Aliyevuttered his concerns publicly during the World Economic Summit in Davos, indicatingthat Azerbaijan would consider different alternatives more seriously. Since the delaysin the negotiations were hindering the Nabucco project, European and Americansources exerted pressure on Ankara and Baku, calling for the quick resolution of thetransit issue. Such pressures, however, were of no avail for a long time.

In May 2010, Turkey and Azerbaijan finally announced that they achieved abreakthrough to end the two-year long dispute. Although an agreement wasexpected to be inked during Erdogan’s visit to Baku the same month, it could besigned only during Aliyev’s visit to Turkey in June. Through a memorandum ofunderstanding, Turkey and Azerbaijan were able to bridge their differences overprices for Turkey’s imports and over the terms and mechanisms for the transit ofAzerbaijani gas to Europe to a great extent. Turkey agreed to pay a higher price,

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though it would fall slightly below what it currently pays for the Russian gas.Azerbaijan will pay transit fees for its exports, while Turkey might retain re-exportrights for its own imports from Azerbaijan. The Azerbaijani side was also given theassurance that Turkey would continue with liberalization of its energy market,which would facilitate Azerbaijani companies’ direct access to the Turkish domesticmarket. Although the disagreements persisted till the last moment the agreementwas signed and many technical details remained to be clarified, the deal signifiedthat the two sides were ready to reenergize their energy partnership and Ankara wasdetermined to shape its Caucasus policy around Baku.

43

What Explains the Turkish–Azerbaijani Row?

Looking at the timing of these developments, there is a tendency to attribute theenergy dispute to the worsening ties between Baku and Ankara as a result of theTurkish–Armenian rapprochement. It was widely claimed that Azerbaijan wasreacting mainly to what it perceived as Turkey’s disregard of Azerbaijan’s positionon the Nagorno-Karabakh issue.

44

This interpretation was also shared by the Turkishopposition parties which constantly charge the AK Party government for undermin-ing Turkey’s interests as a result of the Turkish–Armenian rapprochement.

45

Simi-larly, Turkish energy officials also acknowledged a similar connection, who soughtto downplay the extent of the gas dispute, by attributing it to political disagreements.Moreover, it is also possible to hear statements from some Azerbaijani officials thattend to establish implicit linkages between the two processes.

46

It is difficult to deny the repercussions of the Turkish–Armenian normalizationfor the growing disenchantment of the Turkish–Azerbaijani energy cooperation.Nonetheless, the gas row has its own dynamics, independent of the other issues onthe bilateral agenda. Although this dispute came to the attention of outside observersmainly following Aliyev’s stern remarks in October 2009, the dispute over pricesand tariffs was in the making for some time and predated the disagreements causedby Turkish–Armenian normalization. In the remainder of the article, a closeraccount of how the commercial and strategic outlooks of the two countries in energycooperation fostered a negative-sum game between Turkey and Azerbaijan, settingthe background for the recent row, will be provided.

Diverging Interests in Turkish–Azerbaijani Energy Cooperation

The essence of the disagreements between Turkey and Azerbaijan is the underlyingincompatibilities of their respective energy policies and the political meaning theyattach to energy projects. As Turkey aggressively seeks to become an energy hub,which essentially implies that it uses its geographic location as an advantage to actas a broker between the producers and consumers, it comes into conflict with otherplayers. This underlying conflict is captured in the remarks by State Ministerresponsible for EU affairs, Egemen Ba

[GBREVE]

ı

[SCEDIL]

: “Coffee does not grow in Turkey, but‘Turkish coffee’ is served all around the world. We brought coffee from Yemen,

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developed our brewing technique, and stamped our trademark. We could do thesame with energy.”

47

While Turkey is overplaying its hand to emerge as a hub andmarket the gas flowing through Turkey as “Turkish gas,” none of the players in thegas industry is willing to bear the costs.

