Europe's Turkish Energy Gambit: Running Afoul of U.S. Policy on Iran?
Central Europe Digest
Posted: 15 October 2007
Recent developments in Iran’s energy sector have exposed a key conflict between the United States’ support for energy diversification in Central Europe and its efforts to contain WMD proliferation in Iran. On October 8, Austria’s energy giant ÖMV confirmed its intention to begin natural gas exploration in Iran as early as March 2008. Meanwhile, Turkey’s state-owned national oil company (TPAO) is poised to sign a comprehensive agreement with Tehran to import 30 billion cubic meters of natural gas per year, following an initial Memorandum of Understanding in July. If the government of Turkish Prime Minister Recep Erdoğan can secure $3.5 billion for investment in Iran’s South Pars natural gas field, it will open the way for potential shipments of Turkmen gas through Iran and allow Turkey the option to sell imported Iranian natural gas to Europe.
These energy deals come at a time when many European Union (EU) member states, particularly in Central Europe, grow wary of over-dependence on Russian oil and natural gas. While the EU has made energy diversification a top priority, Ankara is positioning itself to become the premier alternative to Russian energy imports. Although Turkey has very limited energy resources of its own, its strategic location and close integration with Euro zone economies makes it an ideal link between European markets and the energy-rich regions of the Middle East and the Caspian.
Already, projects such as the Baku-Tbilisi-Ceyhan oil pipeline, the Kirkuk-Turkey oil pipeline from Iraq, the Turkey-Greece Gas Interconnector and new refining facilities in the port of Ceyhan are transforming Turkey into a vital energy hub. The Turkish government has little choice but to pursue this policy. The country’s increased demand for imported energy undermines Turkey’s current account balance and leaves its economy dangerously vulnerable to price shocks and sustained inflationary pressures. Ankara hopes to offset the cost of its energy imports through lucrative transport fees and the re-export of excess energy supplies.
Thus far, the United States has supported Turkey’s efforts to supply Europe’s growing energy needs. During his September visit to Ankara, U.S. Undersecretary of State for Political Affairs Nicholas Burns stated that, “Turkey is critical for us, an indispensable ally [and] an important portal for energy sources to reach Europe.” This follows a joint statement from the EU-U.S. Summit last April, when President George W.Bush confirmed America’s support for “diversifying energy supplies” as a key element of European energy security. In Europe, the term “energy diversity” increasingly means two things: renewable fuels and non-Russian supplies. By positioning itself as an alternative to Russian oil and natural gas, Prime Minister Erdoğan’s is attempting to brand Turkey as a reliable substitute to Moscow’s capricious energy politics.
Few projects have come to symbolize the EU’s desire to break its dependence on Russian energy more than the Nabucco natural gas pipeline. If fully completed, the Nabucco project will span 3,300 kilometers and transport more than 30 billion cubic meters of natural gas per year from Turkey to distribution centers in Central Europe. The European Commission has identified the Nabucco pipeline as a preferred alternative for natural gas imports and the project has enjoyed strong political support among EU member states.
Speaking at the High Level Conference on the Nabucco Pipeline in Budapest in September, Hungarian Prime Minister Ferenc Gyurcsány noted, “Gas is no longer a question of heating policy, [but] a question of national security…If there's anything wrong with Nabucco, it is that it’s being constructed very slowly…Our job is to find...gas resources independent of Russia.” Days later, Austrian Chancellor Alfred Gusenbauer was equally direct, saying, “To guarantee our energy supplies, the principle of diversification is of high priority…Of course, our [Nabucco] project will not please Putin; that is understandable. But we want to diversify our access to energy resources - as you can also see in the ÖMV Iran project.”
Up until now, the lack of a secure non-Russian supply has been a major impediment to Europe’s drive for energy diversification. Azerbaijan could potentially provide Nabucco with an estimated 6 billion cubic meters of gas annually. However, this is not enough to fully support the project. In Central Asia, Nabucco consortium members face notable transportation challenges and stiff competition from Russian and Chinese interests. Tehran’s vast reserves of natural gas are an attractive option, but run the risk of violating Iran sanctions and Washington’s non-proliferation policy.
Current U.S. sanctions on the Iranian petroleum industry directly link the financing and facilitation of energy exports with Tehran’s ability to support “international terrorism and to fund the development and acquisition of weapons of mass destruction.” U.S. law not only prohibits American companies and individuals from dealing in Iranian goods, but threatens punitive measures against foreign companies that invest in Iranian energy. Since its inception, the sanctions regime has twice been renewed by the U.S. Congress, which has tightened restrictions on waivers and increased the threshold for terminating the law.
If TPAO or ÖMV proceed with planned investments in Iranian gas production, U.S. law will require the President to take punitive action against these state-owned companies for violating the sanctions regime. If Iranian gas subsequently flows to Europe via the Nabucco pipeline, the Administration will also have to consider if consortium members such as Hungary's MOL, Romanian Transgaz, and Bulgargaz of Bulgaria have contributed to the development of Iran’s energy sector through their participation in the project. Currently, the President has the authority to issue waivers to offending parties. However, doing so would create an awkward situation in which the Administration must inform Congress that it is within the expressed national security interests of the United States to allow state-owned subsidiaries of NATO allies (or in the case of Austria, a close transatlantic partner) to facilitate terrorism and WMD-proliferation in Iran.
Thus far, the Administration has been reserved in its response. As State Department Spokesperson Sean McCormack said last week, “I would reiterate our mantra on this. [We] don't really think it’s the appropriate time to be investing in the Iranian oil and gas sector.” Appropriate or not, these deals will soon force Washington to balance its support for European energy diversity against its policy of nuclear non-proliferation in Iran. While these goals are not necessarily mutually-exclusive, they will likely require the White House and Congress to demonstrate a considerable amount of flexibility, lest the U.S. risk a serious rupture in the transatlantic partnership on energy.
Peter Doran is an analyst and writer on Russian & Eurasian affairs. He is based in Washington DC.
The views expressed in this article are those of the author and do not necessarily reflect the opinions of the Center for European Policy Analysis.