Energy is the activating source of economies and the vital prerequisite for development. Those who claim to govern their countries through a secure and successful path towards prosperity should therefore supply the energy required to sustain this target through uninterrupted, cheap, secure and diversified means. The energy policies therefore constitute the most vital component of national security policies as well.

The first component of developing an effective energy strategy is, the scientific and reliable planning for the short-medium and long term energy demand estimates of the country. The following step is the realistic and scientific evaluation of the domestic resources of energy. If the domestic resources prove insufMcient and imports are inevitable, then the import sources (sources of energy and the countries of those resources) should be 'handled with ultimate care' since energy security means national security as well. Energy issues have always been influenced by internal and international politics, economics and national security concerns and vice versa.

TURKEY'S ENERGY DEMAND AND SUPPLY CONCERNS

With it's 65 million population, vibrant economy, avarage growing rate of 5 percent in the last 30 years, a trade volume that forces the 100 billion USD limits and a rapidly developing transportation and communications network; Turkey is one of the major energy consumers of the region and the world'. The total primary energy consumption is 71 million toe in 1999.
The demand estimates given by the Turkish Ministry of Energy and Natural Resources are quite ambitious as listed in Table-I.

Table-1: TURKEY'S TOTAL ENERGY, OIL AND GAS DEMAND FORECAST
(intoe) (thousand tons of oil equivalent)
Years 2000 2005 2010 2015 2020
Total
Energy 89354 130000 170318 226183 299986
Demand ___________ ___________ ___________ ___________ ___________
Oil Demand 36302 39509 46190 54572 66667
Gas Demand 14541 42208 50192 61361 75302
Sources: Ministry of Energy and Natural Resources, WEC Turkish National Committee,
2000.

These figures are being seriously criticised and credIted to be 'overestimated' by the State Planning Organisation2, The Chamber of Electrical Engineers of Turkey as well as the competition from the existing dominant supplying regions like Middle East or Africa which in turn limits the development and marketing chances for the Caspian resources.

While it is of vital importance for the newly independent Republics in the Caspian region to be able to immediately export their hydrocarbon riches through route(s) not exclusively crossing the Russian territory (which is the current status today), it is also crucial for Turkey to diversify it's supply sources of energy. Especially Azerbaijan, Kazakhstan and Turkmenistan offer this potential to Turkey while Turkey offers the most rational export route as an alternative opening against the exclusive outlets that has to cross the Russian territory to reach the world markets. Here, the projects like Baku - Ceyhan Oil Pipeline, Turkmenistan - Turkey Natural Gas Pipeline, AzerbaUan - Turkey Natural Gas Pipeline; all are falling in the domain of the so-called 'East-West' Corridor'. The governments of U.S. and Turkey are frequently expressing their support for the actualization of this integrated project. Azerbaijan and Georgia had already ratified the frame agreements for Baku - Thlisi -Ceyhan in their parliaments. But despite these positive steps, the recent developments do not seem encouraging for the actualization of the TransCaspian Pipeline Project. Since the project is an integrated one, failure of one of those projects will adversely affect the others. To be specific, these are multi billion dollar projects and could be constructed if one or two could be layed in parallel to reduce the investment and operational costs. In addition, Baku - Ceyhan has significant throughput problems that will in turn negatively affect the project finance. Despite the claims on their 'strong will' by some high level officials for constructing the integrated TransCaspian Pipeline System within the framework of the 'East-West Corridor', today the. 'real politics' does not seem to be in line with this wishful thinking. The significant hydrocarbon potential of the region requires significant upstream investment and successful export solutions to complement it.

