2505) Fantasy Logics Vs. Crucial Economics And Real Politics

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I wrote my article below on June 23rd and was posted on the 24th.

Matthew Bryza (Deputy Assistant Secretary of State – European and Eurasian Affairs) delivered below lecture on June 24th at the Washington Institute. I am sure he had no idea about my article and annexed reports, but he spoke the very same language of Crucial Economics and Real Politics, though more optimist on Turkish-USA relations!

Sukru S. Aya

Dear Turkish Armenians,

As a person who lived and saw quite a bit of the world and considers USA (and my many friends in there) as my “second homeland”, I want to share my serious concerns, because of the visible black clouds! I am afraid that there will be very few readers to visualize the gigantic energy chess play’s dangers beyond our control and the role of each chessman. It is no secret that I am immune to “hatred and grudge”, and I am quite happy to maintain my close relations with many (mostly Turkish) Armenians and within my capacity, I try to find and speak of the “truth”, whether it is liked or not. Your postings have become an appreciated source for my knowledge collecting! . .

In view of the many pages of flowing information, which I cannot read all at the same time, my secretary makes “prints of almost all postings, which I take home for reading over the weekend”. In particular, I do not want to miss the satiric clever observations of Ara Baliozian. Your posting # 2155 (as well as others 2151 thru 2160) were forgotten until today, and I wish that some of my Turkish readers got back to the ‘same frequency of thinking and living in harmony and compassion’, despite our differences and mistakes, as posted by you under # 2503.

I do not know ‘who the referred Turkish friend’ in # 2155 was, though I am one of his ‘addicted’ readers. It did not escape me, but I was late for some months! As always, I have sintered every word! I read nothing I can disagree, but applaud! I do not know if you heard the joke of Nasreddin Hodja, when he was made temporary judge, because the “Kadi” (Shariat Judge) was not available. He first listens to the complainant and when over, he says, “You are right!” The court aide reminds him that he must also listen to the defender. He listens to the defender and says, “You are right”! The astonished aide asks the Hodja, “How can the complainant and defender be right at the same time?” Hodja, thinks it over and answers: “You know, you too are right!” Baliozian’s philosophy sounds familiar, though he dares not speak one word against Christianity or Armenianism. I don’t care, I enjoy reading his sincere wise observations and explosive satire anyway!

In your posting # 2504 (media scanner), there are too many important points, but what puzzles and bothers me is to see that USA (and Armenian) politicians or big mouth speakers, congressional representatives, candidates, columnists, rush to express their personal opinions on subjects they practically know nothing about other than the fiddle puddle of unconfirmed stories. Most of these speakers or authorized representatives, speak in the air, thinking they can hide realities with their cheap dogmas. Armenian FM Nalbandian, speaks that they want “normalized relations with Turkey”, but he forgets to admit that Armenia is an aggressor and occupier of Azerbaijani land, is in close cooperation with Iran (an enemy of USA), keeps Russian soldiers and bases (not friendly to USA) and furthermore has demands of Turkish lands and compensations! No politician asks, “How much one has to be an absolute idiot to open the door to the neighbor who claims ownership on the house, yard, his wife and possessions”? These are empty words and illusions, and the purpose of this message is to pin point the serious consequences and damages it is bringing to the interests of USA, Europe, Turkey, and the tiny trouble land Armenia, like a pebble in the shoe, during the relay race of global interests! The people living in Armenia lose the projects and benefits which by-pass them! The diaspora Armenians will profit personally nothing from these large projects, if Armenia takes a segmental role! On the contrary, they have to end the “G” aria of this oddest and unique “opera of grudge and hatred”, which keeps many in business with tickets sold in cash for profitable investments for Armenian people, “such as monuments of hatred here and there, or museums to cause nightmares” for visitors!

Secretary Rice, just praised the ruling AKP Party and PM Erdogan, for the perfect cooperation with USA overlooking the fact that the Turkish PM, President and many parliamentarians are about to be banned from politics, because of their serious abuse and devious attempt to erode the “secular” principle of the constitution, now investigated by our supreme “Constitutional Court”. Separately there are countless acts of corruption for which no action can be taken, because of “parliamentarian immunity”. In other words, this is another scandal in our political system and abusing democracy, which must be settled by no one but Turks, as an internal family matter. However, Secretary Rice as well as EU Speakers, “openly side with present ruling party” which is put on court, charged of dragging the whole system into religious fundamentalism that may eventually turn modern Turkey into another “shariat ruled Moslem State”. The Turkish public is infuriated that the “friendly countries” take this much interest and sides with the rapists in a court case of adultery of democracy!

These incidents prove that the other “friendly countries” really do not mind the “adultery” or corruption as long as it is “comfortable or profitable to them”! What a shameful hypocrisy for democracy and humanity!

In such a delicate and fragile period of the Turkish history and her world relations, I kindly ask concerned Turkish and U.S. citizens (including Armenians) to download the U.S. Air Force evaluation report prepared by RAND Corp., read the details and learn the serious risks and expected complications between Turkey and USA, owing to conflicting interests and policies. As a Turkish citizen, I could never be proud of our “lame democracy play” which does not represent, but “misuses” the voters’ hopes. The irony is that EU and other Imperialist powers “never criticize this shame of citizen’s rights abuse or corrupted leaders” but they side with “who ever is in the chair, but only for the duration of the benefit they obtain”.

Was not this true with Armenian revolutionaries who “trusted that USA, or Britain, or France (or Italy) would send their troops” so far away, bearing the high costs simply to “defend Armenians to the end”, simply because they were Christians and faithful allies and insurgents? However, there was no mention of Armenia in the Sykes-Picot Treaty between Russia-Britain and France, nor any defender at the Lausanne Conference. The same is bound to repeat itself, because economic priorities, overrule all the shiny words of humane values, which are nothing more than a camouflage of “the right of the strong hand and control”!

To compliment and enlarge the aerial picture of the Near East, Caucasus and Turkic Republics and their crucial importance for all the countries in the area (USA, NATO members, Georgia, Ukraine, Armenia etc.)

I am attaching the fresh report dated June 12, 2008 by Zeyno Baran, submitted to the Committee of Foreign Relations, titled “OIL, OLIGARCHS and OPPORTUNITY: ENERGY FROM CENTRAL ASIA TO EUROPE.”

This is a world chess game between USA, EU, Russia (+China) for the control of present and future energy sources! The all time nagging, crying, of “G” screamers, (by preference and pressure of the Dashnakist diaspora, which also controls the “tarnished democratic rulers of the tiny Armenia”), have successfully managed to raise enough trouble in the area, that none of her needed neighbors (Azerbaijan, Georgia, Turkey) want to have this foul-player in the important projects (gas and oil pipe-lines, railway and land transport) among them, because she stands uncooperative and opportunist of tiny benefits (for the rulers)! I suggest that you at least read from page 9 on “What should US do” and try to find a single word of any role for Armenia!

Any person, with medium intelligence have to conclude that Armenia has nothing to offer to USA or Imperial States, to cause them to deflect from the rich potential of Azerbaijan, or the strategic key position of Turkey. I hope that the “ticket sellers of the G opera” for which they receive contribution to their electoral campaigns and promise of votes, will realize that they are cutting the branches of the USA tree they vowed to defend! Those who are silent for the drama and carnation going on in Iraq with no signs of settlement, could at least have a “crocodilian brain” (words of Baliozian), and realize that the real-politics and interests of the area, obligates Armenia to be nice and friendly with the neighbors, so that it can get a slice of the future bread, by joining the team and getting a role! Who wants to deal with a continuously quarrelling, screaming, gossiping, complaining trouble maker, who thinks that “he only is right, and all others are wrong”?

