BACKGROUND: With the demise of the South Stream plan in 2014, the announcement of the Turkish Stream pipeline to carry Russian gas to Turkey and beyond gave Turkey a great opportunity to become a key transit state for a substantial volume of Russian gas. At that time, Moscow was in a vulnerable position. It was desperately looking for alternative routes and partners to counter heavy Western sanctions and political and economic isolation. Moscow was willing to recognize Turkey as a transit state for its gas deliveries to the Southern part of Europe. Ankara had set its sights on Turk­ish Stream as a means to become a major gateway to the EU energy market. Yet the deal did not materialize as fast as Moscow wanted. Ankara and Moscow became mired in price negotiations and faced Brussels’ disapproval of the deal. While Moscow felt urgency to secure this project, Ankara took its time negotiating from a strong position, even declaring its desire to be not only a transit state, but also a part of the selling and buying process.

Last October, Russia’s Gazprom reached an agreement with a number of German and European companies on expanding the Nord Stream pipeline. Gazprom then decided to reduce the size of the pro­posed Turkish Stream pipeline by half, linking a reduction in the pipeline’s capacity – from 63 billion cubic meters (bcm) per year to 32 bcm – to the construction of North Stream 2; a significant shift in Moscow’s gas supply initiatives. This step was followed by the downing of the Russian fighter jet in November, putting the two countries seriously at odds. Moscow introduced a range of economic sanctions on Ankara and put the Turkish Stream project on hold. Germany saw the derailed Russia – Turkey relations as an opportunity to establish a transit state role for itself.

IMPLICATIONS: Germany, like Turkey, has fostered the idea of becoming a transit state for Russian gas to the EU energy market. The Germans have taken an aggressive stance towards Turkey as a potential partner in the Union’s gas industry. Since last November, Germany has persistently pushed the idea of expanding Nord Stream to carry Russian gas to the West European market.

In February, the German gas transmission system operators (TSOs) submitted the draft 2016 Gas Network Development Plan, which provides a comprehensive action plan for network development to ensure a natural gas supply providing energy security for Germany, to their country’s national regulatory authority, the Bundesnetzagentur. Yet in a German perspective, this action plan is central also in providing energy security for the entire EU. The draft plan proposed two principal options for discussion. The first option stipulates enlarged gas imports from the Caspian region via the EU-backed Southern Gas Corridor, bypassing Turkey through the White Stream pipeline under the Black Sea and then linking up with the Tesla pipeline. The second option requires the implementation of Nord Stream 2 as a key component. Both options exclude Turkey from Germany’ energy security scheme. In April, after extensive public consultations, the TSOs submitted a principal model case to the Bundesnetzagentur, building on the expansion of the Nord Stream pipeline and arguing that this option received support from a majority of market participants in Germany and Western Europe. Its implementation would amplify Germany’s status as a regional energy hub, as up to 80 percent of Russia’s total exports to Europe could, in theory, be directed via Germany. One of the arguments that supporters of this pipeline use is that this option, unlike the existing Ukraine transit route, will substantially help reduce transit costs. This has been seen as a key factor in the current bearish gas market.

Ukraine, Poland, Slovakia and the Baltic States have opposed the expansion of Nord Stream on the grounds that it would threaten EU energy security by increasing European dependence on Russian gas. However, the key impact of this project is that these states, especially Ukraine, will lose transit revenues. Brussels has previously expressed skepticism about Nord Stream 2 but it is now unclear whether it will block the project, given the amount of pressure that German and other West European companies can mobilize. At present, the European Commission has no official position on the project. As the crisis in Russia-Turkey relations is abating, Moscow can resume negotiations with Ankara on Turkish Stream, putting additional pleasure on Germany and other participants in Nord Stream to promote the project in Brussels.

Moscow has been careful to keep both options open. Gazprom earlier announced that neither South nor Turkish Stream pipelines have been taken off the table, hinting that even negotiations on South Stream could be resumed. Both projects target the countries of South-Eastern Europe and the Balkan Peninsula. According to Gazprom, the gas supplies to these areas via Nord Stream are not competitive, therefore, either Turkish or South Stream pipeline can be implemented, especially given the fact that the degree of readiness is high for both these projects, both technologically and organizationally. Yet Brussels has opposed them as a threat to its Southern Gas Corridor scheme.

Ankara has sought some form of compromise and approval from Brussels in the past, but may now decide to ignore Brussels’ opinion. Erdogan’s recent statements have signaled his growing discontent with the EU over a number of political and economic issues. In turn, it appears that Moscow has become more pragmatic and careful in its efforts to balance among Nord and Turkish Stream partners. Recently, Gazprom’s CEO Alexey Miller said the construction of Turkish Stream depends on Brussels’ decision and can be resumed only if Gazprom receives a written approval of this project from the European Energy Commission. This indicates that Moscow will not shift gears and work with Turkey but rather respect EU rules and wait for official permission.

CONCLUSIONS: Russia-Turkey relations will gradually improve but are unlikely to return to the level that existed before the November 2015 incident anytime soon. Given that Russia remains determined to remove Ukraine from its delivery scheme and secure its shares in EU energy markets, Moscow will push ahead to secure two entry points to the EU’s gas market – from north and south. Yet Gazprom will likely be more persistent with the northern component. It seems that Germany, the EU’s leading member, is both better positioned and a more serious, stable and predictable partner for a major pipeline project. Germany may also provide substantial political support to Moscow in promoting its economic interests in Europe. It is unlikely that Moscow will consider Turkey as a transit state for a substantial volume of Russian gas deliveries to Europe. However, Moscow will still pursue either the Turkish or the South Stream pipelines to remove Ukraine from its gas politics and secure markets in the EU’s southern parts.

AUTHOR’S BIO: Najia Badykova is the head of Antares Strategy consulting.

Image Attribution: cdn.americanprogress.org, accessed on July 21, 2016