As previously stated, the Caspian region offers one of the most rational alternatives (or solutions) for Turkey's energy demand both for oil and gas supplies. Ironically, the other alternatives or challenging resources of supply are in countries like Russia and Iran those are trying to use their vast hydrocarbon potential as the most efficient weapons in the 'big power struggle' towards the Caspian region, the Caucasus and the Central Asian republics. Here, Russia successfully uses the existing export infrastructure as well, as a tool for 'twisting the arm' of the regional countries 'when needed'. Therefore, an analysis of the 'energy supply strategies' of Turkey will inevitably reflect the analysis of this so called 'big power struggle' in the region

THE RUSSIAN HEGEMONY IN THE REGION

Russia has recoverable gas reserves as rich as 48 trillion m3 (the first in the world), recoverable oil reserves as high as 50 billion barrels (8th in the world) and coal reserves as high as 182 million tons. Oil and gas exports of the RF constitute roughly 50 percent of the total hard currency revenues. In addition to this enormous potential, the RF has a very important tool to effectively maneuver and control the region and that is the existing monopoly of the export routes as previously stated. Turkmenistan's gas export pipelines, Kazakhstan and Azerbaijan's oil export pipelines all have to cross the Russian territory before they can access to the international markets. This monopoly is not limited with the pipelines but covers the railways and even the waterways like the Volga-Don Channel For the countries in the region, such exclusivity makes it very difficult, if not impossible, to imply policies that do not fit with the Russian policies and strategies. The recent gas 'shortages' in Armenia and Georgia are typical examples of the functioning of this exclusive network. The competition from the existing dominant supplying regions like Middle East or Africa which in turn limits the development and marketing chances for the Caspian resources.

While it is of vital importance for the newly independent Republics in the Caspian region to be able to immediately export their hydrocarbon riches through route(s) not exclusively crossing the Russian territory (which is the current status today), it is also crucial for Turkey to diversify it's supply sources of energy. Especially Azerbaijan, Kazakhstan and Turkmenistan offer this potential to Turkey while Turkey offers the most rational export route as an alternative opening against the exclusive outlets that has to cross the Russian territory to reach the world markets. Here, the projects like Baku - Ceyhan Oil Pipeline, Turkmenistan - Turkey Natural Gas Pipeline, Azerbaijan - Turkey Natural Gas Pipeline; all are falling in the domain of the so-called 'East-West' Corridor'. The governments of U.S. and Turkey are frequently expressing their support for the actualization of this integrated project. Azerbaijan and Georgia had already ratified the frame agreements for Baku - Thlisi -Ceyhan in their parliaments. But despite these positive steps, the recent developments do not seem encouraging for the actualization of the TransCaspian Pipeline Project. Since the project is an integrated one, failure of one of those projects will adversely affect the others. To be specific, these are multi billion dollar projects and could be constructed if one or two could be layed in parallel to reduce the investment and operational costs. In addition, Baku - Ceyhan has significant throughput problems that will in turn negatively affect the project finance. Despite the claims on their 'strong will' by some high level officials for constructing the integrated TransCaspian Pipeline System within the framework of the 'East-West Corridor', today the, 'real politics' does not seem to be in line with this wishful thinking. The significant hydrocarbon potential of the region requires significant upstream investment and successful export solutions to complement it.

As previously stated, the Caspian region offers one of the most rational alternatives (or solutions) for Turkey's energy demand both for oil and gas supplies. Ironically, the other alternatives or challenging resources of supply are in countries like Russia and Iran those are trying to use their vast hydrocarbon potential as the most efficient weapons in the 'big power struggle' towards the Caspian region, the Caucasus and the Central Asian republics. Here, Russia successfully uses the existing export infrastructure as well, as a tool for 'twisting the arm' of the regional countries 'when needed'. Therefore, an analysis of the 'energy supply strategies' of Turkey will inevitably reflect the analysis of this so called 'big power struggle' in the region..