Such a hub role, not a mere transit corridor, has to come at the expense of otherplayers; either the European consumers will be willing to pay higher prices, or theexporters will have to settle for less than the netback prices in consumer markets. Inother words, producers and consumers will have to relinquish their gains to Turkey,rendering the latter a quasi-monopolistic position. However, since the very essenceof the diversification efforts is to escape Gazprom’s monopoly over the Europeangas supplies, both the consumers and producers do not want to see Turkey emergingas yet another middle-man, perhaps replicating Gazprom’s monopolistic behavior.They prefer the development of one uninterrupted line from the Caspian basinproducers to a major European hub from where gas will be distributed to principalconsumer markets in central and Western Europe. Both producers and Europeanconsumers, moreover, are eager to see that this pipeline operates on a purelycommercial basis so that price variations across customers reflect only the differ-ences in transportation costs, not any political deals.

48

The aggressive rhetoric of theTurkish government in recent years to turn Turkey’s geographic position in energytransportation into a political tool, and its willingness to use this leverage in the EUaccessions and other fields further exaggerated such underlying concerns of otherplayers in the gas industry.

As the most likely and willing supplier for Nabucco, Azerbaijan faced the reper-cussions of Turkey’s desire to play a hub role most immediately. For years, Azer-baijan resisted to selling gas to Russia, because it wanted to market it to Europe asAzerbaijani gas. As Natiq Aliyev said, Azerbaijan has “two goals—to sell gas forthe maximum price and at the same time to export gas to Europe.”

49

Baku thereforewas unwilling to let Ankara use its current monopoly over the Azerbaijani gas andtransit to reduce its own gains. Moreover, considering its impatience to find anoutlet for exporting gas, Azerbaijan believed it was adversely affected by the delaysin Nabucco.

50

Having entered into partnerships with multiple gas projects in aneffort to become a major hub, Turkey, in contrast, appeared less concerned with thedelays in Nabucco. As one analyst noted, faced with Russian inducements and pres-sures, in an environment when the future of the project was becoming uncertain,“loyalty to Nabucco means that Azerbaijan loses short-term commercial opportuni-ties to sell gas to Russia while irritating Moscow politically.”

51

As a result, what emerged was a zero-sum game between Turkey and Azerbaijanin terms of their commercial interests, whereby both sides sought to use all theircards to defend their national interests jealously.

Diminishing Joint Strategic Outlook

Also exaggerating the underlying zero-sum nature of this game were the transforma-tions in the political and strategic environment. While previously shared strategic

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outlooks within the broader context of the East–West energy corridor idea and thecollegial bilateral ties acted as lubricant to ease competitive pressures, the growingdivergence of the foreign policy priorities of the two countries intensified theircompetition in the natural gas negotiations.

Turkey no longer shares the same commitment to the political objectives of theEast–West energy corridor idea as it used to during the BTC. In an environmentwhere transatlantic consensus on Nabucco diminished considerably and Turkeycontinued to face obstacles in the EU accession process, increasingly, the majorstrategic objectives of Turkey’s energy policies were reformulated as part ofTurkey’s national priorities and new regional policies. First, this redefinition meantthat Turkey was less enthusiastic to accept the terms of the EU and became lessconcerned about breaking down the monopoly of Gazprom over the suppliers andconsumer markets. The availability of other options, namely strategic cooperationwith Russian projects, boosted Ankara’s self-confidence, and added to its desire totreat the partnership with Nabucco as one of several alternatives that might help itbecome an independent regional powerhouse in energy policies. As a result, despiterepeated statements from Turkish government officials that Turkey viewed Nabuccoas a strategic priority, it has approached this project from a pragmatic perspectiveand did not refrain from supporting the South Stream. Second, in line with thegovernment’s multi-dimensional foreign policy, which resulted in the expansion ofthe role of the Middle East in Turkish foreign policy agenda, Turkey’s energy poli-cies also are being instrumentalized to develop closer relations with the MiddleEastern suppliers. Turkey increasingly approaches the Nabucco project as a conduitfor transporting not only the Caspian but also Middle Eastern gas to Europe throughits territory, because energy cooperation contributes to Turkey’s plans for deepeningintegration with these countries.

