Energy as Russia's Trojan Horse to the East

Energy as Russia's Trojan Horse to the East

Lorenzo Colantoni (IAI)
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The role of Moscow, as the main player in the global energy scene, passes through the links and difficult balances established with key countries such as Turkey and Iran. The former is still skeptical but open-minded due to its thirst for gas, while the latter, on the other hand, is ready to renew its economic relations, partly thanks to the involvement of Azerbaijan

The coup in Turkey, the lifting of sanctions against Iran, the chaotic situation in Syria with its increasingly urgent need for some kind of balance; the situation in the Middle East in recent months, especially that of July this year, has been hotter than it has been for many years. While some of these events are a major cause for concern for European Member States, for Russia they seem to represent an opportunity to gain a position in a region in which it has always had great interest. It is no coincidence that the reconquering of Aleppo in the first weeks of August saw Russia at the forefront and, therefore, the intensification of fighting in Syria. A strategy in which the Russian presence is strengthening thanks to both previously-used strategies (pipelines) and already-known allies (Central Asian states and Iran, to a certain extent), as well as more at-risk partners (Turkey), with a very clear common thread: energy.

Russia, Turkey and the waltz of the pipelines

The long meeting (over three hours) of August 9 between Putin and Erdogan to formalize the reconciliation between the two countries after the tensions and sanctions imposed by Russia for the shooting down of its jet by Turkey in December last year was followed by a very brief press conference in which three key words were identified: trade, defense and energy. While the first is obvious, given the amount of trade that had been suspended by the tensions (at least $100 billion according to Erdogan), the second refers to the non-uniqueness of Turkey’s military relations with NATO and the third, on the other hand, has more of a constructive potential. The references are clearly to Turkish Stream, the replacement project for the failed South Stream, which is expected to carry 63 billion cubic meters of gas to Turkey and the Balkans, but which has been temporarily suspended due to the tensions between Moscow and Ankara. But there’s more: there was also talk of the nuclear power plant of Akkuyu, the first on Turkish soil, the construction of which – currently suspended – is entrusted to a subsidiary of the Russian state nuclear company, Rosatom. After the meeting between the two Presidents, Russian Energy Minister Alexander Novak announced the resumption of negotiations for a possible discount on Turkish imports of Russian gas, compared with that cancelled in January this year as a result of growing tensions.
Gas, gas pipelines and electricity: Russia’s energy strategy on Turkey is vast, with an uncertain effectiveness. The swift, continual reference to Turkish Stream is typical of the pipeline strategy developed by Moscow: a very political, uneconomic use of these projects, with Europe and the Southern Corridor often the target for European gas supplies, with great uncertainty and variability. It is unclear if and when Turkish Stream will really restart, with which destination and in what way it will impact Central Asia, the ultimate goal of the European Southern Corridor, as well as the new gas flow that could come from either the Eastern Mediterranean or Iran.
It is interesting, however, to focus on Turkish energy consumption. The country in fact strongly relies on gas (for 50% of its electricity production), is a growing energy consumer (having reached a record consumption of 5.78 billion cubic meters in January 2016) and almost entirely relies on imports (99% of gas consumption). With underdeveloped renewables due to still inadequate support schemes, Russian gas, of which Ankara is the second largest importer after the EU, remains at the center of its priorities. With the possible bypassing of Ukraine due to the expansion of Nord Stream 2, a perhaps less ambitious Turkish Stream (around 40-45 bcm, for example), could be aimed solely at Turkish consumption, clutching the grip even tighter on the country which is already very dependent, before other alternatives become possible. Such as Iran, for example, which already proposed an expansion of the gas trade in the meeting between Erdogan and Rouhani in April this year.