TILE RUSSIAN HEGEMONY IN THE REGION

Russia has recoverable gas reserves as rich as 48 trillion m3 (the first in the world), recoverable oil reserves as high as 50 billion barrels (8th in the world) and coal reserves as high as 182 million tons. Oil and gas exports of the RF constitute roughly 50 percent of the total hard currency revenues. In addition to this enormous potential, the RF has a very important tool to effectively maneuver and control the region and that is the existing monopoly of the export routes as previously stated. Turkmenistan's gas export pipelines, Kazakhstan and Azerbaijan's oil export pipelines all have to cross the Russian territory before they can access to the international markets. This monopoly is not limited with the pipelines but covers the railways and even the waterways like the Volga-Don Channel For the countries in the region, such exclusivity makes it very difficult, if not impossible, to imply policies that do not fit with the Russian policies and strategies. The recent gas 'shortages' in Armenia and Georgia are typical examples of the functioning of this exclusive network. The U.S. strategy towards the region paraphrased as 'multiple pipelines' seems to be 'successful' in terms of adding new oil pipelines to the existing Russian system and those pipelines are the Caspian Pipeline Consortium (CPC), the Baku-Grozny-Novorossisk early oil line and Baku Dagestan-Novorossisk (Cechenistan by-pass) line (If this was meant and targeted with such strategy). But, it is hard to understand how these new export lines would serve to diversify the existing export monopoly and help to reinforce the independence of the newly independent countries. The construction of the CPC line has already started and aimed to transport Kazakh oil (from Tengiz field) to Novorossisk (Black Sea port of the RF) and still through the Russian territory. The first phase will transport 26 million tons per annum (mta) and will be operational in mid 2001. The second phase aims to expand the capacity to 72 mta.
The U.S. companies like Chevron and Exxon-Mobil are the most important shareholders of this consortium. These two companies are holding 75 % of the stake in the giant Tengiz project and the principal financers of the pipeline. The CPC line has already started construction and will be completed in 2001. But the TCP project that aims to transport 16 bcm Turkmen gas to Turkey crossing the Caspian by a subsea pipeline seems to be facing serious problems and it has been suspended. Despite positive claims, the project is far behind the schedule and Turkmens signed an agreement with the RF to sell 20 bern of their gas with very modest prices (almost one third of the international prices). Both parties agreed for the purchase of 30 bern but the flows stopped due to price conflicts. But, Russians seem to be successful in this step by killing more than one bird. First, they are diverting their biggest competitor's gas towards their territory with a cheap price. They are reserving their vast gas reserves for the future and avoiding bard currency expenses for exploration and production., They are capturing the most attractive regional gas market, Turkey. Since the Turkmen gas will cross Kazak land, Kazak's will benefit transit revenues and therefore they are happy with this unexpected Russian favor.

The U.S. Administration was so much 'busy' with the recent Presidential elections that, the high volume and negative signals rising from the Caucasus and the Central Asia seemed bitting a sound barrier. Albright's latest visit to the region was rated to be inconclusive and analysts claim that the substantial U.S. influence in the region has ended7 while the World Economic Forum held late April in Alma Aty reflected the growing influence of Russia in the region. Most of the leaders in the region seem to be more interested in securing themselves' against 'radical Islamic threats' rather than 'bringing democracy' to their countries. One after the other, they seemed to be turning their faces towards the 'old master', ratifying the views that defend the weakening interest of the U.S. for the region8. Azerbaijan and Georgia still seem to be behind their stance towards the western camp but even Turkmenistanis turning its face after the frustration in TCP negotiations. 'Ties to west' is rated to be 'worsening'9. The recent flirting of Turkmenbashi with Putin can be seen as a tactical maneuver to collect higher prices for their gas. The coming March 2001 Caspian Littoral States Presidents' Meeting in Turkmenistan for searching an agreement for the Status of the Caspian may bring these parties closer. But we have to see that, even if you have the biggest gas reserves in this country to explore, to produce and to transport it, you will need substantial investment, time and reasonable market conditions'°. Decision makers should give a little more credit to industry critics' and 'read' the real meaning of the messages.'2 The new administration's policy towards the region is of critical importance. If the 'Russia first' policy of Strobe Talbott prevails, the 'East-West Corridor' strategy will be buried ibrever.