At this juncture, the connection between the Turkish–Armenian thaw and theTurkish–Azerbaijani energy cooperation also has to be acknowledged. Turkey’snew Caucasus policy and openings to Armenia threatened to undermine the mitigat-ing role played previously by the shared strategic outlook between Baku andAnkara in regional diplomacy. Besides their joint commitment to the politicalobjectives of the East–West energy corridor, Azerbaijan’s desire to use its positionin energy chessboard as leverage to resolve the Nagorno-Karabakh issue was amajor factor facilitating the Turkish–Azerbaijani cooperation.

52

Therefore,Azerbaijan did not refrain from rendering itself dependent on Turkey-bound routesfor the transportation of both its crude and gas, as long as it viewed Turkey as a reli-able ally against Armenia. Turkey’s aggressive energy policies and rapprochementwith Armenia, however, forced Azerbaijan to question the political rationale behindits energy cooperation with Turkey and granting the latter commercial exclusivity.

53

While a joint strategic vision traditionally was making it easier to reach a consen-sus, the growing discord forced each side to approach energy cooperation in morecompetitive terms. As they were each out to promote their commercial interestsunmitigated by joint strategic goals, Ankara and Baku became inclined to play azero-sum game.

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The reversal in the Turkish–Armenian normalization process, due partly toAzerbaijan’s use of the energy card and Turkish opposition parties’ counter mobili-zation, definitely played a role in the final deal. As Turkey restated more forcefullythe central place Azerbaijan holds in its South Caucasus policies, Azerbaijan, too,reoriented towards Turkey as the main outlet for exporting its natural resources.Nonetheless, it also must be added that, despite Azerbaijan’s consideration ofalternative export routes, none of those options offered competitive alternatives.They were either marginal, such as supplying Bulgaria with 1–2 bcm/y compressednatural gas across the Black Sea, or costly, such as shipping 7–20 bcm/y liquefiednatural gas to Romania.54 Short of other realistic options to access lucrativeEuropean markets, Azerbaijan was essentially dependent on Turkey. One relatedstrategic factor that consolidated Azerbaijan’s preference for Turkey-bound routes,hence mitigated the zero-sum competition with Turkey, is the pro-Western orienta-tion pursued by the Azerbaijani leadership. Azerbaijan has been keen on maintain-ing closer relationship with the West to counter Russian dominance in the region.To the extent that energy cooperation with Turkey serves this broader strategicobjective, Azerbaijan has incentives to sustain its partnership with Turkey, as, forinstance, reflected in its conceding to relatively lower prices for Turkey.

Implications of the Turkish–Azerbaijani Row for the New Turkish Foreign Policy

Studying the disagreements in the Turkish–Azerbaijani gas talks is important in itsown right, considering their implication for the future of Turkey’s partnership withAzerbaijan which has been one of the cornerstones of its policies toward the Cauca-sus and Central Asia. Although the fraternal relations between the two countrieshave been products largely of common ethnic, linguistic and cultural heritage, theoverlapping interests in energy cooperation were an important variable helping themcement their partnership in other areas. Therefore, the Turkish government cameincreasingly under criticism from the domestic opposition for having jeopardizedTurkey’s strategic relationship and fraternal ties with Azerbaijan, and underminedTurkey’s economic interests. For instance, during the parliamentary discussions onthe budgets of both the Energy Ministry55 and the Foreign Affairs Ministry56 repre-sentatives from the opposition parties raised concerns about the deteriorating politi-cal and commercial ties with Azerbaijan, and their implications for Turkey’s role inthe Caucasus. In response, Ahmet Davuto lu maintained that “Our relations withAzerbaijan constitute the most important strategic axis not only in the Caucasus butalso in our entire foreign policy. We will continue to maintain our relations withAzerbaijan, too, by deepening them.”57 At international platforms, as well, the Turk-ish government continued to downplay the extent of the gas dispute, as reflected byDavuto lu’s remarks during a trip to Washington: “Turkey and Azerbaijan speakwith one voice on a number of regional issues. Nabucco is one.”58

