Turkey's Leaders Are In Danger Of Scuttling A Major Natural Gas Project With Israel

Dov Friedman, The Jackson Institute for Global Affairs at Yale UniversityAug 7, 2014, 22:11 IST

Throughout Israel's military operation in Gaza, Turkish Prime Minister Tayyip Erdogan appeared committed to outdoing himself in his hyperbolic criticism of Israel. A series of references to Israel massacring the population of Gaza culminated with accusations that Israel had "surpassed Hitler in barbarism." The comments marked only the latest nadir in Turkey-Israel relations. Israeli Prime Minister Benjamin Netanyahu has typically been muted in his responses to Erdogan's previous outbursts. But Netanyahu reacted differently to his Turkish counterpart's latest paroxysm. He called Erdogan's comments anti-Semitic, and downgraded diplomatic relations with Turkey to the "minimum required". In the scheme of the four-plus year Turkey-Israel feud, this incident might seem to change little. The deal that began with Netanyahu's apology for the Mavi Marmara snagged on the question of payment, but its outlines remain clear - if the sides can ever move beyond petty insults, that is. Erdogan certainly benefits domestically from harsh rhetoric toward Israel, and he is presently in the home stretch of a presidential campaign he desperately wants to win on the first ballot. All the while, economic relations between Turkey and Israel have never been better - with trade up 39% to $48.5 billion in 2013, and on pace to break that record in 2014. Tourism between the two countries remains strong, and there were a record number of Turkish visitors to Israel in 2013. It is enough for optimists to look past the histrionics and see relations that are stable and productive, at least beneath the surface. That analysis may be breaking down, however, when it comes to one huge economic topic: energy, and specifically Israel's gas reserves. There is widespread agreement that a gas pipeline from Israel's fields to Turkey's ports is the most logical and lucrative export route available. Yet Turkey's scorching rhetoric has, in Israel's eyes, undermined its reliability as a partner for new initiatives - even for what is, at core, a mutually beneficial economic project. As a result, a joint venture that by any reasonable measure should commence seems to be indefinitely stalled, to the economic and strategic detriment of both parties. Turkey's interest in Israeli gas stems from its rapidly increasing domestic needs. Natural gas consumption has risen threefold since 2001 and rose by a third between 2009 and 2012 before leveling off around 47 billion cubic meters (BCM) per year in 2013. Russia supplied more than 55% of Turkey's natural gas, and Iran chipped in nearly another 20 percent. Russia's market power enables it to extract a high price for its gas, and Turkey's long term take-or-pay contracts only exacerbate the financial burdens. In an effort to achieve cost savings through competition, Turkey has actively sought to diversify its supply lines. Azerbaijan currently provides roughly 4 BCM to the Turkish market, with plans to increase its supply to Turkey above 10 BCM in the coming years. Turkey also seeks gas from the Kurdistan Regional Government's (KRG) rich gas fields in northern Iraq, though these are unlikely to come online until nearly the end of this decade. Turkey has factored Israeli gas into its strategy as well. Even with projected increases in consumption to 70 BCM per year by 2025, Kurdistan, Azerbaijan, and Israel collectively could help the Turks limit their dependence on Russia and Iran. Israel would not be some bit player in this scheme. With fully-funded infrastructure projects and based only on current reserves, Israel could export 22 BCM per year. Even with Egypt claiming 7 BCM per year at present, Israel could conceivably still pipe 15 BCM to Turkey - more than 20% of the Turks' projected domestic needs a decade from now. For its part, Israel faces open questions about how Leviathan - its largest gas field - will be funded. In late July, Noble Energy elected to delay until 2015 its decision about investing $6 billion in Phase 1 development. Strictures on reserving gas for the domestic market and the threat of anti-trust intervention to fix prices factored heavily into the decision. At the same time, only Egypt has emerged as a viable revenue-driving export destination. Yet Turkey's voracious appetite for natural gas could ensure the profitability of a fully-developed Leviathan field, while incentivizing further development of Israel's gas industry through exploration. The country's direction under Erdogan endangers this arrangement. Turkey has positioned itself less and less as the mediating, facilitating actor of the late-2000s and early-2010s. An increasingly divisive foreign policy - consisting of fevered perorations after Abdel Fattah al-Sisi's coup in Egypt and an apparent toleration of Syrian jihadist group Jabhat al-Nusra's presence on Turkish soil - culminated in Turkey taking its place as Hamas' deputy interlocutor in negotiations with the U.S. and Israel during the latest Gaza crisis. Israel has taken note of the Turkish government's shift. While Israel is not reckless or foolish enough to cancel profitable existing business relationships, future ones - especially in areas of such strategic import, like energy - will attract heavier scrutiny. Some experts argue that this is sound policy. Why should Israel provide a strategic asset to an openly hostile leader like Erdogan? Others believe that, while Israel should still pursue the deal, it will not. They explain that the deal is in Israel's best interest, so why should it matter who stands at the other end? But, they claim, Netanyahu feels too bitterly toward Turkey's AK Party government to countenance rebuilding strategic ties and selling them gas. Whether Israel should or will sell to Turkey, few in Israel believe that a pipeline deal with Turkey is in the making in the near term. Turkey will carry on paying Russia and Iran's steep fees, and Israel will await word on Noble's future plans for Leviathan. This is merely one consequence of the Gaza operation: the non-realization of a deal on natural gas that both sides want - and may desperately need. Dov Friedman is a graduate student at Yale University's Jackson Institute for Global Affairs. Follow him on Twitter @DovSFriedman.

Cookies on the Business Insider India website

Turkey's Leaders Are In Danger Of Scuttling A Major Natural Gas Project With Israel