Turkey is turning East. What does this mean for Europe's energy supply?

2016 was a brutal year for Turkey. It seemed as if nothing could go right: the country was hit by multiple deadly terrorist attacks, continued challenges with Kurdish separatists, a temporary severing of ties with Russia and the imposition of sanctions for Turkey’s shooting down of a Russian military plane, an attempted coup against the Erdogan government in July, and at year’s end, the assassination of Russia’s Ambassador to Turkey, Andrey Karlov.

This year, however, things are looking up - even after Daesh’s first direct attack on Turkey on New Year’s Day. This new optimism set in at the most recent World Petroleum Congress held in July in Istanbul - and it’s all about energy. The Erdogan government called Turkey the ‘Silk Road of energy’, the natural bridge between energy producers and consumers.

Prime Minister Binali Yildirim went so far as to state: “The ultimate aim of our energy policies is to ensure the peace and well-being of our nation by increasing energy security and diversity.” This might sound good, but there are energy security challenges the government is uncomfortable addressing. The crises that have plagued Turkey in recent years make it hard for the country to ensure security of transit for oil and gas, while internal politics and more challenging geopolitics in and around the region are getting worse.

So far, these pressures have not been strongly felt. The attempted coup against Erdogan last July saw only a very brief closure of the Bosphorus Strait - not long enough to threaten the global energy trade or the price of crude. It was another example of the market shrugging off the unrest and moving on. There are many overlapping reasons for this lack of impact on the market, and timing was a big one. Throughout 2016 the oil supply glut provided a deep cushion for the market, and so geopolitical vulnerabilities and exposed security fault lines which would have led to price spikes three years ago went unnoticed by traders. There was too much oil in storage and more supply than the market needed.

The supply glut eliminated the security premium for unrest and terrorist attacks - but 2017 is a different story. Turkey has managed to keep the oil and gas flowing, but for how long given a more fractured Middle East and a worsening of relations with Europe? Turkey’s strategic geopolitical location is unquestionable but the events of the past year illustrate the many security vulnerabilities confronting the country.

Turkey’s increasingly important role as a vital conduit of crude oil and natural gas from Russia, Iran, and Iraq to the Mediterranean and up into Europe must be taken into consideration when calculating risk to the security of supply. A terrorist attack on energy infrastructure and trade, or a decision on the part of the Turkish government to wield the energy sword and limit access to Europe, would tilt the balance in Turkey and beyond, and trigger deeper and more severe disruptions in energy markets.

It is important to recognise Turkey’s growing role and stake in global energy markets. The Turkish Straits, which include the Bosporus and Dardenelles waterways, are one of the world’s most important and vulnerable chokepoints. Three million barrels of crude per day - 3% of global oil trade move through this route each day. The Baku-Tbilisi-Ceyhan pipeline alone moves over 750,000 barrels per day between Azerbaijan, Georgia, Turkey and on to the European market. In 2008 Kurdish rebels claimed responsibility for an attack against the BTC pipeline in Turkey. Turkey’s position as an energy hub has created new opportunities - as well as a host of challenges in securing its imports and in oil transit through and around Turkey.

After a difficult year, Turkey is again realigning with Russia and moving further away from Europe. Russia and Turkey experienced good relations throughout most of the last two decades, and up until Turkey shot down a Russian military jet in late 2015, the relationship seemed to be on solid ground. Russia’s subsequent decision to sanction Turkey and suspend the Turkstream pipeline project added to the tumult of last year.

Erdogan recognised the need to keep Russia as an ally, and extended an olive branch and an apology for the downing of the Russian jet. By the end of the year, things were looking good again for Russia and Turkey; not only was Turkstream back on the table, both countries signed agreements for the official launch of the project. Turkstream is vital not only for Turkey’s domestic gas market but also for Russia.

Turkey’s westward orientation towards Europe - an integral part of its diplomatic strategy for decades - has now shifted eastward. To make matters worse, the country which 10 years ago was scoring well on indicators of democratisation and openness has retreated from those ideals with severe restrictions on civil liberties and a president seeking more and more powers with little regard for press freedom or the rule of law – all of which makes Turkey increasingly resemble an authoritarian regime rather than a democracy.

Turkey is increasingly reliant on its neighbors for oil and gas. Turkey imports from Iran, Iraq, and Russia, and with Daesh now directly challenging Turkey for its larger role in the Syrian conflict it is not hard to imagine the how the geopolitics of Turkey’s neighborhood could rock its energy security and along with it the price of oil. What can Turkey do to avert energy insecurity?

Securitising its energy infrastructure, especially pipelines, is one answer - but this is difficult to achieve without partners. NATO could be part of a solution. For NATO, energy security is a strategic issue and the protection of critical energy infrastructure has emerged as a new area of focus for the Alliance.

Both of these options pose their own set of challenges. Following last July’s attempted coup, Erdogan took steps to purge the military of any opposition to his regime. A weakened military does not bode well for increasing the security of Turkey’s energy infrastructure. Turkey meanwhile does not want to anger the Russian bear again; seeking greater assistance from NATO would definitely trigger a response, and it would not be positive.

Energy security is sure to be a growing challenge for the country. Turkey needs to better prepare its own military and seek assistance from NATO, but neither is likely to happen. Energy markets are emerging from a period in which geopolitical realities and response were not in sync - but I would argue that now, in the second half of 2017, energy geopolitics are returning with a vengeance and the price of oil will reflect this resurrection. The market is no longer in a position to remain immune to security of supply challenges. With increasing political and economic instability in and around Turkey, the need for increased security of energy infrastructure is critical. Without it, expect bad things to come.