A closer examination of Turkish–Azerbaijani partnership shows that Turkey’srhetoric might be deceiving. The competitive atmosphere that dominated the

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Turkish–Azerbaijani transit negotiations departs remarkably from the establishedpattern of cooperation, and in particular demonstrates the reluctance of Azerbaijan tolet the brotherhood get in the way of commercial interests. The parties eventuallyresolved their differences and reached an agreement, given the enormous opportu-nity costs of non-cooperation. Still, this episode is likely to affect the futureevolution of the bilateral relationship. So far, the Turks, both at the popular andgovernmental levels, have preferred to use a kinship-based rhetoric to approach jointcommercial projects with Azerbaijan. Azerbaijani officials, however, demonstratedpublicly their uneasiness with the two countries’ failure to speak with one voice, andhow their interests were hurt by resulting disagreements. Therefore, the experiencesof the two sides from the recent crises, including the gas row, are likely to acceleratean ongoing process for moving the Turkish–Azerbaijani relationship away from theemotional kinship-based rhetoric and redefining on more pragmatic grounds basedon a realistic assessment of shared and conflicting interests.59

Moreover, the case of the Turkish–Azerbaijani gas row has broader implicationsfor the recent discussions on the direction of Turkish foreign policy. This case helpsus put to test the viability of the “all-inclusive foreign policy” understanding advo-cated by the AK Party government. In line with the positive-sum approach to inter-national affairs, the government claims to develop a multi-dimensional foreignpolicy agenda within which it treats partnership with all neighbors and all projectsas complementary to, or non-exclusive of, each other. The term “strategic” is inabundant supply, as it is used to describe Turkey’s relationships with every countryand project.

It will be interesting to observe if the AK Party will be able to have its cake andeat it too, but already a lively debate on the current course of Turkish foreign policyis underway. Ankara’s collaboration with various seemingly incompatible projectsand the proactive diplomacy undertaken by Ankara, or as the Economist puts it, “theease with which Turkey juggles different worlds,” quite naturally continues topuzzle the observers of Turkish foreign policy both inside and outside the country.60

Skeptics rightly question whether turning toward all directions may not result in“disorientation.”61 In response to such accumulating criticisms that Turkish foreignpolicy is undergoing a shift of axis, or loses a meaningful direction, the makers ofthe AK Party’s foreign policy, foremost among them is foreign minister AhmetDavuto lu, have been arguing that the recent transformations are broadening thehorizons of Turkey.62 They further justify their position by posing the followingquestion to skeptics: what is more natural than pursuing enhanced relations withcountries in close proximity, and engaging them to foster a peaceful neighbor-hood?63 This is a valid argument, indeed, given the volatile neighborhoods Turkeyhas been bordering, and the multiplicity of the issues on the agenda of these regions.

Notwithstanding the rhetorical appeal of this optimistic foreign policy outlook,however, the case of Turkish–Azerbaijani relations defies the government’s claim tohave improved relations with all neighbors. Obviously, Turkey was unable tocontinue to buy Azerbaijani gas at discounted prices and capitalize on its transitmonopoly at the same time as it took steps to solve its problems with Armenia, all the

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while remaining as a strategic ally with Azerbaijan. Both Ankara’s recent energy poli-cies and conflict resolution efforts vis-à-vis Armenia resulted in growing divergencewith Baku. The Turkish government’s initial position within the context of Nabuccoand its efforts to develop multiple energy partnerships were likely to incur significantcosts for Azerbaijan, as they would lead to delays in the exploitation of Azerbaijan’sdeposits. Azerbaijan, thus, defended its interests jealously, as reflected in PresidentAliyev’s stern remarks. Recognizing the importance of maintaining cooperation withAzerbaijan, Turkey not only had to compromise in the gas negotiations, but it alsohad to slow down the normalization efforts with Armenia.

