The implosion of the USSR suddenly opened up the former Soviet Union’s energy assets to western investment. Of these, the most important was the Caspian basin, whose 143,244 square miles and attendant coastline are estimated to contain as much as 250 billion barrels of recoverable oil, boosted by more than 200 billion barrels of potential reserves, quite aside from up to 328 trillion cubic feet of recoverable natural gas. Conservative estimate Caspian reserves at over $12 trillion and in 1998, Vice President Dick Cheney remarked, "I can't think of a time when we've had a region emerge as suddenly to become as strategically significant as the Caspian."
The immediate question then was how to shift this largesse to Western markets, in the absence of westward flowing pipelines. Accordingly, the immediate solution was tankers, which turned Turkey’s Bosporus into a shipping freeway, much to Ankara’s distress, a situation that continues to the present day.
Now the government of Prime Minister Recep Tayyip Erdogan has proposed a visionary solution to the problem of tanker congestion in the Bosporus – a 30-mile, $12 billion canal across Thrace to the west of Istanbul.
It is not a new idea, as a canal connecting the Black Sea to the Sea of Marmara was first proposed in the 16th century in the reign of Sultan Suleiman the Magnificent, while in 1994 then Prime Minister Bulent Ecevit announced a similar plan for a “second Bosporus.”
The idea has merit for the Turks on two points. First is the fact that the 19-mile Bosporus bisects the city of Istanbul, a city of 12 million, and it is a notoriously difficult channel to navigate, narrowing in places to less than a mile, with a convoluted morphological structure that requires ships to change course at least twelve times. Not surprisingly, municipal authorities are concerned about the possibility of accidents to ships with highly volatile cargoes. In the Bosporus’s worst accident, on 14 March 1994, the 66,822-ton Cypriot tanker Nassia, laden with Russian Novorossiisk oil, collided with the Cypriot Ship Broker at the Black Sea entrance to the Bosporus. In the conflagration that followed, 29 of the Nassia’s crew died, the vessel’s port and center tanks containing 19 million gallons of crude ruptured and polluted the Bosporus. Both ships were total losses and the channel was closed to shipping for a week and the accident caused $1 billion in damages.
Turkey’s other concern is economic. Under the terms of the 1936 Montreux Convention, which ensured Turkish sovereignty over the Turkish Straits, prohibited Turkey from even collecting tolls on merchantmen transiting the Straits; commercial vessels are not even required to engage the services of a pilot to navigate the tricky passage.
A tanker now navigates the Bosporus about every 15 minutes, around the clock, with nearly 850,000 barrels of crude leaving Russia’s Novorossiisk port each day. In April alone, 1,933 vessels sailed the Bosporus.
Despite the significant construction costs, Turkey could recoup its investment fairly quickly. As a point of comparison, Egypt collected $4.345 billion in tolls from ship passages in the period January-November 2010. While ship owners will doubtless protest about paying for such a service, they will in fact benefit from an economy of scale, as Erdogan says that the new channel will be designed to handle the world’s biggest tankers, very large crude carriers (VLCCs), which the Bosporus can’t handle, as they can draw up to 75 feet of water when fully laden.
Will the canal be built? The Turkish economy is dynamic, the government is confident and assertive, and for the past two decades it has seen Azeri, Kazakh and Russian hydrocarbon wealth sail through the heart of its largest city for free while putting Europe’s largest metropolis at risk. Place your bets.
By. John C.K. Daly of OilPrice.com