Russia, Turkey Double Down on Turk Stream

At a time when conventional wisdom dictates that Europe would not be an ideal market for Russian gas, Turkish President Recep Tayyip Erdogan and his Russian counterpart, Vladimir Putin, are exploring the possibility of building a companion to the existing Turk Stream pipeline. If completed, this would see Turkey literally double down on its exposure to Russian gas. On the surface, that might seem like a risky move. Upon implementation, it would open Turkey to the real possibility of US sanctions, while relying on demand from a European market whose prevailing mood is openly hostile to Russian gas. But Turkey and Russia appear to be betting on a shifting regional reality where energy security will be defined by immediate economic needs, not geopolitical objectives.

Turk Stream, the gas pipeline connecting Russia to Turkey through the Black Sea, was inaugurated in January 2020. At that time, Turkey was touting its potential to become a major energy hub for Europe. But uncertainties regarding the commercialization of Turkey’s own natural gas resources, combined with Turkey’s increasingly difficult relations with Greece, Cyprus, Israel and Egypt, complicated Turkish goals. While Turk Stream offered Turkey increased energy security by bypassing an aging pipeline passing through Ukraine, it also increased Turkey’s exposure to Russian gas at a time when the prevailing mood in Europe was in the opposite direction. This did nothing to enhance Turkish prospects of becoming the energy hub it aspired to be.

Changing Times

But as Bob Dylan famously sang, “the times they are a-changin’.” In the face of a major energy crisis in Europe brought on by the Russian invasion of Ukraine, Russia and Turkey are actively considering the construction of a new Turk Stream pipeline. That would double the amount of Russian gas transported to Turkey — with an eye on transforming Turkey into a regional energy hub that could service European energy needs in an increasingly uncertain and volatile geopolitical environment.

The potential expansion of Turk Stream comes on the heels of the sabotage of the Nord Stream and Nord Stream 2 pipelines connecting Russia with Germany through the Baltic Sea, effectively terminating Germany as a European energy hub. The elimination of both the reality and potential of Russian gas supplies through Germany has put a premium on alternative sources of supply. Fractious relations between Russia and the EU all but assure that existing pipeline connections with Russia through the former Soviet bloc nations of Eastern Europe will not be a source of increased availability of Russian gas, if they continue to operate at all.

The coming winter will provide the ultimate test of the viability of Europe’s willingness to maintain its current level of support for Ukraine, including sanctioning Russian energy. While the costs of this support are, for the moment, politically sustainable for the US, this may not be the case for many European nations. The mood will likely darken as factories shut down or relocate due to high energy costs, or populations are subject to rolling blackouts — potentially leading to political instability.

Opportunity in Volatility

Emerging geopolitical volatility provides both Turkey and Russia with their own “tremendous opportunity” — to coin US Secretary of State Antony Blinken’s words in the aftermath of the sabotage of the Nord Stream pipelines. For Turkey, the construction of a second Turk Stream pipeline could transform its stillborn dreams of becoming a regional energy hub into reality, combining reliable capacity with an emerging European market reality. Currently, Turk Stream gas flows through Bulgaria and onward into Serbia and Hungary. Hungary has recently concluded an agreement for the continued supply of Russian gas, which would be re-routed from existing pipelines running through Ukraine and Slovakia to Turk Stream. Serbia similarly concluded a three-year deal with Russia in April, which has gas supplied via Turk Stream.

Russia halted gas deliveries to Bulgaria in April, in the face of what it deemed to be the “unfriendly” policies of the government of then-Prime Minister Kiril Petkov. In what could prove a template for Europe going forward, Petkov lost a vote of no confidence in June, setting the stage for early elections on Oct. 2. These saw Petkov lose to a coalition led by former Bulgarian Prime Minister Boiko Borissov, who is regarded as more pro-Russian than his predecessor. Bulgaria has acknowledged that negotiations with Russia over the resumption of gas supplies are “inevitable.” And in a sign that Russia is sensitive to the political vulnerability of the new Borissov government regarding energy supplies and costs, Russian LNG appears to have been supplied to Bulgaria through Greece as an interim measure to meet Bulgarian energy needs until a new contract can be finalized.

A second Turk Stream pipeline would not be built to supply gas to existing customers, but rather to position Turkey to fill the void created by the sabotage of the Nord Stream pipelines and, in doing so, directly compete with US LNG. The current Turk Stream project consists of parallel 81 centimeter pipelines, each with capacity to supply 15.75 billion cubic meters of natural gas annually. One pipeline services Turkey, while the second provides gas for onward transport to southern Europe. If Russia and Turkey follow through on their proposal to build a second two-line pipeline of similar capacity, then Turkey would in theory be able to offer Europe an additional 31.5 Bcm of natural gas per year.

US LNG Exports

The US has not been idle during this crisis. According to data from Refinitiv, the US in 2021 exported 34 Bcm of LNG to Europe. It is on track to boost that amount to 79 Bcm in 2022, an increase of 45 Bcm over 2021 levels. The problem for the US, however, is twofold: export capacity and cost. Can it sustain this current level of exports, and if so, can this be done at a price Europe can sustainably afford? The answer to both questions is most probably “no.” Current US export levels have been reached by diverting shipments intended for Asia. At some point, the market will need to equalize.

The question of whether there will be a European market for US gas is complicated by the unfolding European energy crisis. According to Russia’s Deputy Prime Minister Alexander Novak, in 2018 US LNG was some 30%-40% more expensive than Russian pipeline gas. At current prices, this factor would be orders of magnitude higher. This price differential will most certainly come down over time, but the reality is that Europe cannot afford US LNG at current prices and thus cannot afford not to buy Russian pipeline gas.

While an energy-induced political crisis in Europe might remove many of the export barriers that have been imposed on the importation of Russian pipeline gas, the US remains bitterly opposed to any arrangement that would sustain Europe’s dependence upon Russian energy. Turkey was able to sidestep being sanctioned for the Turk Stream pipeline under the Countering Russian Influence in Europe and Eurasia Act (CRIEEA) of 2017. However, any new Turk Stream pipeline would likely fall afoul of both CRIEEA and the Protecting Europe’s Energy Security Act of 2019.

The question is whether Turkey is confident enough in it’s role in the evolving geopolitical future to be able to forestall or withstand such sanctioning. Given Turkey’s ongoing strategic realignment with the Brics grouping and the Shanghai Cooperation Organization, the answer appears to be “yes.”

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