TURKEY'S ENERGY (Hydrocarbon) SUPPLY STRATEGIES

Turkey consumed roughly 12 bcm gas in 1999. Roughly 7 bern was imported from Russia through a pipeline crossing Moldova, Ukraine, Romania and Bulgaria. Agreements bad already been signed to increase this amount to 14 bern and expansion is in progress. (The consortium in charge announced that 3.8 bern will be available before 2001.) The rest (5.2 bcm) comes from Algeria and Nigeria in the form of LNG. Based on the previously given ambitious demand estimates, Turkey had signed various 'take or pay' agreements, memoranda of understanding and protocols. The existing and the 'take or pay' agreements signed are listed in Table-4.

Table-4: EXISTING AND SIGNED GAS PURCHASE AGREEMENTS
AGREEMENTS Maximum(bcm) Signature Period Status
_______________ ______________ Date _________ _____________
RUSSIA (West) 6 86 25 In operation
RUSSIA (West)) 8 98 23 In Operation
RUSSIA 16 97 25 Raised finance,
(B.Stream) construction on
________________ _______________ ___________ __________ land_started
IRAN 10 96 22 Iranian section
completed,
Turkish section
____________________ ___________________ ______________ ____________ incomplete
TURKMENISTAN 16 99 30 Agreement
signed, problems
________________ ____________ __________ unsolved
ALGERIA (LNG) 4 98 20 In Operation
NIGERIA (LNG) 1.2 95 20 In Operation
TOTAL: 61.2 BCM
Source:BOTAS ,1999

In addition to these listed agreements; protocols and memoranda of understanding have also been signed with Egypt, Iraq (10 bern), Yemen (LNG), Norway (LNG), Qatar (LNG) and Azerbajjan.

Turkey is producing slightly more than 3 mta of crude oil, which is only 13 % of the consumption. The rest is imported mainly from Iran, S. Arabia, Syria, Iraq and Egypt. The Baku-Ceyban Crude Oil Pipeline is expected to help Turkey to diversify its sources for oil imports. It will further offer the newly independent countries, a secure and uninterrupted route to access the international markets. These in turn will help the stability and progress in the region. Turkey could then have a much greater opportunity to increase its existing trade and investment capacity towards the region.

THE BLUE STREAM PROJECT: A DANGEREOUS STRATEGY

Turkey and Russia signed an agreement for 16 bern/yr to be transported by a subset pipeline to cross the Black Sea and to be further transported from Samsun (Black Sea port of Turkey) to Ankara. Russia's Gasprom, Italian EM, 3 Japanese companies and French Boygues declared their support for the finance and construction of this ambitious project. In April 2000, the partners made a press release claiming that they have finally raised the finance. Some German banks are also announced to be supporting the project. The agreements are ratified in the parliaments of Russia and Turkey and incentives like tax exemptions are given to make the project attractive. Although there are very serious tecbnical and related environmental challenges against the project, the real danger lies in the 'strategic' component. Turkey seems to have given its priority to the Blue Stream (for its gas supplies) which means, if the project were successful, then Turkey will almost exclusively be bound to a single gas source, namely: Russia. Connecting a country's gas supplies almost exclusively to a single source is not a rational and secure strategy and if such source is Russia, the equation becomes more difficult to solve. Since the control of Turkey's energy triggers would mainly be in Russia's hands, no one should expect Turkey to play a significant role in the region if there should be a need for such role. The views defending that 'with Blue Stream, Russia will become dependent on Turkey'3 do not reflect the reality. Russia is exporting 240 bern and a volume of 16 bern does not make the Russian economy dependent. Turkey's dependency ratios and Russia's reciprocal dependency ratios are given in Table- 5. For the year 2000 for instance, Turkey's dependency is 68 % against Russia's 6 % dependency. For the year 2010, those ratios are % 56 % versus 9 %. Furthermore, Russia will be transferring the Turkmen gas for which it pays 36 dollars for 1000 bern and will be selling this gas at not less than 110 dollars per 1000 cubic meters price to Turkey. And finally, since the electricity production, heating and similar vital requirements will be exclusively bound to this source, it seems that Turkey will be loosing much more than the value of the gas if there had been an intentional or 'unintentional' interruption of the Blue Stream gas. Another critical point is the difficulty in financing two big projects like Blue Stream and Turkmen Gas at a time. Despite claims on the contrary, in a testimony to the U.S. Senate in 1999, Ed Smith, the president of PSG openly said: 'Both the Blue Stream and TCP will bring gas to Turkey, but only one will be developed at a time because of the size of the market in Turkey. Turkey's demand for natural gas is very great and would seem to be big enough to support the development of both project& But it is noL The enormous cost and risks involved in developing projects of this size require a high level of confidence that the market will be there when the gas arrives... ... We are therefore convinced that, once one of the 2 projects is widely seen as heading for a successful financing, the other project will stall, probably to be delayed by as much as 5-10 year&' Turkey should have given the priority to Azeri gas and Turkmen gas to diversify its sources. But, Turkmenistan is selling its gas to Russia and Iran. Azerbaijan is announcing that they will sell their Shah Deniz gas to Iran if Turkey purchaces less than 5 bcm a year. Turkish officials are reported to demand only 2 bern a year since they are already 'overbooked'. Shah Deniz gas is of critical and strategic importance for the 'East-West Corridor' strategy since it will also contribute the construction of Baku-Ceyhan. As we mentioned previously, if both lines are laid parallel, the capita! and operational expenses will significantly be reduced. Thus, if the construction of Shah Deniz gas pipeline is also lost, we have to forget about the 'East-West Corridor'.