Russia and Iran, a history of simple understanding

Russia is, however, aware of Iran’s post-sanctions energy potential, and has not coincidentally decided to intervene in this way with a collaboration since the first months. In this, Moscow was helped by much less divergent interests with Tehran and Ankara, two countries isolated by Europe and the United States by sanctions, which are geographical neighbors and, above all, are in agreement on the Syrian issue. While for Turkey Assad in power is still a “no-go‘, the solution is instead in the hands of Iran and Russia: a convergence that greatly simplifies the potential relations between the two countries.
Russia’s commitment towards Iran was already clear in March this year, when the former claimed the exemption of the latter from a possible freezing of oil production, to enable it to recover the market share lost during the period of sanctions. As early as November 2015, Russia authorized a loan of $5 billion to Iran for industrial projects, of which $2.2 billion were for energy projects. However, perhaps one of the clearest expressions of these renewed economic relations took place in recent days with various meetings between the two countries, which were finalized in a series of agreements and declarations, almost all of which were based on energy: on July 29, the co-chair of the Russia-Iran Joint Economic Commission, Mahmoud Vaezi, visited Moscow, closing a strategic five-year cooperation plan. Following this, Russian Energy Minister Novak confirmed interest in exploration and production projects in Iran, an intention that oil company Lukoil had already previously expressed in terms of the Anaran oil field, which in 2005 Lukoil itself estimated having up to one billion barrels but which the sanctions had forced it to abandon.
In early August, Ali Akbar Salehi, head of the Atomic Energy Organization of Iran, confirmed that the construction of two new reactors at the Bushehr power plant could start as early as this year: a €10-billion deal for Russia. Attention was paid again to energy consumption, at the center of Iran’s attention, to which reference is also made by the attempt to synchronize the networks between Iran, Russia and Azerbaijan, discussed at least at the end of 2015 and the implementation of which was declared ready by Azerbaijani Energy Minister Nativ Aliyev at the end of July.

Russia and its triple alliances in the Middle East

Azerbaijan’s involvement is not a coincidence however. Russia’s strategy of cooperation with Iran passes through the Caucasian country which, on August 9 this year in fact hosted a trilateral meeting with its President Ilham Aliyev, Rouhani and Putin. In the joint statement, the three said they were ready for increased cooperation against terrorism and in terms of economy; on the one hand, this results in the political field and in the discussion on Syria, while on the other hand it ties in, hand in glove, with the economic cooperation, starting with energy. It is no coincidence that the meeting and the subsequent declaration of the Azerbaijani energy minister focus on the ambition for an “energy corridor‘ between the three countries, with the trading of resources at the center. In all these movements, Russia’s strategy seems to take into consideration a fundamental point, often left aside in its previous actions: the construction of an economic base to support the political base. However, two questions arise.
The first is how much willingness and possibility there is on the part of Russia in pursuing this partnership and these projects. The continuous reconsiderations and unconvincing economic reasons behind the Russian projects have partially eroded their credibility, so much so that Erdogan himself has had difficulty in having Turkish Stream approved by his own Parliament. Projects of significant sizes, such as the connection of the Iranian, Russian and Azerbaijani networks clash against budgetary reasons, political instability and a lack of mutual trust, which is crucial when it comes to opening up borders (even if only to gas and electricity). Not to mention the specter of the recession in Russia which, more or less apparently, is threatening both the present and future of the country, and has perhaps more serious structural causes than the impact of the current oil prices.
The second point concerns the possibility of these ideal “Triple Alliances‘, of which Russia is the bearer. On the one hand, it is true that Tehran’s Deputy Minister of Foreign Affairs, Ibrahim Rahimpur, declared immediately after the coup in Turkey that "We would like, at President Putin’s side, to assist Erdogan in creating good conditions and resolving problems, so that he can make the right decision‘. There is, therefore, an interest in pursuing a common policy which, with Azerbaijan as an occasional partner and energy as a driver, could bring Iran, Turkey and Russia closer: countries that speak a common political dialect and which are often increasingly detached from the EU and the West in general.
Some of the common points, however, appear more as a facade than of substance. On the one hand, Turkey and Russia have differing political positions that are difficult to reconcile, especially towards Syria. On the other hand, with no more sanctions, Iran now has every interest in a solid partnership towards the EU and countries such as Italy. There are perhaps many more opportunities to compete and collaborate between Tehran and Moscow, especially against a now static European gas demand and with China being difficult to reach. If, therefore, energy is a Trojan Horse for Russia to enter Turkey or Iran, or perhaps a better way to sweeten the pill of a difficult collaboration, it is also true that projects such as those proposed require, in turn, a stability and desire in order to be substantially concluded, that no one currently actually seems to have.