Energy Games In The East Mediterranean – Analysis

By Hasan Selim Ozertem

Following the crisis of the Marmara flotilla plus political turmoil in Syria, the eastern Mediterranean has become one of the top issues in Turkish foreign policy. However, the tension has escalated with the Greek Cypriot declaration that they will start drilling activities in the Mediterranean Sea. This decision, in reality, paves the way for a possible change in the existing paradigm of the frozen Cyprus issue, which Ankara has been trying to maintain in the form of a controlled conflict. Therefore, the Cyprus issue has become a more complicated political game which contains serious economic dynamics in addition to its security dimensions. The most critical point in this process is that the Greek side made a decision to start drilling activities at a time when a new period had started in negotiations. With such a decision, energy games which are the crucial part of world politics have become one of the central issues in the Cyprus conflict.

The economics of energy

Energy is a significant part of the regional and global economy as well as geopolitics. As the oil prices strike more than 100 dollars a barrel, although the trend in prices was between 10-20 dollars per barrel in just a one decade ago, this sharp change in prices led to revenues from energy resources becoming more attractive. As a consequence, investors have recently become more likely to take the risks and accept the financial costs of offshore exploration activities than they did before. If we take into consideration that drilling platforms charge between 100-400 dollars and the cost of deep water drilling activities per day is nearly 400 thousand dollars, this argument will be more clearly understood.

Oil and gas exploration activities in deep waters have become much more evident in the second half of the 2000s, and the Greek Cypriots also decided to join this adventure. In this period, although they have been flirting with many U.S.-based energy companies, they did not achieve starting exploration activities as a result of Turkish pressure.

However, this circumstance did not prevent the Greek side from enhancing its legal and diplomatic relations with countries in the region. In this respect, Greek Cypriots signed deals regarding an exclusive economic zone with Egypt and Lebanon in 2003 and 2007. Furthermore, they made such a deal with Israel in December 2010 in the aftermath of Marmara flotilla crisis.

As the Greek side completed the necessary legal basis for drilling activities, the beginning of those activities has become possible with the inclusion of the Noble Energy company in this equation. Noble Energy as a mid-sized company has become an important actor regarding recent activities in the Mediterranean market. The company wants to enhance its operations from Israel to Cyprus. Furthermore, its recent endeavors and serious eagerness to start offshore activities in Cyprus were mentioned in WikiLeaks documents as well. A report sent by the U.S. Embassy in Nicosia also mentions the plans of the company to start seismic research activities in 2009. The underlying reason of this eagerness is based on the huge natural gas reserves of Tamar field near Israel which was discovered in 2009. Apart from the 235 billion m3 of gas reserves in that field, Leviathan is one of the biggest natural gas oil fields which has recently been discovered, with its 450 billion m3 of gas reserves also having increased the appetite of Noble Energy toward the region.

It is crucial to indicate that 1.3 trillion m3 of gas reserves in these two fields corresponds to half of Azerbaijan’s gas reserves. In other words, with further seismic research, the East Mediterranean region can possibly be the second Caspian basin. Moreover, according to U.S. Geological Survey predictions, there would be 3.5 trillion m3 of gas reserves equivalent to 20 billion barrels of oil in the East Mediterranean.

Why now?

Although the attraction to energy in economic terms is enough for a reasonable explanation of drilling activities, the time period for those activities brings a ground for the new debates. There are three main arguments in this respect, of which two are related to political matters and the last about the economic dimension of the issue.

The first argument frequently mentioned by the Turkish side is associated with the negotiation process in the island. As it is already known, when the parties came together with the U.N. Secretary-General Ban Ki Moon in July 2011, they agreed to complete negotiations by December. Regarding this situation, the Turkish side said that Greek Cypriots set the grounds for such a crisis in order to undermine the process, and therefore, the sincerity of the Greek side should be questioned.

The second argument is that the Greek side, by acting with Israel, tries to force Turkey to take an aggressive stance. By the way of such a move, both Israel and the Greek side aim to damage the positive image of Turkey which has recently spread in the region and benefit from this circumstance. Actually, this argument is strengthened by considering how Noble Energy’s relations with Israel and recent Turkish-Israeli relations offer an appropriate atmosphere for this process. Moreover, the period of the deal signed between Israel and the Greek Cypriots is also notable.

The final argument is generally mentioned by the Greek side. The Greek side’s statements highlight the clause of renunciation in the agreement, and also indicate that time goes against Noble Energy. According to this clause, the company has to give 25% of the field to the Greek Cypriots at the end of three years, and in the following two years has to withdraw from the next 25%. In this respect, Noble Energy has to rapidly complete its activities and start operations as soon as possible, and therefore get a return on its investment in a limited time. However, if everything goes well and gas drilling begins, it will certainly not be economically beneficial until 2015. Therefore, until the critical period in the negotiation process is overcome, if the Greek side holds some talks for a resolution with Noble Energy before drilling activities start, it would positively contribute to the image of the Greek Cypriots. However, the Greek side did not inform about such a process.

If all these arguments are analyzed, Turkey’s existing position in its relations with Northern Cyprus prevents several possible crises in the region. The policies Ankara—which has chosen to use energy and diplomatic instruments and prevented any military conflict—pursued until now certainly contributed to the positive atmosphere in the region. However, in the coming period, Turkey can face some problems related to current capacity of TPAO. Considering the insufficient capacity of TPAO for deep water activities and its potential role in the Middle East and East Mediterranean in the prevailing conjecture, it is possible to say that a serious period is coming for Ankara in which the capacity problem of Turkey’s energy policies has to be more critically debated.

Hasan Selim Ozertem
USAK Center for Energy Security Studies

This piece is translated by Betul Buke Karacin.