Thus, Realpolitik may force Turkey to revise such ambitious policies to accom-plish many seemingly incompatible objectives. Nonetheless, it is also the case thatthese policies might have long-term consequences for Turkey, as they generateconsiderable opportunity costs for the conventional pillars of the Turkish foreignpolicy. In this case, those efforts on Turkey’s part forced Azerbaijan to question itspartnership with Turkey and consider seriously alternative energy cooperation withRussia. As one Turkish expert on the Caucasus underlines, while relations withAzerbaijan were a non-issue for Turkish foreign policy, as reflected in the lack ofany academic studies on the subject, Turkish–Azerbaijani relations are increasinglybecoming a foreign policy issue.64 In an illustrative example of how Baku is seekingto reduce its dependence on Ankara, Turkey was not listed as an “ally” in the mili-tary strategy document, approved by the Azerbaijani parliament in June 2010, norwas integration into Euro-Atlantic structures listed as a major priority.65

The Turkish government’s claim of approaching various regional projects from apositive-sum perspective simultaneously is good rhetoric, but it does not change theconflict-based nature of international relations. Some of the ambitious agendaspromoted by Turkey, such as the desire to act as a major energy hub, are inherentlybased on zero-sum logic, while others, such as the rapprochement with Armenia, areincompatible with Turkey’s existing foreign policy commitments. Nor do, in fact,the Turkish foreign policy elite refrain from acting based on negative-sum logic vis-à-vis Turkey’s potential partners, as Turkey’s tough bargaining to obtain lowerprices and raise higher transit fees for the Azerbaijani gas attests. The governmentwill have to recognize that it is neither a Good Samaritan, nor can it keep everyonesatisfied and join all projects simultaneously. Its increasing activism in regionalaffairs will inevitably lead to conflicts of interest with at least some neighbors, whileits support for one project will undermine its position in another. The broader impli-cation of this case, therefore, is that Turkish foreign policy will be forced to set morerealistic agendas and prioritize the country’s strategic relationships.

Notes

1. For Turkey’s peace-broker role, see: Bülent Aras, “Turkey’s Rise in the Greater Middle East:Peace-Building in the Periphery,” Journal of Balkan and Near Eastern Studies, Vol. 11, No. 1(2009), pp. 29–41.

2. See, Prime Minister Recep Tayyip Erdo [GBREVE]ang’s State of the Union addresses, dated October 31, 2009,and May 31, 2009; available at: http://www.bbm.gov.tr/Forms/p_NationAnouncemet.aspx.

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3. This is largely attributed to Foreign Minister Ahmet Davuto [GBREVE]lu. See his: Ahmet Davuto [GBREVE]lu,“Turkey’s Foreign Policy Vision: An Assessment of 2007,” Insight Turkey, Vol. 10, No. 1 (2008),pp. 77–96; for an early analysis of this doctrine before Davuto [GBREVE]lu’s appointment as foreign minister,see: A. Murinson, “The Strategic Depth Doctrine of Turkish Foreign Policy,” Middle EasternStudies, Vol. 42, No. 6 (2006), pp. 945–64.

4. “Erdo [GBREVE]an: [IDOT ] slam Dünyasının Lideri Olmaya Çalı[SCEDIL] mıyorum,” Anadolu Ajansı, December 11, 2009;“Davuto[GBREVE] lu: Turkey a Crossroads of Global Energy Transportation,” Today’s Zaman, August 10,2009.

5. Ministry of Foreign Affairs, Turkey’s Energy Strategy, January 2009.6. The resulting dependence on foreign resources is the main criticism directed against Turkey’s energy

policies, see: Necdet Pamir, “Enerji Arz Güvenli [GBREVE]i Ve Türkiye,” Stratejik Analiz, March 2007,pp. 14–24.

