Natural gas and geopolitics in the Eastern Mediterranean

This article first surveys the energy landscape of the Mediterranean focusing on the factors affecting the pace of resource development. The analysis then zeroes in on Turkey and its regional strategy. As a key player in ongoing maritime disputes and the Cyprus issue, Turkey stands at the intersection of the region’s fault lines. In the past few years, Turkey has been following an assertive regional strategy combining diplomacy with deterrence, which has drawn criticism from rivals and allies alike. What drives Turkey’s Mediterranean policy? The key proposition here is that rather than an upfront “energy grab,” Turkey’s policy is best understood as a response to perceived threats on its maritime sovereignty, as well as a product of an increasingly pervasive sense of regional isolation and encirclement.

Notwithstanding the drivers of conflict in the Mediterranean, one undisputed implication is the increased militarization of the region coupled with the mounting probability of open confrontation. The Mediterranean is becoming one of the world’s most militarized zones, as littoral states and outside powers[1] boost their naval presence. The article concludes with a call for inclusive, multilateral diplomatic dialogue to de-escalate conflicts before they spiral out of control.

How did we arrive at this point?

The Mediterranean gas bonanza started with the discovery of the Noa (1999) and Mari-b (2000) fields off the coast of Israel. The early finds were modest but paved the way for extensive exploration. A breakthrough came with the discovery of 280 billion cubic meters (bcm) of gas in Israel’s Tamar field (2009), followed by the discovery of the Leviathan (2010) gas field, the largest deep-sea find of the decade with 510 bcm. In 2011, Noble Energy announced a discovery in Cyprus Block 12, about 30 km northwest of Leviathan. The largest find so far is Egypt’s super-giant Zohr field (2015), estimated to contain 845 bcm of gas.[2] The most recent discoveries are Calypso (2018) and Glaucus-1 (2019).

How important are these discoveries and what are their likely impacts on the global energy landscape? The total volume of gas discovered from 2009 to 2019 amount to approximately 2.5 trillion cubic meters (tcm), which is smaller than the proven reserves of Azerbaijan (2.8 tcm), less than half the reserves of Nigeria (5.4tcm) and about 8 percent of estimated reserves in Iran (32 tcm).[3] Considering that some of the gas is earmarked for domestic consumption, the final volume available for exports will be hardly a global game-changer. Nonetheless, Mediterranean gas matters for at least two reasons.

First, the discoveries are likely to be a major boost for regional economies. The Yam Tethys and Tamar fields transformed Israel from an import-dependent country to a net exporter of gas. Revenue from even limited gas exports would mean a major cash injection into the struggling economies of Cyprus and (potentially) Lebanon. Others like Egypt and Turkey have not only substantial energy needs, but also aspirations to become regional energy hubs, which would be well-served by access to supplementary supplies of gas. Thus, even at limited export volumes, Mediterranean gas can be a major economic asset.

Second, while the gas discoveries so far are modest, the hydrocarbon potential of the Mediterranean is significant. Despite a flurry of seismic research and drilling activity over the last decade, the Mediterranean remains one of the least explored regions in the world. According to the United States Geological Survey, the Levant Basin alone is estimated to contain 3.5 tcm of gas and 1.7 barrels of oil[4] while the Nile Delta basin may possess 6.3 tcm of gas and 1.8 barrels of oil.[5] The area to the south of Crete is also estimated to house significant volumes of gas and oil, though more data is needed for reliable assessments. While it is impossible to estimate yet-to-be-found reserves, the natural gas potential of the Mediterranean could exceed that of the North Sea.[6]

Exploiting the gas

While the hydrocarbon potential of the region is noteworthy, resources mean little until they are monetized. In terms of regional exports, the most accessible markets are Jordan and Egypt. In 2016, Jordan and Israel signed a $10 billion deal for the supply of 45 bcm of gas over 15 years. In January 2020, Israel started exporting Leviathan gas to Jordan on a limited scale. Israel has also been selling gas to a private firm in Egypt since January 2020 via an underwater pipeline. Initial volumes are relatively low at about 2.1 bcm/year but both parties are considering expanding trade.[7] It is also conceivable to re-export Israeli gas via Egypt’s underutilized LNG infrastructure in Idku and Damietta.

Regional markets offer swift economic returns on relatively low initial investment. However, given the unresolved conflicts and historical grievances in the region, the politics of the local gas deals are often complicated. For instance, gas imports from Israel faced much criticism in Jordan, where many continue to consider Israel an adversary.[8] The Leviathan gas deal is the first major agreement between Israel and Egypt since the historic 1979 Peace Treaty. In Israel, opposition has also been voiced against plans to sell Leviathan gas to Egypt. Given both the limits of regional energy markets and the political cost of gas deals, Israel and others have sought to diversify their export portfolios.