TABLE -5a: Turkey's DEPENDENCY RATIOS FOR GAS SUPPLIES (%)14
Year 2000 2005 2010 2015
RUSSIA 68 54 56 47
IRAN 15 23 30 25

TABLE -5b: Reciprocal DEPENDENCY RATIOS (%)
(Dependency of Russia and Iran to Turkey in terms of their total gas exports)
Year 2000 2005 2010 2015
RUSSIA 5.9 8.5 8.9 7.5
IRAN 23.0 64.4 86.8 73.1

THE IRANIAN FACTOR AND THE IRAN GAS DEAL

Iran is one of the most significant players in the region with its huge oil and gas reserves. With its long border with Turkmenistan and a significant Iranian Turkic population mainly concentrated in its northern region, Iran's considerations towards Azerbaijan, Turkmenistan
and Turkey are also significant. While the rich oil and gas reserves in Turkmenistan and Azerbaijan are cornpetitors for the Iranian reserves, Turkey is seen as the biggest rival with its secular regime for Iran. It is no longer a matter of suspect but an obvious fact that, the radical regime in Iran is using all means to destabilize Turkey. Here we have to state our evaluation on the issue of sanctions on Iran. Despite the claims on the contrary, the U.S. sanctions effectively and negatively affected Iran, since it limited the cash flows as well as the hi-tech equipment required to explore and produce the oil and gas reserves which are the most important sources to recover its exponentially declining economy. The attempts of some big oil companies to challenge the U.S. strategy against Iran had never stopped and with every opportunity they will try to test the determination of the administration. Among these companies, the leading ones are French Total, Royal-Dutch Shell. Russian Lukoil and some U.S. companies like Conoco and others. Their efforts to invest in this resource rich country. will always be a potential factor that may lessen the impact of the sanctions and help Iranian regime to continue to be a threat in the region.

On the other hand, Iran's radical regime does not feel comfortable with billion dollars worth investments flowing into the economies of its neighbors like Turkmenistan and Azerbaijan. These two countries and Kazakhstan as well, are becoming serious competitors for Iran both for the oil and gas markets and thus will decrease Iran's revenues. The recent high oil prices helped countries like Iran, Iraq and Russia to lessen the effect of their economic crises. With the Caspian oil and gas flowing into the international market, Iran (and the others) will face serious competition and will have to live with decreased revenues. No need to say, the 'pistachio trading' will be far from closing the gap. Furthermore, a wealthy Azerbaijan will be a 'very dangerous center of attraction' for the Azeri population reported to be not less than 15-20 million that lives in the northern part of Iran. Finally, any export route passing through secular Turkey is another 'problem' for the Iranian regime, which had never been friendly with Turkey in its history.