There is no room for the little “donation-collection-contribution tactics” successfully applied by loud diaspora organizations, mainly for their own interests, sending some bones for those in Armenia, who otherwise take refuge in neighboring countries to find jobs. So far, Armenia could use opposing USA and Russia to serve their small interests! (Which USA government can trust or cooperate with Iran or Russia?) Is Azerbaijan and Turkey worth to offend and lose as security allies, versus the empty words of this or that electoral commitment?

Persons of responsibility and logics must read the RAND Report (# 2502) and put the attached OIL Report next to it. For a split moment, I thought that I should excerpt few paragraphs of this OIL report, but I think it is best to leave everything to the discretion of the reader with “human brain”! Baliozian’s (# 2155) should teach all parties some life realities! I am expressing a friendly wish to all Armenians, inviting them to think large instead of conning short cuts or provocations of columnists or chairmen going nowhere but few personal pockets!

I also kindly ask the readers to read posting (#2154) and the prophecy of the Reno Evening Gazette of Nov.14, 1915!

Wake up Ahbariks! Your history told that just because of Dashnak and Hunchak illusions, so many lost everything and even lives… when believing that they will win a war with the support of foreign bosses! Why don’t you try to be your own boss a good neighbor and partner, thinking the future of your grand children? You should know that you will never be able to get an inch of land or a dollar of compensation by present blackmails, and your supporters (!) will dump you as in the past, when you are expendable!

A true friend speaks bitter… There is no reason why I should wish or try for any losses of all Armenians, and I do not give a damn about those who think or evaluate me, worse than a “pitbull dog”. “Destruction” of your neighbor’s house does not mean “construction of a new house for you”! If one side is wrong, it does not mean that the other side is right! As Nasreddin hodja put it, we can “all be right or wrong” for all or some parts of the arguments! We have to live in harmony with our mistakes and differences!

Dear Ahbariks, forget the “hanoot”; become your own boss and stop this idiocy of grudge salesmanship, and finding all others wrong, but yourselves!

It is ironic that I express these wishes as a Turk, [though in grief] when Turkey is trying to get out of her own cesspit, despite outside interference. Nevertheless, Turks managed to get out of the most desperate moments in history, when thought that everything was lost! Turks proved it again in football, and let me hope that we can prove it in democracy and living in harmony as I expressed in posting # 2503, using our brain, instead of our foot!

Sukru S. Aya, 23.06.08

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Committee on Foreign Relations The United States Senate
June 12, 2008
Zeyno Baran Senior Fellow and Director, Center for Eurasian Policy
Hudson Institute

Mr. Chairman, Senator Lugar and distinguished members of the Committee, thank you for the opportunity to appear before you today. As diversification away from Russian and Russian-controlled energy transportation across Europe and Eurasia is critically important for America's national security interests, I am honored to be able to share my views with you on this critical topic. Top-level US engagement is essential for the establishment of the Central Asia-Europe Energy Corridor. At risk is the future of the vast space Russia considers as its backyard: the Eurasian, Black Sea and Baltic Sea regions. European Union solidarity and transatlantic unity are also in danger.

Russian Challenge to the Alliance
The most recent example of Russia's increasing influence on European foreign policy and its "divide and conquer" strategy was NATO members' inability to reach a consensus on offering a Membership Action Plan (MAP) to Georgia and Ukraine. Most from Northern, Eastern, and Central Europe agreed with the American position that the two countries should be East and Central Europeans joined the American camp, whereas many West Europeans sided with Germany, which opposed MAP extension largely due to their desire not to anger Russia. In the end, a non-NATO member Russia was able to veto de facto the American proposal.the first time this has happened in NATO's history.1 While Georgia and Ukraine have been promised "eventual" NATO membership, an emboldened Moscow has since intensified its efforts to undermine Georgia's territorial integrity by its aggressive actions in separatist Abkhazia. The Russian government has also begun to challenge Ukraine's integrity by claiming sovereignty over Crimea.

The split within NATO on issues related to Georgia and Ukraine mirrors the rift that has formed on the issue of Europe's energy diversification. The European countries

1 Both Senator Barack Obama and Senator John McCain have expressed strong support for extending MAP to Georgia and Ukraine.

that have long-term energy partnerships with Russia are often reluctant to take foreign policy stances that may irritate Moscow. It is up to the United States to support strongly the diversification of Europe's energy supply away from Russia. America's European allies need to take strategic foreign policy decisions without fear of a potential Russian backlash.2 We know that the Russian leadership wants to establish their country as an illiberal sovereign democracy." Moscow enjoys playing by different rules than the West, particularly the United States. Former president and current Prime Minister Vladimir Putin clearly stated this vision for Russia during his speech in Munich in February, 2007. European and American failure to acknowledge the Kremlin's use of energy as its primary tool in achieving this vision has resulted in ineffective policies, which, above all, damage Russia's chances to evolve in a liberal direction. Since Russia cut off gas supplies to Ukraine on January 1, 2006.the same day it took over the presidency of the Group of Eight (G-8).there has been increased awareness in Europe of their dependence on Russian gas supplies. There is talk about formulating a united external energy policy within the European Union to diversify supply sources and routes, but the 27 countries have been unable to reach consensus because of conflicting priorities. The EU has so far failed to come together as a single voice partly because the issue has not been framed correctly. The unity they need is in negotiations with Russia, and specifically its giant gas monopoly Gazprom, which serves as the Kremlin's leading foreign policy arm. There is simply no other county that poses the same political and economic challenge to the EU. Wanted: US Strategic Engagement European energy security and supply diversification as a concept is important, but this is not an area where direct US involvement is necessary or appropriate. US leadership is needed, however, to enable Caspian producers (mainly Azerbaijan, Kazakhstan and Turkmenistan) non-Russian controlled export options to Western markets. Europe's independent access to Caspian hydrocarbons would prevent further Russian control over their energy infrastructure, and thereby their foreign policy. There is an excellent precedent: the Baku-Tbilisi-Ceyhan (BTC) and Baku-Tbilisi-Erzurum (BTE) pipeline projects. Even though the governments of Azerbaijan, Georgia, and Turkey backed these projects, the United States government's unequivocal support allowed these countries to proceed without fear of Russian repercussions. Similarly, it gave companies the confidence to invest in a major project like BTC or BTE that might have faltered in light of strong opposition from Moscow. In fact, even though the consortia for the BTC and BTE pipelines consisted mostly of European companies, European governments relied on US diplomacy to shield their companies from Russia.
2 Germany already imports 40 percent of its gas from Russia, more than any other west European country; by 2020 this figure is expected to reach over 60 percent

Thanks to these two pipeline projects, Azerbaijan and Georgia are now free to develop their future policy without undue foreign pressure. Extending the energy corridor further east to Turkmenistan, Kazakhstan, and Uzbekistan would provide these Central Asian countries with such freedom as well. Surrounded by Russia, China, and Iran, all three have made clear their desire for a direct Western outlet in order to maximize their negotiation power and also to solidify their independence from Russian influence. As long as almost all their revenues come from Russia, they cannot feel completely independent. Unlike in the 1990s, we have a strong and united Kremlin, currently occupied by a man who used to be the head of Gazprom. In some ways the switch from Gazprom to the Kremlin was not a major change for Mr. Medvedev because the policies of Gazprom and the Russian government have been inexorably intertwined. Gazprom is the state's largest source of revenue and the engine that has driven Russia's economic recovery. The company is primarily state-owned and many of Gazprom's corporate leadership currently hold.or previously held.high-ranking positions in the Russian government. In addition to the President himself, there is his assistant Konstantin Chuychenko, executive director of RosUkrEnergo and head of Gazprom's legal department; and the new Gazprom chairman, former Prime Minister Viktor Zubkov. Putin has personally visited each of the relevant European and Eurasian countries, and met repeatedly with their top leaderships in order to allure them to join his energy projects. The most notable of these gas projects is the Nord Stream gas pipeline that will connect Russia and Germany. This politically divisive project is headed by Gerhard Schroder, who extended $1.2 billion credit guarantee to this pipeline just prior to stepping down as German Chancellor.

