Turkey's latest political trouble comes as the country is showing signs of economic recovery, and Azerbaijan faces a decision on a major gas pipeline for the Turkish market. Russia and Iran have already suffered setbacks in their gas investments for Turkey, but oil companies in Azerbaijan still seem determined to go ahead this year.
Boston, 3 July 2002 (RFE/RL) -- Turkey's fragile political and economic condition has further confused the prospects for the gas-exporting countries of Russia, Azerbaijan, and Iran.
After 16 months of economic crisis, the country has finally started to stage a recovery, only to suffer a new setback with worries about Prime Minister Bulent Ecevit's health.
For the past two months, Turkey has fluttered between fears over Ecevit's recent hospitalization and calls for an early election to replace the three-party government. On Monday, Ecevit met with his coalition partners for the first time in over a month and dismissed the idea of elections before 2004, the Turkish "Daily News" said.
The concern about the 77-year-old leader has caused slippage from the progress that the country has made so far this year with the constant help of a $16 billion loan program from the International Monetary Fund.
Turkey's gross domestic product rose 2.3 percent in the first quarter after plunging 7.4 percent last year. But the political troubles have sent ripples through the stock market, interest rates, and the currency.
Tuncay Ozilhan, who heads Turkey's business association TUSIAD, said, "We are again on a knife's edge," the "Financial Times" reported Monday.
Gas-exporting countries seem to be waiting with a mix of hope, patience, and frustration after pinning their prospects on what was portrayed as the region's hottest market in the 1990s, only to find that it was also one of the most unpredictable.
Negative growth in two of the past three years followed a 1998 earthquake and a political row in 2001. The problems were compounded by official gas-demand forecasts that at times seemed to border on obstinacy. Turkish officials clung for years to predictions that gas consumption would top 23 billion cubic meters in 2002 and double by 2006.
Government energy officials and the state-owned pipeline company Botas ignored warnings from analysts and the World Bank that the forecasts were as much as 40 percent too high. This year, Botas has already cut demand estimates twice from 23 billion to 19 billion cubic meters, a rosy figure that would still leave it with foreign contracts for 6 billion cubic meters too much.
It is not clear that foreign gas companies and governments in countries including Russia, Iran, Azerbaijan, and Italy ever really believed the Turkish forecasts. But they certainly repeated them when promoting costly pipelines like the $2.5 billion Blue Stream project across the Black Sea, undertaken by Gazprom of Russia and Italy's ENI.
This week, the Moscow-based "Russian Energy Weekly" quoted Gazprom Deputy Chairman Yurii Komarov as telling a conference last month, "When we were signing the contract on Blue Stream gas deliveries, we had no illusions about Turkey's overestimated market demand."
Last year, Iran raced to finish a pipeline connection to start deliveries under a $20 billion supply deal signed in 1996, hoping to beat the opening of the Blue Stream pipeline. So far, Blue Stream has been delayed and the Iranian gas has been stalled.
Iran has shown diplomatic forbearance in the past two months after initially reminding Turkey in April that it would be obliged to pay for 4 billion cubic meters of gas under its contract this year. According to Botas, Turkey has been accepting only 50-60 percent of the agreed-upon volume from Iran.
Officials did not raise the issue publicly during the recent visit of Turkish President Ahmet Necdet Sezer. But this week, the official Iranian news agency IRNA said the value of Turkey's imports from Iran fell 15 percent in the first four months of 2002 from a year before, a sign that the launch of its gas exports has fizzled.
Blue Stream is still expected to open later this year, but the point may be lost, since Russia already supplies enough gas to Turkey by two other routes. Turkey's plans to pipe excess gas to Greece are taking time, while the vision of connecting an entire "gas ring" for southern Europe seems to overlook the fact that these countries also already receive Russian gas.
Azerbaijan and its foreign investors are still determined to enter the same field, despite conditions that seem uncertain at best. Oil companies are expected to approve a $3.2 billion investment late this year for Azerbaijan's offshore Shah Deniz gas field, including a pipeline through Georgia.
A spokeswoman for Britain's BP oil company supplied the logic, saying, "We believe Shah Deniz has a competitive advantage due to its proximity to the market and hence the low cost of supply," Hart's "European Offshore Petroleum Newsletter" reported last month. But the official also said that Turkey's market has "contracted for several regional producers and is potentially oversupplied during the period 2005-2010."
David Woodward, the head of BP Azerbaijan, said, "We do have to look at how secure our contract is and have more talks with Botas before we move ahead with our $3.2 billion investment," Reuters reported.
But Georg Gundersen of Norway's Statoil took a more positive view, saying, "The Turkish market still represents a great opportunity. There will be huge gas consumption, especially after the deregulation in the next years."
The statements suggest that Turkey's turmoil has still not thrown the pipeline builders off track, but their risks are rising along with those for Turkey's recovery.