The policy pursued by Iran towards the 'Status of the Caspian' had been another tool, used in cooperation with Russia towards blocking an agreement to slow down 'foreign interference' to the Caspian. Russia is coming close to Iran when it needs to hold a stronger position against the U.S. and 'its partners', but doing its best to weaken Iran as its biggest competitor in the oil and gas game in the Caspian region. Russia is recently changing its stance for the status of the Caspian and had already aligned with Azerbaijan and Kazakhstan.
This is a tactical move to squeeze Iran in the regional power struggle. In fact, Russia-Iran flirtation is not limited with hydrocarbon development in the Caspian or with the 'Status of
the Caspian'. It extends to the area of Weapons of Mass Destruction (WMD). Russia is reported to be constructing a nuclear reactor in Iran. The Shahab-3 missiles are produced with the Russian technological support. Shahab-3 has similarities with the North Korean Nodong-1
and is probably developed using a developed Scud-B technology. This missile is reported to have a range of 1300 to 1500 km. Sbahab-4 is in the research period and expected to be effective in a range of 2000 km. Shahab-5 is reported to be developed under North Korean assistance an is planned to reach a range of 3500 to 5000 km'5. The development of this missile is based on the Taepo Dong Missile technology of the North Koreans. Some analysts are not taking these efforts too seriously. Iran is also reported to have chemical weapons and trying to possess biological weapons. In 1998,the U.S. has issued a law to prevent Iran's efforts to produce missiles. As of January 1, 1999 the U.S. Administration imposed sanctions to 10 companies within the framework of this law.

The efforts of Iran for getting armed, its reluctance for taking any step towards democracy and its open support for terrorist groups like PKK and Hizb-Allah aimed to destabilize Turkey, makes it impossible for Turkey to follow a healthy and friendly policy with the existing regime. Although we welcome the results of the recent elections in Iran as a positive first step towards normalization, no one should expect the Islamic fundamentalists to let such a process to follow a smooth and natural path.

Within these in mind, it is hard to defend Turkey's decision to purchase 10 bcm per year gas from Iran. The agreement was initially signed in 1996 and 'modified' in 1997 during the Refahyol period. Such a step is another strategic mistake giving Iran a very important leverage to play against Turkey when needed. Since the 'modification' turned the previously signed agreement to be completely a 'take or pay' type, today Turkey has to purchase Iranian gas if it were transported to the border. Iran seems to have finalized its construction obligations within its own territory while Turkey has failed to do so. Iran announced a 'cash call' for Turkey and BOTAS officials led by their General Manager visited Iran to negotiate the terms and they could hardly postpone the start-up to mid 2001. Iranian gas can also be preferred if it were the only alternative against the Russian gas (Blue Stream) for the principle of diversification.

Furthermore, Iran is trying to attract the Caspian oil exports to pass through its territory by announcing tariff (or transit fee) reductions. Iran's Oil Minister Zanganeh announced that they will reduce the swap fee to 17 $ per ton. Azerbaijan is 're-examining its Iranian relations' and the Azerbaijani Foreign Minister Guliyèv is quoted to declare, 'Azerbaijan has always supported multiple options for oil pipelines'7. Such a declaration can be interpreted as a