Clearly, it is not realistic to expect the US President to micromanage these issues. Yet, it is important to make clear our strong and bipartisan commitment to the Caspian-Europe energy corridor. There is already great work done at the deputy assistant secretary level, and now, thanks to Senator Lugar's initiative, there is once again a Special Envoy for Eurasian Energy.3 Now is the time for reinforcement from the Secretary of State and the President.

Bringing non-OPEC Caspian oil to Western Markets
On oil, there is the BTC, as well as the Baku-Supsa pipeline ending in Georgia's Black Sea coast to transport Caspian (mainly Azerbaijani) oil to Western markets via non-Russian controlled routes. Baku-Novorossiysk and CPC pipelines also bring Caspian

3 President Bill Clinton created this position in 1998, and appointed Richard Morningstar as "Special Advisor to the US President and Secretary of State for Caspian Energy and Diplomacy". Following the signing of key agreements for the BTC and BTE pipeline projects, this position gradually was abolished and key responsibilities transferred to the European and Eurasian Bureau at the State Department. Mr. Morningstar served as US Ambassador to the EU following his assignment; newly appointed Special Envoy Boyden Gray is currently serving in this position concurrently with his role as US Ambassador to the EU.

oil westwards, but with Russian involvement. Russia has used its shareholder position in CPC to delay the expansion of this pipeline bringing Kazakh oil to the Black Sea, thereby hindering production. Moreover, Moscow has conditioned the expansion to the commitment of necessary volumes of oil for its planned Burgas-Alexandroupolis (B-A) oil pipeline. The B-A pipeline will transport oil from the Black Sea via Bulgaria and Greece. In principle, the US should be supportive of such a pipeline, but Russia has 51 percent ownership and the Kremlin is using its position to urge Russian companies to invest in it. This may not be the best route for Kazakhstan or for private companies (mainly Chevron and Exxon) who may not want to submit to further control by the Russian government. The US should inquire further about the ownership and structure of this pipeline, which would be the first Russian-managed oil pipeline in the EU. Diversification from Russian control in the western direction is a key reason for Kazakhstan to commit its oil to BTC. The Kazakh-Azeri connection is critically important to enlarge the east-west energy corridor and to reliably bring significant amount of new, non-OPEC oil to world markets. Additional Kazakh oil will go westwards to Georgian Black Sea ports (Kulevi and Supsa). Some will reach markets via tankers crossing the Turkish Straits and some via Straits bypass routes. A portion of that oil, along with Azerbaijani oil, should be sent to European markets via the existing oil pipeline starting in Ukraine's Black Sea port Odesa and continuing onwards to Brody. Odesa-Brody was actually built for that purpose but failed to secure supply commitments from oil producers.

As such, it has been operating in reverse direction ever since, transporting Russian crude from Brody to Odesa. In May, at the Kyiv conference, Azerbaijan, Georgia, Ukraine, Poland, and Lithuania not only reached consensus to switching Odesa-Brody back to its intended direction, but also to support extending the pipeline to the Polish city of P.ock. From there, it would connect to the existing Polish network, enabling oil to continue to the Baltic Sea oil terminal of Gda.sk. The US needs to ensure that Azerbaijan, Kazakhstan, and private oil companies would not once again be subverted as this project would connect Ukraine to the east-west corridor and strengthen its pro-Western orientation. Now that Ukraine has been officially promised NATO membership, it should be firmly anchored in the broad Caspian-Europe energy corridor. Geopolitics of Gas: Nabucco vs. South Stream On gas, the challenge is bigger due to the nature of natural gas as a tradable commodity.there is no global market, and the construction of costly pipelines effectively locks consumers into a prolonged contract with producers. This means that Moscow can more easily manipulate dependence into political and economic leverage. Natural gas is vital to the economies of many European nations.and the fuel's primacy is growing. The prospect of being forced to pay a higher price for that gas, or even having the supply of that gas curtailed, can exert a powerful influence on a country's domestic and foreign policies. Thanks to US support for Caspian-Europe direct gas connection, BTE has already been build, and its extension to Greece began operation in November 2007. The Turkey-Greece pipeline has enabled gas from Azerbaijan to flow all the way to the EU free from Russian control. Construction will soon begin on an extension of the Turkey-Greece connection to Italy, named the TGI pipeline. Meanwhile, the Nabucco pipeline has become a litmus test for the ability of the EU and the US to complete a project that is a stated priority. Nabucco (named after Giuseppe Verdi's opera) is intended to have a capacity of 31 billion cubic meters that will enter Europe through Turkey. The pipeline will traverse Bulgaria, Romania and Hungary, terminating in Austria at that country's Baumgarten gas storage and distribution hub. It was originally introduced by Austria to bring mostly Iranian gas to European markets; now it is backed by the US to transport Caspian and Iraqi gas to European markets. I will briefly discuss Iraqi gas later. Iranian gas for Nabucco is still occasionally discussed, especially by Austria, but until relations with Iran settle down, it is all but pointless to even discuss this option. Even after talks begin, it will take quite some time for Iran to develop its gas fields such that it will have sufficient gas to export.currently it is unable to produce sufficient gas for its own domestic needs. After recognizing that Nabucco and TGI would break their monopoly of transporting Caspian gas to Europe, the Russian leadership took several steps to undermine them. At first, the Kremlin wanted Gazprom to be included as a partner to have Russian gas transported via these pipelines. However, it faced opposition since the move would have annulled the raison d'etre of these projects. Putin was also eager for a second gas pipeline connection to be built from Russia to Turkey, called Blue Stream II, in order to reach the Turkish market first and keep Caspian gas out. In other words, there was a race for the Turkish market. Having learned from its experience with Blue Stream I, which I will explain shortly, Turkey did not want to.once again.undermine the Central Asia-Europe gas vision by reaching another major agreement with Russia. Turkey thus made clear its continued commitment to the work with the US, EU and its Central Asian partners. When it became clear that Nabucco could not be derailed in Turkey, Russia moved to bypass it by piping into Bulgaria directly, and from there Greece. So, in June 2007, Gazprom came up with a massive subsea pipeline project, the South Stream pipeline. Although the details of this venture are yet to be solidified, it is clear that South Stream, with a planned capacity of 30 bcm, will be one of the world's largest and most expensive pipelines ever built. Estimates of cost vary, but most analysts predict it would cost twice as much as Nabucco.

The signing of the South Stream pipeline project took place in Moscow between Greek Prime Minister Kostas Karamanlis and outgoing Russian president Vladimir Putin

on April 29. Former Italian Prime Minister Romano Prodi was offered the chairmanship of the project by Gazprom CEO Alexei Miller and Eni head Paolo Scaroni, mirroring former German chancellor Gerhard Schroeder's appointment to direct Gazprom's Nord Stream pipeline. Prodi was previously head of the European Commission, and his support would be essential for the pipeline's success, given that there is growing unease in Brussels and Washington about Gazprom's expansion into Europe. So far, he has declined to take the position. South Stream targets the same markets and utilizes almost identical routes to Nabucco. In fact, three of the five countries along Nabucco's route are also part of South Stream's intended route. The pipeline would cross the Black Sea to Varna, Bulgaria. From there, South Stream will split into two smaller spurs: one heading West through Greece, beneath the Ionian Sea and into Southern Italy; and the second heading North through Serbia and Hungary, terminating at Austria's Baumgarten storage facility. There may also be additional lines constructed to Northern Italy via Austria and/or Slovenia.

