TURKEY-ISRAEL: Gas Pipeline Rumors Are Geopolitically Tectonic

Bottom Line: Israel and Turkey are flirting with the idea of building a gas pipeline from Israel's Leviathan Basin directly to Turkey to supply European markets. For gas-starved Turkey, this is a geopolitical quagmire that involves Israel, Iran, Syria, Qatar, and Cyprus. Turkey is keeping silent on the deal, but our intelligence sources say it is seriously being considered, despite media reports to the contrary. 

Analysis: In early February, Israel proposed the construction of a pipeline under the Mediterranean Sea to southern Turkey to market its gas to Western Europe. Turkish officials have conceded that the Israeli proposal has been officially made, but have responded publicly by saying that "we have a policy regarding Israel, and the claims that Turkey leans towards this idea is not true". Behind the scenes, Israeli officials and pipeline execs have already been to Turkey to discuss the possibility of this project, which would cost around $2 billion and would involve the Turkish pipeline builder, the Zorlu Group. Israeli officials involved included Undersecretary Harel Locker and executives from the Dalek energy corporation.

Such a pipeline would be brilliant for Israel, for Turkey and especially for Europe. For Europe it means an alternative gas supply to balance out the Russian dominance of the market. For the partners in the Leviathan field, piping gas to Turkey will be much more lucrative than the other options, particularly an option to export to China. But for Turkey it will also have some extreme geopolitical implications and well as some domestic problems due to the public's view of Turkish-Israeli relations. May 2010 saw nine Turks killed by Israeli forces when they boarded a Turkish ship that was attempting to break the Gaza blockade. The Turkish prime minister dramatically walked out of the Davos Economic Forum in January this year because the Israeli president was there. This was for public consumption in Turkey.

There are other spoilers, too. Cyprus, for one. An Israeli-Turkish pipeline would run under Greek-controlled Cypriot waters. Turkey has already refused to buy any gas from Cyprus, but this would mean buying gas that goes through Cyprus, which may not sit well with the Turkish public. Amid an ongoing dispute between the Greek Cypriots and Ankara over hydrocarbon reserves on the island, the Israeli company Dalek is flirting with Turkey while at the same time has an agreement to explore offshore oil and gas concessions with Cyprus. Turkey is also a bit skeptical of Dalek's long-term intentions and has itself banned any companies exploring in Cyprus from obtaining licenses in Turkey. Turkey will want something greater in return than just gas, and it will use this as a potential bargaining chip for other theaters, like Gaza.

If the deal goes through, Iran will be angered, so will Russia-both major suppliers to Turkey. Turkey would very much like to reduce its dependence on both and this would be one way to do that. Iran could help make things difficult for Turkey on the Syrian border.