'The Armament Efforts of the Iranian Armed Forces' (in Turkish), Deniz Altinbas, Avrasya Dosyasi (3-monthly publication), October 1999.
''Iranian Deal May Entice Caspian Oil Away From Turkish Pipeline', httpwww.stratfor.com/MEAF/commentary/m99 120923 30.htm
l71~j~ Re-examines Iranian Relations', http:www.stratfor.com/CIS/commentary/c000l 1923 59.htm

maneuver to force the U.S. (and Turkish) Administrations to take more serious and concrete steps towards the construction of the Baku-Ceyhan instead of inconclusive press releases or speeches of intention and good wilL But such interpretation will only help to underscore the wide critics rising not only in Azerbaijan but in Turkey as well. 'Now that Grozny has been reclaimed as a ruin by the Putin-led Russian offensive, Azerbajjan's President Heidar Aliyev and to a greater extent, Georgian President Eduard Shevardnadze have inevitably been forced to make subtle policy adjustments to guard themselves against overt Russian pressure or even action in the South Caucasus. Georgia's aspirations for NATO membership for example, has been replaced with the statements of intent to declare neutrality,' says Bulent Mi Riza, the Senior Associate of CSIS in his Caspian Energy Update in February 25, 2000. The agreements signed and ratified are important steps that will open the way for the actualization of Baku - Ceyhan. But it also makes it very dangerous for Azerbaijan and Georgia if the period before the signature of concrete throughput guarantee and finance agreements extends.
With the existing export volumes and understanding the real intentions of the oil companies, there is no reason to relax.

The recent demarches of Kazakh officials is in favor of the Iranian route for oil exports. U.S. oil companies like Chevron, Exxon-Mobil and Conoco had always preferred the 'southern route' to Baku-Ceyhan and lobbied against the sanctions for Iran. Their top level officials met with Iran's Kemal Kharrazi in New York to discuss the easing U.S. sanctions'8. Now that Bush (Cheney of Chevron) is in power, it wifi not be speculation to expect a softening policy towards Iranthat inturnwillbe in favor of oil and gasexportsthroughIran'9. This will be another serious obstacle against Baku-Ceyban and the East-West Corridor.

IS THERE A FUTURE FOR THE EURASIAN CORRIDOR? (YES, BUT..)

Turkey's interests towards the Caspian region and beyond is not limited to 'its cultural and religious ties' with the Turkic originated population in the newly independent countries. As it can easily be seen, this interest has pragmatic and rational components like the energy supply needs and security concerns. The need for diversification should be considered as the most vital and fundamental part of Turkey's energy policy. Such a policy then, should give its priority to the construction of the Baku-Ceyhan line and the Azeri and Turkmen gas lines to be laid parallel to it, This strategy overlaps with the 'Multiple Pipelines' strategy of the U.S. and helps the economic and therefore political independence of countries like Azerbaijan, Georgia, Turkmenistan and Kazakhstan. But the project faces serious obstacles like 'commerciality' and 'inadequate volumes'. For the first one, we have to say that 'apples should be compared with apples' and not only the pipeline construction costs but total transportation costs should be compared. Tanker transportation costs, marketing opportunities (Turkey is one of the most attractive and close markets both for oil and gas); environmental costs and finally the strategic concepts should be evaluated together. Furthermore, the construction of a parallel Azeri and/or Turkmen gas line with the Baku-Ceyhan line will significantly reduce the capital and operational costs. Therefore such an integrated package