Baumgarten is critically important in Russian strategy. Austria is involved in both Nabucco and South Stream, and both pipelines will bring gas to Baumgarten. In January, Austria's partially-state-owned energy company OMV signed a deal giving Gazprom 50 percent ownership in Baumgarten. As we know by now from other such partnerships Gazprom has formed over the years, the 50 percent would not mean equal partnership.Gazprom, and thus the Russian state, would in reality have a much bigger say. The growing OMV-Gazprom partnership is important, especially in light of OMV's desire to take over Hungarian MOL, which is the only privately owned company in the Nabucco consortium.4 Austria will thus become a Russian partner in Europe and serve as the clearinghouse for gas coming to Europe. Furthermore, Gazprom just last week announced that Austria and OMV would be joining South Stream and that an intergovernmental agreement will soon be signed to appoint OMV as South Stream coordinator for Austria. Putin had previously offered Hungary the chance to become such a "hub," but the government refused.in part because of strong US opposition. Similarly, when Putin offered Chancellor Merkel such a "privileged partnership," she made clear her position to side with her EU allies. Gazprom is making sure it has maximum flexibility in extracting the best deal for itself by having several options to get to its key markets. For example, even with strong Austrian partnership, it will construct a South Stream spur to Slovenia, and thus negate the possibility of Austrian leverage over the gas route.

If problems were to emerge in Austrian-Russian relations, Gazprom could then re-route exports to northern Italy via Slovenia.

4 The pipeline consortium is equally owned (16.67% each) by Austria's OMV, Hungary's MOL, Turkey's Botas, Bulgaria's Bulgargaz and Romania's Transgaz and Germany's RWE

No Western company has the kind of partnership with its state as Gazprom has with the Kremlin. No Western country or company would build pipelines with such political calculations. None would undertake commercially unviable projects. We are dealing with a situation where normal competitive market principles simply do not work. It is imperative the Europeans recognize it and start taking steps accordingly; we are invariably dealing with a state-sponsored organization that has turned gas pipelines into a geopolitical tool. Race is on: Sequencing Matters For Russia, the main purpose of the South Stream gas pipeline project is to prevent Nabucco and TGI lines from transporting Caspian gas independent from Russian control to European markets. How? Via two interdependent moves: first, by locking up the markets and keeping out potential competition.which, as I explained earlier, is not capable of competing when Gazprom sets the rules. And second, by assuring long-term and large volume gas commitment from Turkmenistan, as well as Azerbaijan and Kazakhstan to its pipelines, thereby preventing direct Caspian-Europe connection. Therefore, sequencing is vital. The fortunes of the two pipelines are inversely related; if South Stream is built first, it will pull Turkmen and Azerbaijani gas to its direction, leaving little reason for Nabucco to be built for Caspian gas. From an economic perspective, it is utterly impossible to build a pipeline such as Nabucco.which will cost upwards of $12.3 billion.unless investors are confident that the market on the consumer side will be sufficiently large. The important difference between Nabucco and South Stream is in ownership; Nabucco will be privately financed and therefore needs to be commercially viable, whereas South Stream is backed by state-owned Gazprom, which is perfectly willing to finance projects that do not make commercial sense so long as they support the strategic goals of Moscow. Unlike Western companies, Gazprom is also willing to use pipelines at minimum capacity.it loses money in the short term, but in the long term, thanks to having killed all competition, it will end up with a web of pipelines in its control. I will discuss potential implications of this shortly. Nabucco faces a number of financing hurdles even without South Stream's competition. Investors are uncertain of Azerbaijan's ability to supply Nabucco and even more uncertain that a trans-Caspian pipeline will be constructed to bring in the Turkmen gas that many view as necessary for Nabucco to succeed. Still, the largest obstacle for Nabucco is South Stream; the potential of South Stream filling a portion of Europe's expected short- to mid-term demand will likely be enough to scare investors away from Nabucco. So it is interesting that all the countries potentially joining South Stream speak with one voice, insisting that that Nabucco and the Russian pipeline are "complimentary not contradictory." This brings to mind the gas race to the Turkish market in the late 1990s.

Turkey, Turkmenistan and the Unites States were eager to construct a trans-Caspian pipeline that would carry gas from Central Asia via the Caucasus to Turkey. Russia did not want to see its monopoly in Central Asia eroded by the construction of additional export routes and proposed a pipeline from Novorossiysk beneath the Black Sea to Turkey. Supporters of the Russian pipeline, which is now called Blue Stream, insisted that current and future Turkish gas demand was large enough to support both projects; that the two lines were, in fact, "complimentary." Those who thought otherwise were reluctant to challenge Russia and went along.mainly because they did not think it would actually be built. They referred to this project as "Blue Dream" because of its lack of market viability and the use of never-before-used technology to construct a pipeline deep underwater. These assertions were quickly proven false. As soon as Ankara signed an agreement to build Blue Stream, interest in the trans-Caspian project dried up. Blue Stream not only prevented Turkey from having direct access to Turkmen gas, but increased its dependence on Russian gas to over two-thirds of its demand. Since its beginning, Blue Stream has operated at less than half of its 16 bcm capacity and provided the most expensive gas to Turkish consumers. Blue Stream is the product of the Gazprom-Eni strategic partnership that is now promoting South Stream. Other Risks of South Stream Gazprom may not have enough gas to fill Nord Stream, South Stream, and its two preexisting pipeline networks through Ukraine and Belarus. The International Energy Agency has already warned that Gazprom may be unable to meet its supply contracts by 2010. Yet from Gazprom's perspective, this surplus capacity will have no negative effects. If both Nord Stream and South Stream are constructed in the proposed time frame, Nabucco will likely disappear.

Russia's dominant market position will be enhanced. Thus, European consumers will be left competing against each other for scarce Russian resources, driving up prices and granting Russia ever-greater leverage. Energy prices would escalate and Moscow would be able to extract political concessions from consumer countries in exchange for greater gas supplies. This leverage is typically not exercised through dramatic supply cut-offs, but instead through subtle and protracted pressure.5

If South Stream (and its sister Nord Stream) is constructed, Gazprom will actually enjoy a surplus of export capacity while Europe will face a deficit of supply options. This is potentially very troubling. Having a strong monopoly on transit routes into Europe, even if underutilized, still gives Russia significant influence vis-a-vis its ability to grant other producers access to these routes. Moscow may be anticipating the formation of a cartel-type organization for natural gas.with Russia assuming the leadership role.that will coordinate European supply. Reportedly, there is a plan in the works to create an international platform for elaborating a universal gas pricing formula and for discussing new gas pipelines routes and swap arrangements. From there, it will be an easy step for

5 However, supply cut-offs have been employed by Russia against smaller Eastern European countries like Latvia (2003) and Lithuania (2006).

members to agree to divide up markets, forming monopolies, and gaining absolute control over prices. South Stream also poses a very real threat to Ukraine, as it would give Moscow the option to decouple the country from its gas supply exports to the EU. This would leave Ukraine exceedingly vulnerable to Russian political pressure. Ukraine's position as the transit route for around 80 percent of Russia's gas exports to Europe currently gives it a degree of leverage over Moscow. Were these supplies rerouted via South Stream, Ukraine would lose this leverage. It is no secret that Moscow does not want to see Ukraine align itself with the West, and has strongly opposed the country's efforts to do so. Ukraine is in a precarious position between East and West. There are many in its government that wish to abandon Ukraine's current political orientation and turn towards Russia.and to its corresponding political and social values. Whether or not Ukraine continues its progress towards Western values has much to do with its energy security, with South Stream as the cornerstone of the issue. What should the US do? The most important next step is to make credible, unequivocal, and bipartisan commitment to the Caspian-Europe energy corridor. First, the President needs to reinforce this vision by traveling to the region, namely Azerbaijan, Kazakhstan and Turkmenistan.