The most attractive markets are Turkey and Europe. Turkey, with its average annual natural gas consumption of 45.7 bcm between 2009 and 2019[9] makes economic sense for exporters. Historically dependent on Russian gas, Turkey has also been seeking to diversify its imports. For the past two years, Ankara managed to reduce Russia’s share in imports by sourcing more gas from Azerbaijan and spot LNG markets. Importing gas from the Mediterranean would help further diversify Turkey’s portfolio. If priced right, Mediterranean gas could also increase Ankara’s leverage in negotiating with its existing suppliers. Most importantly, Mediterranean gas could further Ankara’s vision of becoming a regional energy hub. Turkey recently launched a spot market gas trading system. The next key step would be to attract gas from multiple regions, including the Mediterranean.

Still, Europe remains the ultimate destination for Mediterranean gas. Despite a policy of decarbonization, natural gas continues to have a place in the European energy mix. Diversification of gas imports is key to European energy security, particularly for EU members relying on Russian gas. The European Commission promotes a Mediterranean energy route as part of the Southern Gas Corridor strategy.

Export options

Over the past decade, Mediterranean states, energy firms and other stakeholders explored several export options to transport gas to Europe. Most actors pursue a hedging strategy, simultaneously exploring LNG and pipeline options.

LNG solutions are flexible as they allow access to multiple markets without having to rely on transit states. Yet the capital expenditure required for LNG is significantly higher than for pipelines. At current proven reserves, the feasibility of LNG options for any single producer is debatable. An early idea was to construct liquefaction facilities in Israel, yet this has been dismissed for environmental and other concerns. The Leviathan partners explored the option of building a floating LNG facility, a cutting-edge yet expensive solution. Cyprus also has an LNG project in development; a floating storage and regasification unit (FSRU) terminal in Vasilikos.[10]

In terms of pipeline options, two projects have been proposed: the Israel-Turkey Pipeline and the Eastern Mediterranean (EastMed) Pipeline. The Israel-Turkey Pipeline project would connect the Leviathan to Turkey’s Ceyhan port, which serves as a gateway to Europe. Covering a relatively short distance, this pipeline is the most cost-effective option to access Turkish and European markets. On the other hand, the EastMed pipeline would connect Mediterranean gas fields directly to Europe. Approximately 1900 km in length, the EastMed pipeline project presents technical challenges, raising construction costs.[11] Even though the financial feasibility of the project is disputed,[12] the EastMed pipeline is backed by the EU, which designated it a Project of Common Interest.[13]

Most export plans thus require extensive regional cooperation. Given the relatively limited reserves, it makes economic sense for producers to pool their reserves, jointly build export infrastructure and cooperate in other ways that would maximize returns. Should cooperation fail, most of the gas might remain in the ground or be traded only locally.

This is also why many hold the energy potential of the region would facilitate resolutions to political conflicts.[14] According to this rationale, which is grounded in the liberal notion of commercial peace,[15] the prospect of natural resources raises the costs of conflict, generating robust economic incentives to resolve issues peacefully.[16] Regrettably, these initial expectations have been dampened as Mediterranean gas not only failed to contribute to regional stability but also aggravated conflict.

Failed expectations

What explains the disappointing pace of development of Mediterranean gas? The problem is partly economic: stagnant demand, growing supply and the resulting low energy prices. In an environment of low energy prices, companies are reluctant to invest in developing new fields. Gas demand has been particularly stagnant in Europe, largely as a result of the slow economic recovery since the financial crisis.[17] Furthermore, the notable decline in LNG prices[18] and the availability of US LNG in European markets relieved some of the pressure on European economies seeking to diversify their gas import portfolios. Given the latest COVID-19 related economic troubles, it is rather unlikely that energy prices will recover anytime soon.

While market conditions reduce the appeal of Mediterranean gas, political uncertainties in the region increase the risk of future developments. The principal source of uncertainty is the multiplicity of conflicting maritime claims in the region, rendering problems regarding exploration and ownership of resources. In anticipation of hydrocarbon exploration, some littoral states worked out bilateral agreements for the delimitation of exclusive economic zones (EEZ). However, to the extent that these agreements contradict each other, or encroach upon the rights of third parties, they have merely served to deepen the conflict.

The Republic of Cyprus (RoC) signed maritime delimitation agreements with Egypt (2003), Lebanon (2007) and Israel (2010). Turkey objected strongly and repeatedly on international platforms, noting that as the Mediterranean is a semi-closed sea, all littoral states with a vested interest should be involved in delimitation agreements.[19] Ankara also insists that absent a political solution in Cyprus, the RoC cannot unilaterally demarcate maritime boundaries, issue licenses or seek to develop Cypriot hydrocarbons.