will be an interesting 'testing' opportunity fbr the seriousness of the claims raised by the AIOC companies. Since BP-Amoco is the leading stakeholder both in the Mega Project (oil) and the Shah Deniz (gas) Project, there still seems to be an important chance of a commercial 'win-win' opportunity for the parties. The signing of the final agreements by Georgia is a positive progress towards Baku-Ceyhan. But every careful and objective analyst knows that the most important part of the deal is to be able to find the necessary throughput guarantees for the pipeline. Only after this step we can raise the finance. The marketing strategy or the sales and purchase agreements are also needed to complement these steps. This final phase has not adequately been discussed but since there is a production surplus in the world, it is not that easy to market the 'new comer' Caspian crude in the preoccupied international markets.
The Azeri oil has to compete mainly against the Middle East, West African and North African crude in the Mediterranean market. As stated before, in the land locked Caspian, the cost of investment is significantly high compared to the investment costs in the Middle East. Baku -Ceyhan needs at least 20 mta of Kazakh oil, but the future Kazakh exports (Tengiz and Karacakhanak) are dedicated to the CPC line. Tengiz will have a peak production rate of 35 mta while the capacity of the CPC line is 70 mta. The Kazakh oil will be transported to a new port near Novorrossisk before the end of 2001 and eventually cause additional oil tanker threat for the Turkish Straits. If you open the web site of the U.S. company Chevron, you can face with the cold face of this reality. The recent discovery in Kasaghan offshore field of Kazakbstan is a new and important resource, which can increase the chance of the Baku -Ceyhan project. Despite his former 'promises' to support Baku - Ceyhan with Kazakh crude, Nazarbayev signals a far distant date for a probable throughput for this line: The year 2015.20. Furthermore, recent views by Kazakh Prime Minister Tokayev openly states that their 'top priority after the CPC will be transportation through Iran.' Two of the AIOC companies, Exxon-Mobil and Lukoil, had openly declared that they will not send their oil through Baku Ceyhan. Their total stake is 18 %. This means that, the inadequate total reserves of the Mega Project is further reduced from 4.5 billion to 3.7 billion barrels. The declared minimum cumulative amount needed to make the line feasible is 6 billion barrels. As the Kazakh component does not seem to be promising, we need extra Azeri oil or an integrated approach to include Shah Deniz gas as stated frequently in this paper.

Therefore, instead of inconclusive and binding demarches which no longer are making credit even in internal politics, those who claim to be holding the power in their hands should proceed in a more professional manner to satisfy the industry needs as well. There is still a chance to successful imply the TCP Project. The Azerbaijan gas project is the critical point in this integrated project. If the problems between Turkmenistan and Azerbaijan become the dominating factor, the whole strategy may face a total collapse. Neither Turkey nor the U.S. should show preference towards either. Since officials are frequently claiming that the Turkish gas market is so thirsty to absorb all the proposed resources, we should let the industry rules to dictate and the politicians only open their way. If you are giving priority to one project through incentives and other tools, then it can not be defined as a fair competition. Therefore, if we play the game with its own rules, then we deserve to have hope for the future. But let me conclude with a favorite quotation:

As a wise man said: 'Hope is a delicious breakfast, but an unpleasant dinner'.

February 2001

''Turkey's Pipeline Strategies Toward the Caspian and Its Impact on the Mediterranean and Black Sea
Markets', Necdet Pamir, paper submitted to the Mediterranean & Black Sea Oil Markets Conference, 26-27 Jan.
1998, Istanbul. IBC Conf Ltd.
* Both sources give the same numbers since the common source is the Planning Department of the Energy
Ministry.

'4prepared by the World Economy Studies of the Center for Eurasian Strategic Studies (Mehmet Akpmar, Ekin Keskin)

7'Central Asia Shuns U.S. Hegemony', http:www.stratfor.com/CIS/comnentary/0004281700.htm
8''U.S. Loses Influence Over Caspian Basin Oil', http://www.stratfor.corn/CIS/specialreports/special27.htm
9'Turkmenistan: Ties To West May Be Worsening', Michael Lelyveld, RFE/RL, 2 May 2000
10''Turkmen TCP Plan Put on Hold', May 22, 2000, Reuters
'Pipeline not a sure thing despite OSCE agreement: BP-Amoco, AFP, Baku, Nov. 17,1999.
'2'U.S. Intruding in Caspian', Oil & Gas Journal, 27.04.1999.

'8U.S. Oil Chiefs Meet Iran Foreign Minister on Sanctions; Reuters (N. York); January 31, 2001.
'9Iran: Bush Administration May Reconsider Its Energy Policy; Charles Recknagel; RFE/RL, 31 Jan. 2001.

20'Kazak Petrolleri ye BakU-Ceyhan', Mehmet Binay, NTV-Almati/lstanbul, 31 Mayis 2000.
210il Diplomacy Brings Kazakhstan, Iran Closer; Reuters (Almaty); Feb 6,2001.