Second, the Secretary of State needs to be engaged to the Caspian-Europe energy corridor. Third, a bipartisan congressional delegation needs to show its commitment as well. A Senate delegation led by Senator Lugar, who is highly regarded in the Caspian region, would have the best chance to make a positive impact. If the US wants non-Russian pipelines such as Nabucco and TGI to become pipelines for Caspian gas transport to Europe, then Washington needs to provide political support to encourage exploration and development. It is important to recognize that US vision for these two pipelines, especially Nabucco, is not the same as that of Brussels.hence the lack of political backing from the EU. In September 2007 the European Commission appointed former Dutch Foreign Minister Jozias Van Aartsen as "EU Coordinator for the Caspian Sea-Middle East-European Union Gas Route", including Nabucco, which it considers a "priority project." Yet Mr. Van Aartsen has not yet visited Azerbaijan or Turkmenistan. As of May, he began serving as mayor of The Hague and spends only minimal time on this project. The EU cannot be taken seriously in its commitment to Nabucco (at least not in obtaining Caspian gas for it) if they leave the coordination of this project to an occasional presence because the whole Kremlin machinery is working to undermine it. Now is not the time for hesitation but for immediate action. Russia and Russian-influenced groups argue there is not enough gas in Azerbaijan, Kazakhstan or Turkmenistan to make Nabucco viable. This is the same argument used to sow doubt in the investors and countries commitment to BTC: there was not enough oil in Azerbaijan, it was not commercial, and it was merely an American political project.

Of course, if there were indeed no large gas volumes in these countries, Mr. Medvedev's would not have chosen Kazakhstan as his first foreign visit and would not be courting his counterparts in Azerbaijan and Turkmenistan, which he plans to visit in early July. In addition to maintaining its monopoly over Kazakh and Turkmen gas export, he hopes to also begin exporting Azeri gas as well. All three nations are able to provide more than enough gas for Nabucco and several other projects.provided action is taken now. Each nation has shown they want to send large volumes of energy resources westward, but they are increasingly under Russian pressure. They managed to resist thus far, but now they need to see political will from the West. If the US would not risk the ire of Russia, how can they be expected to do so? Azerbaijan has already shown its strategic vision by promising gas to Nabucco. In November 2007, the Azerbaijani government and the western producers operating in its Shah Deniz offshore gas fields announced that there were significantly more reserves than initially thought.more than enough to supply the first phase of the Nabucco project. More recently, at the Caspian Oil and Gas-2008 [conference] in early June, Azerbaijan's Minister of Industry and Energy Natiq Aliyev announced that the reserves exceed 1.2 trillion cubic meters, and production could soon reach 30 bcm. Some of this gas will be consumed in Azerbaijan, Georgia and Turkey; about 15 bcm could be sent to EU markets. For that, the stage-2 of the Shah Deniz field development needs to be expedited. And that will only take place if the political risk is mitigated.which only US action can do. There are other very promising fields in Azerbaijan, development of which will also depend on the success with Nabucco development and the pace of reduction of transportation risks to EU markets. Turkmenistan is believed to possess some of the largest gas fields in the world. In 1999 it committed 30 bcm gas westwards.16 bcm for Turkey and 14 for Europe. Now that current estimates range from 22 to 30 trillion cubic metres, that amount can easily be increased. In fact, gas from Turkmenistan will flow west directly only if the amount is large enough.otherwise western producers may not invest the billions necessary. Instead, Russian and Chinese companies will continue to increase their stakes and send gas their way.

It has been US policy since late 1990s not to engage Turkmenistan until its human rights record improves. For many years the mantra was to wait out the authoritarian president Saparmurat Niyazov and then start working on the gas project. During this time, Niyazov wanted to move away from the grip of the Kremlin (and its foreign policy instrument Gazprom), but was unable to do so given the West's reluctance to work with him. Yet he was nonetheless able to take advantage of Vice President Dick Cheney's trip to Kazakhstan in May 2006, during which Cheney advocated a trans-Caspian gas pipeline which would allow the two countries to receive a much higher price for their gas compared to what Gazprom was paying them. Armed with the prospect of diversification, Niyazov was able to negotiate a much more favorable deal, and agreed only to a three-year deal, rather than a much longer term commitment that would harm the prospects of a trans-Caspian gas pipeline. After Niyazov died in December 2006, US policy shifted to wait and see if the new president would be more democratic. This policy not only cost the US much valuable time and access to gas fields as the Russians moved in, but is also totally inconsistent with how Washington works with other countries with less than stellar democratic credentials on issues of mutual interest, such as Russia, Saudi Arabia, and China. Moreover, not engaging actually made democratic evolution less possible as increased engagement with Russia and China has provided Turkmenistan (and other Central Asian countries) with an alternative model: economic opening while maintaining political repression. Once gas deals are reached and infrastructure is established, it is difficult to change course. Gazprom has already reached some long-term and large volume deals. This is time to pull the Turkmen closer.just as the Russians and Chinese are doing. Washington needs to send a clear message that the US.regardless of who is the next President.is committed to large quantities of gas reaching European markets via the proposed corridor. That means no longer sending confusing messages, such as being content with Turkmen gas going to China. Azerbaijan and Turkmenistan had frozen relations for many years; now the two presidents recognize the importance of their partnership in realizing the Europe-Caspian vision. Despite the goodwill, there are issues that will prove difficult for them to resolve on their own; the US needs to be willing and able to serve as an honest broker and offer assistance if and when needed. Kazakhstan also has significant gas that can be exported, but it will not be able to do so unless there is sufficient progress with the other two. In addition to these three nations, the US also needs to work closer with Turkey, which is critically important for the Europe-Caspian corridor vision. There was excellent cooperation in the realization of the BTC and BTE pipelines, the first phase of this corridor. In fact, the two sides could have used each other's talking points. Relations suffered due to the Iraq war, but are once again on an upswing. Turkish Foreign Minister Ali Babacan was in Washington last week, and energy was an important item on the agenda. Yet Ankara has not seen a clear and determined US commitment to Nabucco; this has resulted in unnecessary stalling in reaching the necessary agreements. What is needed at this point is the re-establishment of a consultative mechanism between diplomats on both sides. The Turkish foreign ministry views pipeline projects from a strategic perspective, which is precisely what is needed.and which is why US Caspian envoys have been based at the State Department.

Such a mechanism needs to be formed and begin working immediately. But that alone is not sufficient. Turkey needs to remain committed to the southern corridor vision; if it instead thinks of itself just as a transit country for gas to Europe, then there is no reason for it to say no to Russian or Iranian gas transiting its territory either.especially since many EU countries propose this. Moreover, some in Ankara do not consider South Stream and Nabucco are competitors.and those who do consider it to be only a problem for the EU. The US needs to recognize Turkey's fast growing energy demand and the difficulty for its leadership to say no to Iranian gas or to Blue Stream

II. Rejecting Blue Stream II so far has only led to it being bypassed. The best way for the US to help those in Ankara who share the same vision for Nabucco and the gas race is to hold a trilateral working group of the US, Turkey, and Iraq to ensure timely Iraqi gas production and commitment to this pipeline as well as to Turkey's domestic market. Iraqi gas is important to maintain and build increased momentum for Nabucco. The first phase of Nabucco is designed to run from Ankara to Baumgarten. The first phase is expected to become operational in 2013, with an initial capacity of up to 8 bcm a year. The second phase would be completed a year later to increase capacity to 31 bcm. Turkmen gas will be ready for the second phase; investors will want to see not only an Azerbaijani commitment but also an Iraqi commitment in order to be confident that supply will be there when the pipeline is ready. In April, the EU announced that starting 2009 it would begin receiving 10 bcm of gas annually from Iraq. The gas would come from the Akkas field in the Anbar province. Fully recognizing the importance of this gas, Gazprom has recently intensified its actions to sign a deal of its own. US-Turkey-Iraqi cooperation on gas is also critically important for broader regional stability and cooperation. The EU has suggested that Akkas gas could reach Turkey via the Arab Gas Pipeline through Syria. But Turkey wants a direct route, and believes keeping Syria out of this project would also be in line with US policy. It is not clear what US policy is on Syrian transit; it would be important to clarify this in order not to send confusing signals to Ankara. Another important country for the corridor is Ukraine. Its future is closely linked to integration with European markets for both oil and gas. The answer to corruption in Ukraine energy sector is not to leave them out but to use mechanisms to bring it under manageable control: transit pipe can be separated; borders can be metered; full transparency can be achieved.even when an American company is involved.