Turkey signed maritime delimitation agreements with the Turkish Republic of Northern Cyprus (TRNC) in September 2011 and with the Government in National Accord in Libya in November 2019. Based on the 2011 agreement, the TRNC issued drilling licenses to the state-owned energy company Turkish Petroleum and Corporation (TPAO) in areas that partially overlap with the blocks claimed by the RoC. The agreement between Ankara and Tripoli established two EEZs that partially overlap with the blocs claimed by Greece. The deal also obstructs the path of the EastMed pipeline. The latest development in the EEZ wars is the signing of a delimitation agreement between Greece and Egypt in August 2020. Ankara quickly denounced the agreement. A few days later Turkey issued a new NAVTEX (navigational telex[20]) to re-initiate seismic research in the waters near the Greek Island of Meis (Kastellorizo), about 2 km off the coast of Turkey.

Turkey has frequently deployed research and drilling platforms to credibly signal its preferences. Over the past decade, Ankara has amassed a flotilla of seismic survey and drilling ships which routinely conduct operations in the Black Sea and the Mediterranean. The civilian vessels are often escorted by elements of the Turkish Navy and Air Force for protection and deterrence. In July 2017, Turkish Armed Forces dispatched naval vessels to track the drillship commissioned to operate in Cypriot Block 11, which is disputed by Turkey.[21] In February 2018, tensions rose again when an ENI drillship sailing in Block 6 was intercepted by Turkish warships, resulting in a brief standoff. In August 2020, Turkish and Greek navies were reportedly mobilized during the incident involving multiple, reciprocal NAVTEX messages issued by Turkey and Greece for the same region.

Turkey’s increased naval presence in the Mediterranean is buttressed by an ambitious initiative of Navy modernization. Ankara’s national warship project (MILGEM) is developing a total of 15 multi-purpose corvettes and frigates, which significantly enhance Turkey’s littoral warfare capabilities. The national submarine project (MILDEN) aims to develop and build six submarines by 2030. Turkey’s first Amphibious Assault Ship (LHD), TCG Anadolu, is expected to be completed in 2020. Originally conceived to operate with F-35 combat aircrafts, the LHD is a blue-water asset that will increase Ankara’s power projection capabilities in the Mediterranean.

Regional geopolitics and perceptions of threat

Turkey’s assertive posture in the Mediterranean is closely shaped by its threat perceptions. Recent shifts in regional geopolitical alignments fostered a sense of encirclement in Ankara, a perception that Turkey is being left out of not only the “energy game” but also the emerging regional order. Indeed, shared energy interests have driven Israel, the RoC and Greece closer, with Egypt also joining the group. While primarily a pragmatic “alliance” driven by shared economic incentives, there has been some spillover in the security sector, including joint military exercises, which aggravated Turkey’s threat perception.

Two events have reinforced Ankara’s sense of encirclement. The first is the establishment of the Eastern Mediterranean Gas Forum in January 2020. Headquartered in Cairo, the EMGF consists of the RoC, Greece, Israel, Italy, Jordan, Palestine, and Egypt. The EMGF is also supported by France and the US, who requested to join the organization as a member and a permanent observer respectively. The second is the signing of the EastMed Pipeline Accord in January 2020 by Greece, the RoC and Israel. Ankara considers both the EMGF and the EastMed pipeline as elements of a larger effort to box in Turkey on the margins of the Mediterranean. The fact the EMGF, the EastMed pipeline and other regional initiatives are being supported by the US and the EU further contribute to the conviction that Turkey is being marginalized by its allies. Turkey’s assertive EastMed strategy aims to break the perceived encirclement.

Ankara’s heightened threat perception is reflected in the prevalence of the notion of Mavi Vatan, or blue homeland, in the Turkish security discourse. Coined by a high-ranking Navy officer in 2006, the term blue homeland originally signified Ankara’s maritime claims in the Mediterranean. Over the past four years, the blue homeland concept has gained traction both in the decision-making circles and the public discourse.[22] Drawing on deep-seated historical imagery, such as the Treaty of Sèvres and anti-imperialism, the blue homeland doctrine now seeks to chart an independent course for Turkey in an increasingly multipolar order. Relying on hard power instruments supplied by the bourgeoning national defense industry, this policy contrasts sharply with the rhetoric of soft power which previously marked Turkey’s foreign and security policy. While it is early to conclude the blue homeland has decidedly become the national security doctrine of Turkey, there is evidence of its growing impact. For instance, the largest naval exercise in Turkish history, conducted in March 2019, was named Mavi Vatan. As maritime disputes persist, the blue homeland doctrine is bound to be more influential.

