Marketplace Middle East - Blog
Signals along the Silk Road
The ancient Silk Road was arguably one of the most important trade routes with a history stretching back two thousand years, but it's today’s revitalization of those links between Asia, the Middle East and Europe that makes for fascinating viewing and deal-making.

Like the Silk Road which is going through its own rebirth, the Nabucco Gas Pipeline project came from the brink of extinction at the start of this year, to an actual signed memorandum of understanding this week in Ankara.

On Marketplace Middle East, we take particular interest because it is a classic example of how the Middle East is playing a role in shaping business and energy policies as a bridge between East and West.

For one, Turkey will serve as the key transit country for this gas pipeline, after the success of the BTC oil pipeline set up three years ago with a similar concept in mind.

Secondly, Middle East supplies will be essential for this project to get off the ground. Kurdish officials in Iraq expressed an interest in providing their energy earlier on and that was backed on a national scale by Nouri al-Maliki this week when he attended the official ceremony with leaders from five transit countries.

But this modern day Silk Road effort requires a big leap of faith to push ahead with the near $11 billion pipeline project.

"We have received clear signals from Azerbaijan, Iraq and Turkmenistan that gas will be available for European gas imports," said Reinhard Mitschek, Managing Director of Nabucco Gas Pipeline International.

If one reads between the lines, he may only be referring to Nabucco, but also to competing pipelines backed by Russia. In this large-scale game of geo-politics, no one wants to shut the door in the face of some of the major players, even if relations may be less than ideal at this juncture.

When asked if, for example, Azeri President, Ilham Aliyev was hedging his bets by supplying gas to Russia and other countries, Mitschek stated matter-of-factly they will diversify their exports to maintain, "industrial and economic relationships with Russia."

On this New Silk Road, the political winds can change direction rather quickly, so Central Asian leaders, literally squashed in between Russia, China and Europe are juggling those priorities and trying to keep all the balls in the air. Kazakhstan, the natural resource-rich state, with a bounty of oil, gas, coal and uranium, has oil pipeline connections to all three of those players.

Nabucco will launch in 2014 with up to 10 billion cubic meters of natural gas in the pipeline. Officials say about three times that amount is expected by 2020. That is when it will get even more interesting. To fill that "pipe," supplies will be needed from Iran -- which sits on the second largest gas field in South Pars.

In a recent interview on our program, European Energy Commissioner, Andris Piebalgs said with the cloud of Iran’s nuclear enrichment hanging over the economic sanctions regime in place, it is too early discuss that potential. In a game of carrot and stick, Turkey’s Prime Minister, Recep Tayyip Erdogan said he would like to see Iran’s gas as part of the Nabucco project. No date for that effort was announced.

A great deal needs to happen between now and 2020 for Iran’s gas to get the green light. Before that happens, international oil companies will have to re-engage in the country to prepare its energy sector for exports.

In preparation of this week’s Nabucco signing, I researched what the pipeline network looks like currently -- it resembles a spaghetti bowl of lines crisscrossing the terrain, and with a Russian bias.

This will begin to change with the Nabucco project, but Russian-backed pipelines are being built in parallel. One across the Baltic Sea to Germany, the Nord Stream, is costing about $10 billion. The other, the South Stream pipeline, crossing the Black Sea to Italy will cost about double that.

If you are wondering if all this new capactity will be needed, think again. According to Nabucco's Mitschek, up to 200 bcm of gas will be required from the East as production continues to drop in Europe.

This means that if all goes as planned and demand recovers along with the global economy, all three new arteries of energy will be welcomed in this new world order.

Nevertheless, as veteran energy analyst John Roberts of Platts said, "Russia has to observe the rules of the game much more closely." It is true that three years of winter gas interruptions by Moscow have forced all the players of Nabucco to get on with it.

As a result, the signals from The New Silk Road are getting the all clear. Let’s hope that geo-politics doesn't interfere in what may be a bold move in name of business.

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Bridge Builder
A visit to the bustling city of Istanbul captures the essence of Turkey’s evolving role in the world.

The Bosphorus strait divides Europe and Asia. The giant bridge of the same name that crosses it links the two continents together.

Beyond the symbolism of the bustling city, Turkey is currently experiencing an expansion of its role as a bridge builder -- largely due to the new occupant in the White House.

It is very symbolic that Barack Obama chose Turkey as his first port of call in a Muslim country during his first 100 days in office.

Turkey remains secular, continues to knock on the European Union’s door for membership, and has a handful of relationships in the Middle East that could be vital in the peace process.

During an exclusive interview in Brussels, Turkey’s President Abudullah Gul provided more than a few glimpses into the shuttle diplomacy, with Washington’s blessing, that is now underway.

President Gul recently met with the Supreme Leader of Iran Ayatollah Ali Khamenei -- it was no accident that it was just days before President Obama reached out with his message to Iran.

"I was able to speak in a very free and sincere atmosphere. I am sure they are listening, they are deliberating and I am sure that at the end when they are convinced that all these messages are sincere, then we can see action," said Gul on the sidelines of the European Business Summit.

Asked whether the elections will need to pass before there is a response to President Obama’s olive branch, Gul said, "The politicians before the election, they have to be populists. So, therefore after the election maybe these serious issues can be handled better."

In the meantime, Turkey is sustaining its shuttle diplomacy with Israel and Syria.

Gul, it is fair to say, is very positive about the change in leadership in Washington and the gestures overall to the Middle East.

"[Middle East leaders]should not miss this opportunity because President Obama is saying we are going to listen to you. We are not going to enforce our own policies on you. This is a good starting point."

While Middle East politics evolve, Turkey is filling another role for the West -- as an energy transport hub to counterbalance the inconsistent gestures from Moscow on supplies to Europe.

Washington was a big supporter of the BTC –- the Baku, Tbilisi, Ceyhan oil pipeline that runs from Azerbaijan to Turkey’s south-eastern coast.

The next goal is the potential building of the Nabucco gas pipeline that will deliver energy from Central Asia to Austria via Turkey. There is some good old fashioned wrangling behind the scenes over transit fees and local supplies for Turkey, while Russia is busy trying to tie up the gas supplies through its network.

But the fact is Turkey will play a bigger role on this front in the next decade.

"It is a bridge between East and West," says Nobuo Tanaka, Executive Director of the International Energy Agency. "In the energy sector it certainly contributes as a very important bridge of resources of the Middle East to the West."

According to the Center for European Reform, Turkey is near 70 percent of the world’s proven reserves of natural gas. Neighboring Iran and Iraq have still not exploited their natural gas exports.

President Gul calls Turkey position in this geo-political game "a unique role."

"You have to diversify the sources. If you have the sources you should secure transportation."

This sounds simple but, of course, it is not. With Turkey eager to see accession talks to the European Union move at a more rapid pace, there are concerns in Brussels that the Turkish leadership is playing the energy card.

Turkey can help deliver energy to the West, especially Europe, but expect a price tag to be attached.

As the former President of TUSIAD, the powerful Turkish business association noted, "There are some powers, there are even some companies, that take Turkey for granted. That there is a particular role for Turkey to play and that is it. I don’t think that it will evolve that way, in that simple manner."

No one ever said straddling both sides of the fence is easy; straddling two continents is even more complicated and yes more interesting.

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John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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