7. Energy Information Administration’s Country Analysis Brief on Turkey, April 2009, available at:http://www.eia.doe.gov/emeu/cabs/Turkey/Background.html.

8. Elin Süleymanov, “Azerbaijan – a Partner for Europe in Energy Security,” in Svante E. Cornell andNiklas Nilsson (eds.), Europe’s Energy Security: Gazprom’s Dominance and Caspian Supply Alter-natives (Washington, D.C.: Central Asia – Caucasus Institute & Silk Road Studies Program, 2008),pp. 115–24; John Roberts, The Role of Azerbaijan in European Gas Supply and the Greek Interest(ICBSS, Policy Brief, No: 15, 2009).

9. Süha Bölükba [SCEDIL]ı, “Ankara’s Baku-Centered Transcaucasia Policy: Has It Failed?,” Middle East Jour-nal, Vol. 51, No. 1 (1997), pp. 80–94; Mustafa Aydin, “Foucault’s Pendulum: Turkey in CentralAsia and the Caucasus,” Turkish Studies, Vol. 5, No. 2 (2004), pp. 1–22.

10. Richard Morningstar, “Address to CERA Conference,” Washington, D.C., December 7, 1998, avail-able at: http://www.mtholyoke.edu/acad/intrel/morning.htm.

11. Ali Karaosmanoglu, “Turkey’s Objectives in the Caspian Region,” in Gennady Chufrin (ed.), TheSecurity of the Caspian Sea Region (Oxford: Oxford University Press, 2001), pp. 156–7.

12. Huseyin Bagci and Saban Kardas, “Post-September 11 Impact: Strategic Importance of TurkeyRevisited,” in Francois Heisbourg (ed.), Turkey’s Strategic Future (Brussels: European SecurityForum, May 2003), pp. 19–48.

13. Tuncay Babali, “Implications of the Baku–Tbilisi–Ceyhan Main Oil Pipeline Project,” Perceptions,Vol. 10, No. 3 (2005), pp. 29–60.

14. “Bakü-Ceyhan’da Temel Atılıyor,” Radikal, September 18, 2002. However, when the pipeline wasfinally concluded in 2006, the construction costs in the section of the BTC in Turkey reached $1.8billion, and exceeded the $300 million committed by Turkey, which created an additional problembetween Turkey and the consortium.

15. The United States also came under criticism from the business community for exerting pressure torealize this project despite its commercial disadvantages.

16. Zeyno Baran and Robert A. Smith, “The Energy Dimension in American Policy towards the BlackSea Region,” Southeast European and Black Sea Studies, Vol. 7, No. 2 (2007), p. 267.

17. Mehmet Dikkaya and Deniz Özyakı [SCEDIL]ır, “Developing Regional Cooperation among Turkey,Georgia and Azerbaijan: Importance of Regional Projects,” Perceptions, Vol. 13, No. 1–2 (2008),pp. 93–118.

18. Germana Canzi, “Turkmenistan’s Caspian Resources and Its International Political Economy,” inShirin Akiner, (ed.), The Caspian: Politics, Energy and Security (London: RoutledgeCurzon, 2004),p. 187.

19. Gareth M. Winrow, “Turkey and the East–West Gas Transportation Corridor,” Turkish Studies,Vol. 5, No. 2 (2004), pp. 23–42.

20. See the edited volume: Cornell and Nilsson (eds.) (2008).21. Yusuf Yazar and Hasan Hüseyin Erkaya, “Whither Turkey’s Energy Policy?,” Insight Turkey, Vol. 9,

No. 4 (2007), pp. 7–22.22. European Commission, “Communication from the Commission: Second Strategic Energy Review:

An EU Energy Security and Solidarity Action Plan” (Brussels: European Commission, 2008).