Looking ahead

Mediterranean gas development is at an impasse. The most comprehensive export solutions requiring extensive regional cooperation have yet to materialize. Given low energy prices, it remains a challenge to attract financing for costly export infrastructure. More importantly, persistent disputes over maritime borders not only hamper exploration, but also raise the probability of region-wide conflict. As maritime disputes overlap with regional rivalries, it is conceivable that tensions can spiral into open confrontation, even if no actor intentionally seeks war.

Many had hoped natural gas could bring peace and prosperity to the region. Developments over the past decade however suggest economic incentives alone may be insufficient to facilitate cooperation in a region with deep-seated historical grievances, maritime disputes and strategic rivalries. It seems the causality between prosperity and peace runs more strongly in the opposite direction. Rather than a byproduct of prosperity, peace is a precondition. In the absence of minimally peaceful antecedent circumstances, the prospect of prosperity is unlikely to be fulfilled. Therefore, assuming regional states prefer to maximize economic gains from natural resources, they would need to find a way to diminish political uncertainty.

As far as maritime disputes are concerned, the most sensible policy would be to initiate a multilateral diplomatic effort involving all littoral states, given that the bilateral approach so far has failed to be effective. In principle, the Eastern Mediterranean Gas Forum could have provided a regional platform for this multilateral diplomatic effort. However, the exclusion of Turkey from the EMGF considerably curtails its capacity to promote region-wide, inclusive cooperation. It is also this perception of exclusion and encirclement that has driven Ankara’s increasingly assertive stance towards the Mediterranean.

To defuse tensions and facilitate the diplomatic process, some observers have suggested a temporary halt on all hydrocarbon exploration in the Eastern Mediterranean.[23] Declaring moratoria has been successful in similar cases.[24] However, there are various reasons why a moratorium alone might be insufficient in the Eastern Mediterranean.

First, while recent tensions involved Greece and Turkey, there has been an assortment of actors involved in the Eastern Mediterranean, including some from outside the region. Designing and implementing a temporary halt to all unilateral activities would be a major challenge.

Second, domestic political dynamics complicate the issue. For both Greece and Turkey, hydrocarbon exploration activities create a rally-around-the-flag effect, helping governments galvanize political support. As such, any policy that would involve halting such activities would need to be carefully framed to manage any potential negative implications. On August 21, Turkey announced a major gas discovery (estimated at 320 bcm) in the Black Sea. The impact of this discovery on the Eastern Mediterranean gas scene is yet-to-be-seen. On the one hand, the Black Sea discovery could present an opening for de-escalation in the Mediterranean. Thanks to this historic find, Ankara has more political capital now to explore diplomatic options. On the other hand, in the aftermath of the discovery and discourse of energy independence that accompanied it, the issue of hydrocarbons is becoming increasingly politicized in Turkey. This could also incentivize Ankara to push the envelope further in the Mediterranean.

Third, as Turkey and most regional actors perceive the conflict from a geopolitical as well as an energy perspective, halting hydrocarbon exploration actives is unlikely to produce a tangible result, unless it is supplemented by efforts to reduce bilateral political tensions. The normalization of Turkey-Israel relations would have a major geopolitical impact as it would help reduce Ankara’s perception of exclusion and encirclement. Any lasting political solution in the Mediterranean should also eventually involve a dialogue between Turkey and Egypt/UAE. While reconciliation between Ankara and Cairo appears improbable at this point, the two regional powers need to devise mechanisms to effectively manage their rivalry.

Mediation by a credible and capable external actor could be beneficial for both the de-escalation of exploration disputes and the normalization of bilateral relationships. Yet who would mediate? Italy and France could not serve in this role as both are partial to the conflict. Given the apparent disengagement of the US from the region, it is unlikely it would be willing to play a larger role anytime soon. Germany appears to be best positioned to facilitate mediation. The German government played a role in diffusing the immediate tensions over Meis/Kastellorizo in July by convincing Ankara to halt seismic research operations in the region, albeit temporarily. There have been reports that Germany is still seeking to defuse tensions between Turkey and Greece.[25] However, diplomatic efforts continue to be hampered by disputes between EU members seeking to impose sanctions on Turkey and those who oppose this policy. The analysis presented in this article suggests sanctions would only deteriorate the issue by reinforcing the perception of exclusion and encirclement in Turkey.

The challenges ahead for the Mediterranean are serious yet not insurmountable. Alleviation of political uncertainty and the establishment of trust among littoral states is a precondition for exploiting the region’s natural riches equitably. Once the initial political barriers are lowered and region-wide resource development takes off, then one can perhaps ask whether natural resources can facilitate peace and stability in the Mediterranean.