One project that is gaining increasing momentum, and would benefit from US support, is White Stream. White Stream would bring Caspian gas to Georgian Black Sea coast. From there, gas would flow via a pipeline with an initial yearly capacity of 8 bcm along the seabed to Romania (either though Ukraine or directly) where it would then connect with existing infrastructure. It may also connect with the Ukrainian transit system leading to Poland and Slovakia.

Alternatively, gas could be liquefied and transported via LNG tanker across the Black Sea. Further studies are required to determine which method.pipeline or LNG.is more feasible. The US Trade and Development Agency (TDA) has already commissioned a study to assess the commercial viability of this option, while European Commission is co-funding the feasibility study of deep water pipeline version of White Stream through Trans European Network scheme.

The project already has the status of "Project of Common Interest" in the EU and is part of the Southern NG3 gas Corridor along with Nabucco and other projects establishing a direct gas link between EU and Caspian. White Stream is useful not only because it represents a means for Europe to diversify its energy supply, but also by encouraging further upstream investment in the Caspian. As the Caspian region with its vast recourses should become an important source of diversification for Europe's increasing supply needs (much in excess Nabucco can handle), establishment of another transportation route in the same corridor with Nabucco would contribute significantly towards needed reduction of the transportation risks. And this in turn would encourage large scale exploration production investments in Caspian gas, thereby stimulating progress on Nabucco and the trans-Caspian gas pipeline. Finally, Washington needs to hold a strategic discussion with the EU on the long-term implications on Russian gas politics.

But in the short term, it needs to impress upon key European allies that the Caspian indeed is a realistic option.
- provided that they do not lose focus.

Ninth Turgut Ozal Memorial Lecture: Invigorating the U.S.-Turkey Strategic Partnership
Featuring Matthew Bryza, Deputy Assistant Secretary of State for European and Eurasian Affairs
June 24, 2008 www.washingtoninstitute.org/print.php?template=C07&CID=406

On June 24, 2008, Deputy Assistant Secretary of State for European and Eurasian Affairs Matthew Bryza delivered the ninth Turgut Ozal Memorial Lecture at The Washington Institute. The following is the prepared text of his remarks.

Like Turkey itself, U.S.-Turkey relations have navigated remarkable transitions over the past fifty years. Today, we are living in perhaps the most exciting period. Timeworn cliches about Turkey, such as "bulwark against the Soviet Union," or "NATO ally since the Korean War," or "bridge between East and West" are being updated with new concepts, such as "energy hub" and "vibrant emerging market."

All of these cliches retain a certain degree of truth. But, they reflect a static and simplified view of U.S.-Turkish relations. Today, the U.S. government's appreciation of Turkey's geostrategic significance is evolving in new and positive ways. Today, we are starting to understand Turkey's multiple identities. Turkey is not merely a bridge; it is a society whose soul lies in both East and West, with a strategic and cultural reach extending from Pakistan, Afghanistan, Central Asia, and the Caucasus to the Balkans, Berlin, and Amsterdam. At the same time, Turkey is a strategic link between North and South, lying at the center of an extended Black Sea region that connects the European Union, Russia, and Ukraine with the Middle East.

With a more sophisticated appreciation of Turkey's economic, diplomatic, and cultural might, the United States enjoys new opportunities to pursue the shared interests and common values that unite our two great countries. No factor is more significant in elevating Turkey's strategic relevance today than its vibrant democracy. Turkey's constitutional principles of democracy, secularism, and the rule of law can inspire reformers in the broader Middle East and beyond who seek the same political and economic freedoms, and the same opportunities to improve their societies as do the citizens of the Turkish Republic. We are thus in the process of updating our strategic concepts. To understand more deeply the opportunities before us, we should first take a brief look backward at how U.S.-Turkey relations have developed over the past decade.

During the 1990s, Turkey began fully to enjoy the fruits of Turgut Ozal's groundbreaking reforms, and Prime Minister Erdogan has continued this important reform effort. Ankara and Washington recognized an opportunity to build a new bilateral relationship. Our Cold War conception of Turkey as the cornerstone of NATO's southern flank, blunting Soviet ambitions and hosting key NATO military assets and Incirlik Airbase, was becoming outdated. As Turkey's economy grew, so did its demand for energy, along with its ambitions to reconnect with Turkic populations in the Caucasus and Central Asia. At the same time, the United States sought to help the newly independent states of Central Asia and the Caucasus cement their independence by connecting their economies to European and global markets. Azerbaijani President Heydar Aliyev and Kazakh President Nursultan Nazarbayev welcomed international investors to help develop the Caspian Basin's mammoth oil and gas reserves. Then-Turkish President Suleyman Demirel worked with these leaders, and with Georgian President Eduard Shevardnadze, to develop a revitalized concept of the Great Silk Road in the version of an East-West Corridor of oil and natural gas pipelines.

And so, a new U.S.-Turkey strategic partnership was born, with energy as a centerpiece. The United States and Turkey worked together in pursuit of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and the South Caucasus Gas Pipeline (SCP) to connect Azerbaijan's oil and natural gas reserves with European and global markets. Meanwhile, Turkey was developing a strategic partnership with Israel, bringing together the Middle East's only two democracies at that time to pursue their common security and economic interests.

At the outset of President George W. Bush's administration, the United States sought to build on the strong energy cooperation outlined above to generate a deeper, East-West dynamic in Central Asia and the Caucasus. Our goal was to help the young independent states of these regions secure their sovereignty and liberty by linking them to Europe, world markets, and Euro-Atlantic institutions via the corridor being established by the BTC and SCP pipelines. Turkey would be the gateway. Reflecting this vision, the National Security Council and State Department reorganized their bureaucratic structures to encourage a philosophical shift toward these countries' deeper connection to Europe as independent actors. The Caucasus and Central Asia were grouped with Turkey, which the administration viewed as these countries' crucial partner in connecting with European and global markets, and with Euro-Atlantic security institutions.

This approach proved to be of crucial importance in the aftermath of September 11. The East-West corridor we had been building from Turkey and the Black Sea through Georgia and Azerbaijan and across the Caspian became the strategic air corridor, and the lifeline, into Afghanistan allowing the United States and our coalition partners to conduct Operation Enduring Freedom. Uzbekistan emerged as crucial in launching and then sustaining this multinational effort from the airbase at Karshi Khanabad. Azerbaijan, Turkmenistan, and Kazakhstan immediately offered blanket over flight clearances, while Kyrgyzstan allowed use of the Manas Airbase, which evolved into our crucial logistics hub for Operation Enduring Freedom after Uzbekistan rescinded U.S. access to Karshi Khanabad.

U.S. efforts to establish these operational relationships advanced on the foundation of our cooperation with Turkey in preceding years on the East-West Corridor. Turkey's contributions to the war in Afghanistan grew much deeper. Turkey has now commanded the International Security Assistance Force (ISAF) in Afghanistan twice. Former Grand National Assembly speaker and foreign minister Hikmet Cetin served as NATO's civilian representative in Kabul. And Turkey now leads a provincial reconstruction team in Wardak Province north of Kabul. Security cooperation in Afghanistan thus emerged as a cornerstone of strategic partnership between the United States and Turkey. At NATO's recent Bucharest Summit, Turkey and the United States joined our other allies and alliance partners to renew our long-term commitment to security and stability in Afghanistan. We have pledged to provide the forces, resources and flexibility necessary for success, so Afghanistan may never again become a haven for terrorists.

