Turkey's Geopolitical Value

Submitted by Guillermo Valencia, founding partner of MacroWise

Turkey's Geopolitical Value

“Who controls the food supply controls the people? who controls the energy can control whole continents? who controls money can control the world.”

      - Henry Kissinger

Europe’s energy dependency

Gas distribution is a powerful motive behind the Syrian war.

The biggest gas importer in the world is the European Union (EU), which invests around 263 billion dollars a year in this energy resource. Main exporters to Europe are Russia and Norway.

Due to the current Ukrainian conflict, dependency on Russia as the main gas supplier has become a risk for the national safety of the countries that comprise this political community.

Avoiding dependence of gas coming from Russian is a top priority for the European Union

The latter has exposed the need to build gas pipelines that are not under Russian control, reason why the European Union has been exploring alternatives to diversify the supply. Among their options, there are countries that have the world’s greatest gas reserves. On one hand, there are Eurasian countries like Iran and Qatar? on the other hand, there is the Caucasian region with territories such as Azerbaijan and Turkmenistan.

 

The gas pipelines that would connect the Caucasus and Iran, and that are priority for the European Union are the following:

Nabucco and Transcaspia: It connects Azerbaijan with Eastern Europe, passing through Turkey. This gas pipeline exists, but Azerbaijan’s reserves are not enough to cover the energy demand of the European Union. The construction of the transoceanic gas pipeline through the Caspian Sea would connect the supply from Turkmenistan and Kazakhstan with Europe. These countries barely make up 3% of global gas exports.

Qatar-Saudi Arabia-Syria-Turkey: Qatar exports 11% of global gas. Building this gas pipeline will be a direct threat to Russia’s supremacy over the control of gas. Syria and Russia have been military allies since the Cold War. Furthermore, Syria’s government's circle of power is comprised of Alawites, a Shiite sect. Iran is not only the Shiite epicenter, but also provides military support to Syria.

Turkey, Saudi Arabia, Qatar, the United States, the European Union and other Gulf countries have supported several rebel groups against the regime of Bashar al-Asad, indirectly contributing to the strengthening of the Islamic State within the region.

Islamic (Iran-Iraq-Syria-Lebanon): Iran has gas reserves comparable to Russia. Building a gas pipeline that goes through Iraq, Syria and Lebanon and ends in the Mediterranean is a diversification alternative for the European Union. The motives for the United States and the European Union to lift the economic embargo on Iran lies in its strategic value. In turn, the country has been asked not to enrich nuclear power plants.

After the fall of Saddam Hussein (Sunni dictator), and the withdrawal of the United States’ troops from Iraq, a power void was left in this mostly Shiite country. Said void allowed for Iran’s geopolitical expansion and the creation of the Islamic State as a reactionary Sunnite force to the Shiite expansion in the region.

The consequences of power's hidden snag

One of the consequences of these power struggles was the strengthening of the Islamic State, a Frankenstein that is out of its creators’ control, and is now a common enemy to the U nited States, the European Union, Russia and Iran. Turkey, Saudi Arabia, Qatar and other Persian Gulf countries have been pressured by their western allies to fight this group. Nonetheless, these countries have common interests with the Islamic State within Iraq and Syria.

Low oil prices and geopolitical + Iranian deal could make the Gulf countries currency pegs very fragile.

Turkey is the next key region in this conflict, since the only alternative gas pipeline that supplies Russia, and comes from Asia (Nabucco), passes through Turkey. Future conflicts between Turkey and Russia will be part of the Russian strategy within the region. The only difference is that Turkey belongs to NATO and scaling the conflict will have global repercussions. Beyond predicting the next conflict, the key point is that the geopolitical risk is not priced in the region. Saudi Arabia, Kuwait, Qatar, credit default swaps (CDS) below 100 bps and Turkey and Russia CDS at 270 bps levels are not reflecting the geopolitical tension in the region.