President Erdogan's radical departure from previous policy lines towards the Kurdish minority and its political representatives in the Turkish Parliament could derail Turkey's ambitious plans to act as crucial energy hub for gas and oil flows destined to the EU and global market.
He is not only fighting the PKK but all Kurds - as Selahattin Demirtaş, HDP co-leader was arrested with at least 11 MPs in a marked escalation of the post-coup crackdown.
Intensification of the government's war against Kurds in the Southeastern regions of the country might spell the end of risk free environment for all major transit project passing through Turkey - both existing and planned.
A sequence of bombs blasts, the last one two weeks ago on the gas line from Iran, reportedly carried out by the PKK, might signal a new spiral of uncertainty. This in turn could undermine not all the progress but challenge the core operational functionality of critical infrastructure along the Southern Gas corridor both in Turkey and the region. Most interconnectors and transit system expansions projects hinge on uninterruptible gas flows coming through Turkey both from Iran, Iraq, Georgia - the Baku-Tbilisi-Erzerum pipeline and East Med gas being safely transited and bound to Europe.
Worth noting is that due to dramatic shifts in global gas trade all large-scale gas infrastructure projects like TANAP ($ 9,7 Billion) have experienced rising problems to secure sufficient funding from the capital markets. Both TANAP and TAP developers have been left without option but to recourse to the World bank, the EBRD and the EIB. The WB has postponed several times approval of funding both for the Azeri and the Turkish part of TANAP this year with the latest deadline for $ 400 million loan approval for TANAP scheduled for end of November.
The EBRD in turn has pledged to extend 0.5 million euros of its own money plus syndicate another 1 billion euro for the TAP.
Politically motivated terrorist attacks on key infrastructure in Turkey sends shivers in the banking community.
Adding vulnerability and higher security risks could imply the need for more corporate and even sovereign guarantees along all Southern Gas Corridors that could lead to further delays and trigger knock on negative chain reaction.
All basic assumptions on the feasibility of the main project bringing Shah Deniz - 2 gas to Europe at a total cost of $ 45 billion could be dramatically challenged.
Pipelines have been considered legitimate war targets by the PKK as they inflict substantial reputational damage to the ability of the Turkish government to guarantee the free and interrupted passage of hydrocarbon molecules through its territory. Re-laying pipes underground as a countermeasure would not solve much as dedicated attacks would not be hampered.
After the collapse of the truce between the PKK and Erdogan after July 2015, a sequence of bomb attacks followed in the next month targeting key transit infrastructure - the line from Azerbaijan, from Iran and the oil pipeline from northern Iraq to Ceyhan. As if not to leave the Government and the international public guessing the real intentions and capabilities of the PKK an attack was launched against a train carrying pipes for the TANAP pipeline.
The likelihood of further aggravations of relations between President Erdogan and the different representation of the Kurdish people could lead to higher risk premiums on borrowed capital, delays and finally cost overruns.
PKK and more importantly the HDP are forced into confrontation with the ruling party, whose representatives are direct beneficiaries in most of the transit infrastructure project generated benefits.
Plans to bring 16 bcm/yr from Azebaijan, 10 bcm/yr from Iraqi Kurdistan and up to 10 bcm/yr until 2020 and far more ambitious plans beyond this year including gas from Israel will be significantly jeopardized should PKK attacks proliferate
Negative scenarios on Turkey’s future as the region’s gas hub with President Erdogan seemingly obsessive pursuit of extra presidential powers and dedication to destroy all perceived strongholds of his arch enemies – from Gulenists to the Kurds – are becoming baseline assumption for what future spells for Turkey.
This warrants a fresh look into existing and possible bypass alternative routes or search for plan B solutions.
Shah Deniz-2 gas could revisit projects to ship gas to Europe via LNG terminals in Georgia and regasification units in Ukraine, Bulgaria and Romania. Technological advances and cost reductions could significantly improve the economics of Black sea borne gas transit.
President Erdogan’s ‘success’ in making new enemies could put on hold plans for seabed gas pipelines from the Eastern Mediterranean diverting flows to alternative projects to Greece or LNG terminals in Egypt and Cyprus.
Higher risk profiles of transit projects in Turkey could also lead to reconsideration of gas supply options for traders in South East Europe via the TAP, the interconnectors and along all north bound transit routes to Central and Eastern Europe, that have been relying so far on gas exiting Turkey.
LNG terminals in Greece would be given a boost moreover that access to the global LNG market is essential for the region to keep competitive pressure on monopoly supplies from Russia.
It is not only the direct threat to the physical integrity of the gas pipes, but the underlying loss of confidence in the basic assumptions on the development of the second and third phase of Shah Deniz as well as other gas fields in the Azeri offshore zone. Without certainty that gas produced in the Caspian will be able to safely reach target markets in Italy or CEE, few if any would dare risk investing in upstream and midstream projects, dependent on transit through politically uncertain and risky Turkey.
Worst of all – Erdogan has effectively handed over Russia and Gazprom a trump card – with Moscow’s virtually unfettered influence over the Kurds in the region – that could be played at any given moment to frustrate investors and traders reliant on Turkey’s vulnerable transit infrastructure.
So far President Erdogan has ignored red lights in dealing with the Kurds – but risking the future of key infrastructure project in Turkey might be too big a gamble ultimately leading to his ousting from power.