War in Syria Changes Regional Gas Balance

The involvement of Russia in the Syrian war is a development of macro-historical proportions. It is the first time in history that Russia intervenes directly, and with formidable military force, in the Middle East, within a stone's throw from the Saudi Peninsula where immense hydrocarbon reserves are securing the world's energy. Even during the height of the might of the former USSR in the wars back in 1967 and 1973, Moscow was adamant about not investing military and was cautiously supporting either Egypt or Syria via aid and training. Apart from the wider geopolitical change of balances that are observed, there are consequent micro-trends that directly affect the natural gas sector in the region.

First of all, Azerbaijan, through its Azerbaijan Methanol Company, signed a 5 year contract to secure gas imports from Gazprom for around 2 bcm annually. Although imports were being conducted between 2009-2013 never exceeded 1 bcm per year. In fact, Baku seemed hesitant in enlarging this cooperation. Nevertheless it seems that Azerbaijan is getting closer to Moscow in gas terms, since the impeding opening up of the Iranian market after the lifting of international sanctions will witness a wider alliance between two gas giants, Russia and Iran, who together control around 45% of the global natural gas reserves and 25% of yearly global production. Baku is also continuously pressurized by its hostile relations with Armenia, whilst the local administration over the past 12 month is gradually cracking down opposition groups or liberal teams of people that are linked with NGO's financed mainly by US and EU political and business circles. Thus, we should witness a greater alliance between the Azeris and a Gazprom unravelling in the coming period based on the above realities.

Meanwhile, the Deputy Prime Minister and Minister o Energy of Georgia, Kakha Kaladze, relayed to the local press recently that Russian gas is a preferred choice and better priced than Azeri imports for the Georgian market. Already he stated that talks have been held with Gazprom's chief Alexei Miller on the issue and that Georgia is also interested in securing imports from Iran in the future. Like Azerbaijan, Georgia is facing geopolitical realities based on the dynamics of the re-emergence of the Russian role in the region and that of Iran and the destabilization of Turkey. Thus it stands to be cornered and an upturn of Tbilisi's stance towards forging stronger ties in gas business with Moscow is emerging.

Turkey is also of wider importance. Already it is in dire straits due to its effective civil war with the Kurdish guerillas and the disastrous policy of meddling in the Syrian war that resulted in considerable financial losses, up to $40 billion since 2011, a massive refugee wave of more than 2 million Syrians and a significant drop in the credibility of the Turkish diplomacy in the region. More importantly Turkey imports some 29 bcm per year from Gazprom and 10 bcm from Iran who both constitute around 80% of its import market.

As such, ew developments on the Syrian front are forcing Turkey in theory to re-examine such reliance, nevertheless there are no other alternative suppliers apart from Azerbaijan, which from 2020 will be able to deliver to the Turkish market just 6 bcm of gas. The gas reserves in the Shah Deniz field of Azerbaijan may be enough for a prospective increase of more volume capacity in the Turkish market but there are three points of interest. One is the overall geopolitical reality faced by Baku as explained previously and the intentions of the TANAP-TAP shareholders to use Shah Deniz as a route to export gas mainly to the EU markets and not solemnly to Turkey. Further, the reserves are not certainly infinite and would only last for a generation or so with an annual volume transfer of 25 bcm per year for all countries involved (Azeri domestic needs, Turkey, Balkans, EU markets).

In addition the grand plan in geo-energy terms of Qatar with the support of Saudi Arabia back in 2010-2011 to topple Assad's regime in Damascus in order to set up a "mega-pipeline" through Turkey towards Europe to overthrow Gazprom's dominant role is effectively neutralized. Thus Turkey will not be able to secure Qatari-sourced gas in the near or distance future, unless it proceeds in expensive and rather unstable LNG imports from it.

Lastly the cold and even hostile relations between Ankara and Israel plus Egypt excludes Turkey from joining forces with those countries, and Cyprus to exploit gas riches in the East Mediterranean. Adding the fact that the Turkish society is being extremely polarized between secularists and the decaying in political terms, Islamists of the AKP party, along with the Kurdish uprising, leave little room to Ankara to maneuver. Turkish Stream, which is essentially a "diplomatic" pipeline, could well develop into an enlarged Blue Stream, cementing further Moscow-Ankara gas ties.

In that sense, the tables are turning in the upper Middle East region with seismically geo-economic tremors to be felt first in the Caucasus before eventually reaching South and West.