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23. Vladimir Socor, “Shaking Down the Turkic Brother? Turkey’s AKP Government ObstructsAzerbaijan’s Gas Outlet to Europe,” Eurasia Daily Monitor, Vol. 6, No. 50 (2009).

24. There are two opposing interpretation of the implications of the growing interest of various pipelineprojects in the Azerbaijani gas. One view suggests that the realization of such smaller-scale projectsmight in fact form a direct link to the Caspian resources, boosting the interest of investors, producersand consumers. Such a development might eventually facilitate the construction of a more ambitiousproject like Nabucco. Others contend that these smaller pipelines, such as Trans-Adriatic Pipeline,might “swallow up Azerbaijan’s initial gas output and increase doubts over Nabucco’s viability at acritical time.” Katinka Barysch, “Should the Nabucco Pipeline Project be Shelved?” Centre forEuropean Reform Policy Brief, May 2010, p. 10.

25. See the Nabucco Consortium’s website: http://www.nabucco-pipeline.com/project/project-phases-milestones/index.html; Roberts (2009), p. 6.

26. “Gazprom Ready to Buy Azerbaijani Gas at Market Prices – Envoy,” RIA Novosti, June 4, 2008.27. Alman Mir Ismail, “Is the West Losing the Energy Game in the Caspian?,” CACI Analyst, May 6, 2009.28. Azerbaijan’s support for the Sofia and Prague summits, and Aliyev’s signature of the final declara-

tion of the Prague Summit on Southern Corridor in May came as a relief to the promoters of theNabucco project. See: G.M. Winrow, Problems and Prospects for the “Fourth Corridor”: The Posi-tions and Role of Turkey in Gas Transit to Europe (London: Oxford Institute for Energy Studies,2009), p. 5.

29. “Definite Progress Gives Us Hopes That the Conflict Will Be Resolved Soon Enough: President ofAzerbaijan,” Trend News, April 17, 2009.

30. “Russia Ready to Buy Azerbaijani Gas at Record Price,” RIA Novosti, June 30, 2009.31. “Azerbaijan Fully Supports Nabucco Gas Pipeline Project: Minister,” Trend Capital, July 13, 2009.32. The revised price would be effective from April 2008, and Turkey underscored that it would retroac-

tively compensate Azerbaijan for the price differences.33. This arrangement enabled Turkey to develop the TGI project through which it is re-exporting Azeri

gas to Greece.34. “Total: Shah Deniz Transit Talks with Turkey ‘Difficult’,” APA, November 19, 2009; Robert M.

Cutler, “Azerbaijan Looks Past Turkey,” Asia Times, December 4, 2009.35. Barçın Yinanç, “Ermenistan’la Sınır Kapısını Açarsanız Gazınızı Keserim,” Referans, April 2, 2009.36. “Erdo [GBREVE]an: [IDOT ][SCEDIL] gal Sona Ermeden Ermenistan Sınırı Açılmaz,” Radikal, May 13, 2009.37. “Yıldız: Azeri Gazında Fiyat Adil Oldu,” Radikal, May 16, 2009; “Azeri Gazını Dü [SCEDIL]ük Fiyattan

Alaca [GBREVE]ız,” Hürriyet, November 16, 2009.38. “Aliyev’in Do[GBREVE] al Gaz Isyanı,” Hürriyet, October 18, 2009.39. “‘Türkiye’yi Test Etmeye Kalkmayın’,” Radikal, October 21, 2009; Fikret Bila, “Böyle Giderlerse

Sil Ba[SCEDIL] tan Yaparız,” Milliyet, October 23, 2009.40. “Bakan Yıldız’dan Azeri Gazı Yorumu: Anla[SCEDIL] ma Yapılmazsa Çaresiz De [GBREVE]iliz,” Cihan Haber Ajansı,

October 30, 2009.41. Fariz Ismailzade, “Azerbaijan Seeks Alternative Gas Export Routes: Sending a Signal to Ankara,”

