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June 2000 Prepared for FOREIGN POLICY REVIEW, CALIFORNIA - page 3 / 17

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The Five-Part Agenda: Strategic Partnership Against the background of this visit should be seen the state visits to Washington by President Demirel in April 1999 and by Prime Minister Bulent Prime Minister Ecevit in September 1999. They all smoothed the way for further enhancement and deepening of Turkish-U.S. relations. They consolidated the co-operation, which was carefully termed as "strategic partnership" as from September 1999. We wish to focus on five major components that feed into this partnership:

1.

Energy Co-operation in the Forefront

Energy co-operation serves twin purposes: First, bringing the energy resources of Central Asia and the Caspian to Turkey, and via Turkey to world markets; and secondly, meeting Turkey's own growing needs for electrical power. Each purpose is closely related to a web of inter-related geopolitical, economic and security relations involving Turkey and the United

States.

Especially with respect to Central Asian and Caspian energy, Turkey and the U.S. have made significant progress in coordinating their efforts. These contacts have resulted in a common strategic commitment to establish a new “East-West Energy Transportation Corridor”. That corridor will include a Baku-Ceyhan main oil pipeline and a parallel gas pipeline across the Caspian from Turkmenistan. Both countries share the view that multiple sources of energy are necessary. Negotiations to make this a reality are approaching a decisive stage.

World energy prices have improved from their historic lows a year ago, dispelling fears that there will be insufficient Caspian investment to justify the Baku-Ceyhan route4. Problems with alternative routes are confirming the wisdom of the East-West Corridor. Based on current trends, there is every reason to expect that by summer 2000, commercial agreements on both projects are likely to be signed, financing secured, and final engineering studies well advanced. By 2002, the first Turkmen gas should reach Erzurum via the Caspian5, (but the conclusion of the Blue Stream deal with Gazprom might postpone this project to a later date) and by 2004, Ceyhan could be shipping Caspian oil (if the necessary financing and volumes could be obtained).

Strategic Objectives. The Caspian region is the epicenter of major geopolitics. It contains vast energy resources and poses national security interests for Turkey and the US. All the energy- consuming countries of the world have an interest in stable, continuous and diversified sources of energy from the Caspian region. Common Turkish-U.S. strategic interests in the region are:

4 Volatile oil markets – the roller coaster ride of high prices to low, low prices to high – create a climate of uncertainty for investors and energy producers, who can expect neither long-term price stability, nor plan for rational investment of capital. The extreme volatility we are witnessing today is testament to the folly of artificial production quotas by OPEC. Markets, not cartels, should set the price of oil. The Caspian oil is expected to add to the non-OPEC supply increase, thus helping stabilise world oil markets. 5Washington keenly supports the $2-2.5 billion Turkmenistan-Turkey pipeline because it bypasses Russia and Iran—two rival players in the Caspian, and agreed to submit detailed financial proposals for a pipeline from Turkmenistan to Turkey by the end of March 2000 in a bid to boost the troubled project’s viability. President Niyazov, frustrated at the lack of progress in this U.S.-backed plan to pump Turkmen natural gas to Turkey, cast the project’s future in doubt in late February by agreeing to supply vast volumes of gas to Russia over 30 years. But he has already pledged to supply the Turkish line with an eventual 30 billion cubic meters (bcm) a year. Turkmenistan would be unable to meet that demand while at the same time pumping 50 bcm to Russia annually. (Turkmen gas production last year was only 23 bcm.)

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