Our success in sustaining and strengthening U.S.-Turkey cooperation in Afghanistan is particularly significant given the severe strains the war in Iraq initially placed on our two countries' relations. In late 2002, many of us responsible for U.S. policy toward Turkey anticipated a joint effort in Iraq that would elevate U.S.-Turkey relations to a new and unprecedented strategic level. Turkey would help the United States better understand the challenges ahead of us in Iraq, both in terms of the approaching military campaign and Iraq's postwar reconstruction; and the United States would work with Turkey to counter the PKK terrorist threat emanating from northern Iraq, while helping to cushion Turkey's economy against any exogenous shocks that might result from war along Turkey's southern border.

Scholars will long debate what went wrong in the lead-up to the Turkish Grand National Assembly's vote on March 1, 2003. The bottom line is that the Turkish Parliament's sovereign decision to decline the U.S. requests to transit troops and equipment through Turkey and into Iraq set U.S.-Turkey relations into a tailspin and shattered our concept of strategic partnership.

Despite this, we worked hard to salvage U.S.-Turkey relations. The United States offered an $8 billion assistance package as a sign of allied friendship to ease what we feared could be short-term economic shocks to Turkey's economy from the war in Iraq. Ankara eventually declined our offer, just as Washington declined Ankara's offer in October 2003 of Turkish troops for Operation Iraqi Freedom.

Still, we tried to move ahead. We viewed 2004 as a potentially key year for restoring the U.S.-Turkey partnership. It began with Prime Minister Erdogan's visit to the White House in January. That June, Prime Minister Erdogan joined G8 leaders in Sea Island Georgia to discuss cooperation to advance democracy in the broader Middle East, and then hosted the NATO Summit in Istanbul. We hoped these events would help Turkey showcase its strategic value to the European Union as a democracy with a predominantly Muslim population and strong traditions of secularism and the rule of law. In December 2004, the European Council decided to commence accession negotiations with Ankara, and the talks began in October 2005, with strong U.S. support.

Despite this positive momentum, U.S.-Turkey relations remained stalled over the issue of PKK terrorism. Since 2006, we have made important progress in undercutting the PKK's financial, operational, and political support mechanisms in Europe -- through a robust combination of political pressure and information sharing. Then-Foreign Minister Gul graciously praised these efforts. But the continued presence of PKK bases in northern Iraq led many Turkish citizens from all walks of life to resent what they perceived as the U.S. treating Turkey's primary terrorist (and national security) threat differently than we treated al-Qaeda. As a result, the popularity of the United States shrank to record low levels, reaching a depressing 9 percent in mid-2007.

The November 2007 Oval Office meeting between President Bush and Prime Minister Erdogan marked a decisive turning point. President Bush's designation of the PKK as "an enemy of Turkey, an enemy of Iraq, and therefore an enemy of the United States," signaled a new approach by Washington. The intensive information sharing authorized by President Bush has opened a new chapter in security cooperation between the United States, Turkey, and Iraq. It has also cleared the way for deeper cooperation not only on security, but on energy and democracy as well.

With that historical context in place, I would like to look forward to what we are doing now to deepen our strategic partnership with Turkey. The "Shared Vision" document concluded by Secretary Rice and then-Foreign Minister Gul in July 2006 outlines a structured dialogue between our two governments in pursuit of the strategic interests and values our two countries share. Our cooperation focuses on three broad areas: energy and economy, security, and democracy.

As I noted above, cooperation on energy in the late 1990's formed a cornerstone of the U.S.-Turkey strategic partnership, resulting in a successful "first phase" of Caspian development anchored by BTC for oil and SCP for gas. Today, we are focusing on the next phase of Caspian development, looking to the Caspian Basin and Iraq to help reduce Europe's dependence on a single Russian company, Gazprom, which provides 25 percent of all gas consumed in Europe. Gazprom provides 25 percent of Europe's overall gas consumption in Europe and 80 to 100 percent of gas to countries in Eastern Europe, Scandinavia, and the Baltic region. Turkey's dependence on Gazprom, at 65 percent, is significant. Turkey also will need additional new sources of gas to help diversify its supplies.

Our goal is to develop a "Southern Corridor" of energy infrastructure to transport Caspian and Iraqi oil and gas to Turkey and Europe. The Turkey-Greece-Italy (TGI) and Nabucco natural gas pipelines are key elements of the Southern Corridor.

Azerbaijan provides the most promising near-term option for Turkey and the EU in its pursuit of diversified gas supplies from the Caspian Sea region. Azerbaijan possesses sufficient gas reserves to fill TGI, while providing some gas for domestic, Georgian and Turkish consumption, as well as for the Nabucco pipeline. However, gas in the ground does no good. Companies need access to these resources to develop them for Turkey and Europe. These two pipeline projects alone could provide Europe up to 44 billion cubic meters (BCM) of new gas supplies over the next seven to twelve years, of which 20 BCM (a not insignificant amount) will hopefully come from Azerbaijan, the rest from Iraq and the Caspian Basin. Gazprom, by comparison, currently exports 160 BCM to Europe. So TGI and Nabucco could add to European markets more than one-quarter of the gas currently supplied by Gazprom. Such competition is crucial to ensuring that natural gas prices in Europe are set by market forces.

To achieve these goals, Turkey and Azerbaijan must work together to resolve their dispute over the commercial terms for the transit of natural gas across Turkey and onward into Europe, including by the TGI and Nabucco pipelines. Once this dispute is resolved, Azerbaijan is more likely to be able to conclude gas sales and purchase agreements with European investors required to advance these two major pipeline projects. Turkey could come to be seen as a reliable gas transit state, elevating its strategic importance to the European Union as the crucial partner linking enormous gas supplies in the Caspian region and Iraq with European markets. With the inauguration of the Turkey-Greece gas inter-connection last November, it is now possible to export gas from Azerbaijan's sector of the Caspian Sea to Greece and the EU-15 via Georgia and Turkey.

Potential gas supplies in Turkmenistan and Iraq can provide the crucial additional volumes beyond those in Azerbaijan to realize the Southern Corridor. Washington and Ankara are working together with Baghdad to help Iraq develop its own large natural gas reserves for both domestic consumption and for export to Turkey and the EU. I have the honor to co-chair the U.S.-Turkey-Iraq Trilateral Working Group on Natural Gas, which aims to attract U.S., Turkish, and other international investment to Iraq's natural gas fields, much of which awaits Iraq's national hydrocarbon law, and then export Iraqi gas to Turkey and onward via the Nabucco Pipeline.

Energy is only one component of the growing economic partnership between the U.S. and Turkey, albeit, a crucial one. We are also working to deepen our trade relationship, which has lagged behind our energy and security cooperation for years. My friend and colleague, Assistant Secretary of State for Economic, Energy, and Business Affairs, Dan Sullivan, co-chairs the U.S.-Turkey Economic Partnership Commission (EPC) with Turkish Ministry of Foreign Affairs Under Secretary Ertugrul Apakan. Our EPC is indeed making important progress in deepening trade and investment between our two countries. And, as Turkey's economy continues to grow, it helps drive investment and economic development in Iraq and beyond.

On security, the second cluster of interests identified in our "Shared Vision" document, the United States and Turkey are deepening an impressive record of cooperation. Turkey was already making major contributions to Iraq's stabilization even before the November 5 meeting in the Oval Office that catalyzed our collaboration against PKK terrorists. Turkey has been a leader of the Iraq Neighbors process, and in fact, initially proposed the concept. Turkey's training of Iraqi political parties has contributed to the normalization of Iraq's political life. And, Ankara's logistical support has been crucial to providing Coalition forces and Iraqi civilians with water, fuel, and electricity.