Eurasia Daily Monitor, Vol. 6, No. 122 (2009).42. “Turkey Energy Minister Says Near End of Azeri Gas Talks,” Azernews, February 4, 2010.43. Saban Kardas, “Turkish–Azeri Deal May Herald New Competition in Southern Corridor,” Eurasia

Daily Monitor, Vol. 7, No. 115 (2010).44. Brian Whitmore, “Azerbaijan Could Scuttle Nabucco over Turkey–Armenia Deal,” RFE/RL,

October 19, 2009.45. “Davuto[GBREVE] lu’ndan Ermenistan Izahatı,” Radikal, November 29, 2009.46. Michael Mainville, “Angry at Turkey, Energy-Rich Azerbaijan May Spurn West,” AFP, November

30, 2009.47. “Bakan Ba [GBREVE]ı [SCEDIL] En Büyük Hedefini Açıkladı,” Anadolu Ajansı, April 17, 2009.48. Roberts (2009), p. 7.49. “Azerbaijan Has Two Priorities for Gas Export from Shah Deniz Field within Second Stage: Minister,”

Trend News, November 14, 2009.

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50. Ironically, Turkish PM Erdo[GBREVE] an on many occasions questioned the feasibility of Nabucco, underliningthat it has no supply commitments. “Turkish PM Doubts Feasibility of Nabucco Project,” AzerNEWS,November 20, 2009.

51. Vladimir Socor, “Recent Initiatives to Advance the Nabucco Project,” Eurasia Daily Monitor, Vol.6, No. 14 (2009).

52. For Azerbaijan’s use of “oil card,” see: Pinar Ipek, “Azerbaijan’s Foreign Policy and Challenges forEnergy Security,” Middle East Journal, Vol. 63, No. 2 (2009), in particular, pp. 229–33.

53. It is therefore increasingly argued that Azerbaijan uses cooperation with Russia as a bargaining chipto solicit Russia’s help to settle the Nagorno-Karabakh conflict, see: Shahin Abbasov, “Azerbaijan:Is Baku Offering a Natural Gas Carrot to Moscow for Help with Karabakh?,” Eurasia Insight, April20, 2009.

54. John Roberts, “Turkey as a Regional Energy Hub,” Insight Turkey, Vol. 12, No. 3 (2010), pp. 47–8.55. TBMM Tutanak Müdürlü [GBREVE]ü, “Plan ve Bütçe Komisyonu Görü[SCEDIL] me Tutanakları,” November 16,

2009.56. TBMM Tutanak Müdürlü [GBREVE]ü, “Plan ve Bütçe Komisyonu Görü[SCEDIL] me Tutanakları,” November 17, 2009.57. Ibid.58. “Azerbaijan’s Gas Transit to Be Solved Soon: Turkish FM,” Trend Capital, December 7, 2009.59. See the conclusions of a workshop on Turkey–Azerbaijan relations, held on June 25–27, 2009, in

Ankara: http://www.setav.org/index.php?option=com_content&task=view&id=886&Itemid=57.60. “Turkish Foreign Policy—Dreams from Their Fathers,” Economist, July 23, 2009.61. Ian Lesser, The New Turkish Lexicon (On Turkey Series, GMF, 2009); a related line of criticism ques-

tions the intentions of the government, attributing recent transformations to its ideological makeup.They charge the government for abandoning Turkey’s pro-Western foreign policy credential and“reorienting” toward the Middle Eastern or Islamic causes.

62. “[IDOT ] yi Niyet Görmüyorum,” Anadolu Ajansı, December 9, 2009.63. Suat Kınıklıo[GBREVE] lu, ‘“Neo-Ottoman’ Turkey?,” Project Syndicate, December 3, 2009.64. “Interview with Mitat Çelikpala: Turkey–Armenia Protocol and Beyond,” TÜRKSAM Armenian

Desk, October 5, 2009.65. “Azerbaijan Adopts Military Doctrine at Long Last,” RFE/RL, June 9, 2010.

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