In Afghanistan, I have already mentioned Turkey's important contributions to ISAF and provincial reconstruction. During the Paris Conference earlier this month, Turkey increased its original $100 million humanitarian assistance pledge for Afghanistan to $200 million. Turkish firms have invested $1.5 billion in projects in Afghanistan since 2002, including schools and mosques, hospitals and health clinics, bridges and water wells. Turkey is also leading an effort to create a special investment zone along Afghanistan's border with Pakistan, which could play a key role in stabilizing that volatile region.

In the Middle East, Turkey's close and constructive relations with Israel and its Arab neighbors have enabled Turkey to play a constructive role in encouraging progress towards peace. On the economic front, Turkey is working with Israel and the Palestinians to build an industrial estate in the southern West Bank that, when established, will generate economic development and job opportunities for Palestinians. On the political front, Turkey helped make last winter's Annapolis conference a success, encouraging Syria to attend even in Iran's absence. Turkey is facilitating a new round of indirect discussions between Syria and Israel. In these ways, Turkey demonstrates its indispensability in helping the Euro-Atlantic Community better understand the broader Middle East and develop successful strategies to advance peace and freedom in this extended region.

On Iran, while we recognize Turkey's longstanding relationship with its southern neighbor, and their economic ties, we look to Ankara to be a regional leader and continue to reinforce the international community's demands that Iran cease its nuclear enrichment program. These demands have been expressed in numerous UN Security Council resolutions. Moving forward, we need the strong commitment of Turkey and all our friends in the international community to send the message to the regime in Tehran that we are united in pressing Iran to change its behavior.

We anticipate that Turkey will maintain and deepen its close ties with Israel that developed into a strategic partnership in the 1990's, and is based on the two countries shared democratic values. Turkey is making important contributions to maintaining peace and restoring stability to Israel's northern neighbor, Lebanon. And, Turkey can play an important role in supporting economic growth in the Palestinian territories.

In Europe, the United States remains convinced that Turkey's eventual membership in the European Union will benefit Europe and Turkey alike. Turkey's blend of democracy, secularism, and rule of law can help us all deepen our understanding of how to integrate our Muslim populations into our mainstream societies while countering extremist recruiters. Meanwhile, Europe's criteria for accession to the EU provide a set of incentives for sustained reforms which, while in Turkey's national interests, are often politically difficult to make.

The United States remains firmly committed to offering all possible support to UN efforts to foster a just and lasting Cyprus settlement. Our goal is reunification of the island into a bi-zonal, bi-communal federation that builds on the body of work assembled over the past four decades. We are pleased by the discussions between the parties that have emerged since the constructive meeting between the two leaders in March, which led to reopening of the Ledra Street crossing and technical discussions between working groups in preparation for the resumption of comprehensive settlement talks under UN auspices. We also welcomed the May 23 statement by the two leaders, which set the goals for a re-unified Cyprus. We hope to see comprehensive talks resume over the next month or so. We believe the two communities themselves must generate the solution to the longstanding division of the island. We will consider appointing a new U.S. Cyprus Coordinator once the parties on the island express their readiness for such a move by the United States.

We share our European Allies' hope that Turkey and Armenia will soon normalize their relations. This will involve a decision by Turkey to restore diplomatic relations and reopen its border with Armenia, and Armenia's recognition of its existing border with Turkey. We hope such steps will also lead to a heartfelt discussion of the shared and tragic past of these two friends of the United States.

In the Black Sea region, the United States and Turkey are working together to advance democracy in Georgia as our Georgian friends pursue their NATO aspirations. Turkey can play an important role in resolving the conflict in Abkhazia, drawing on its large Abkhaz Diaspora, which is anxious to invest in Abkhazia, Georgia, and thereby stimulate cooperation and reconciliation. More broadly in the Black Sea, the United States strongly supports Turkey's leadership in Operation Black Sea Harmony to foster maritime security cooperation with Russia, Romania, Ukraine, Bulgaria, and Georgia against threats of proliferation and terrorism. We also welcome strong information sharing between Operation Black Sea Harmony and NATO's Operation Active Endeavor in the Mediterranean Sea.

Our third cluster of common interests, the advance of democratic and market economic reform, reflects the values shared by our two countries. Turkey's unique historical experience ensures it cannot be a model for any country. But, its legacy of over a century and a half of modernizing reforms can inspire those in Iraq, the rest of the broader Middle East, and beyond who seek the same political and economic freedoms as Turkey's citizens have come to enjoy. The democratic system that Mustafa Kemal Ataturk launched 85 years ago affords Turkey its greatest strategic significance in this day and age. It is precisely the advance of democracy, secularism, and the rule of law that can ensure separation of mosque and state, advance political and individual freedoms, and blunt efforts of extremist recruiters. We welcome the Turkish Government's reform of Article 301 of the Penal Code, and look forward to a new and invigorated effort to enact further reforms required to fulfill Turkey's EU aspirations. The economic reforms launched by President Turgut Ozal in the 1980's have helped transform Turkey into one of the most promising emerging markets in the world. Sound fiscal policies have allowed Turkey to weather the severe financial crises of the 1990's and 2001, and orient its economy toward fulfilling its EU aspirations.

We support the Turkish Government as it pursues this reform agenda. As President Bush said following the U.S.-EU Summit in Slovenia June 10: "We strongly believe Turkey ought to be a member of the EU, and we appreciate Turkey's record of democratic and free market reforms, and working to realize its EU aspirations."

But, as we know from our own experience in the United States, the job of building democracy is never done. Political ideologies must adjust to broader societal change. It took our country nearly a century to abolish slavery, and only now, 145 years later, has an African American emerged as a top Presidential candidate. In Turkey, some political leaders argue they are trying to adjust the vision of Mustafa Kemal Ataturk to a new era; their opponents contend these efforts aim to undermine Kemalism and the constitutional principles of secularism, democracy, and the rule of law.

The current closure case against the ruling AK Party is where these arguments come to a head. What is clear to me as a U.S. official is that Turkey's democratic system is the product of Turkey's historical experience, and remains vibrant. As in the past, Turkish democracy will work through this current and difficult challenge. In the end, a democracy requires that voters determine their country's political future, and Turkey's voters made clear decisions during elections twice in 2007. Turkish leaders, including President Gul and Prime Minister Erdogan, have underscored the crucial importance of maintaining the separation of mosque and state through the constitutional principle of secularism as a central element of Turkey's democratic system. Ultimately, we are confident our Turkish Allies will rely on their Anatolian traditions of pragmatism and tolerant faith, combined with a modern embrace of scientific learning, to resolve the current controversy in a way that strengthens Turkish democracy.

In summary, U.S.-Turkish relations now enjoy a new and modern agenda, which differs profoundly from our partnership during the Cold War era. We have reshaped our bilateral agenda radically during the administration of President George W. Bush. Having weathered some serious difficulties, the U.S.-Turkey strategic partnership is broader and richer than any time in the past. Our relations are based on common interests and shared values. Today, the United States appreciates Turkey as a key Euro Atlantic ally that uniquely enjoys multiple identities as a European, Middle Eastern, Eurasian, Balkan, Black Sea, and Mediterranean country. Our cooperation on energy, security, and democracy provide the foundation for a partnership that is more deeply and genuinely strategic than any time in the past. As we contemplate the threats that will confront the Euro-Atlantic community in the coming decade, Turkey has emerged as an indispensable partner. Maximizing the potential of our strategic partnership will require the next U.S. administration to keep all these factors in mind, and require Turkey to sustain political and economic reforms even when tempted by its propensity to avoid tough decisions.