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What does the Russia gas alliance mean for Turkey?

The new agreement between Turkey and Russia looks set to shake up the energy market, with Moscow's scrapping of a multi-billion dollar pipeline project in south-eastern Europe likely to benefit Turkey immensely.

Turkey has made no secret of its desire to become an energy hub between Europe and the Middle East in the coming years, and so the decision to create a new link through the country would have been roundly welcomed in Ankara.

Russia's aboutface occurred after mounting tension forced it to scrap South Stream, which would have travelled through many Balkan states. The EU had warned countries that signed bilateral deals with Russia to build the pipeline - namely Austria, Bulgaria, Croatia, Greece, Hungary and Slovenia - that they would be fined if they proceeded with the project, while Serbia's efforts to join the bloc may have also been jeopardised by allowing South Stream to cross its territory.

The project hinged mainly on Bulgaria, as the pipeline would be laid across the bottom of the Black Sea, providing an entry point to Europe, but the country was adamant that it would only be built with EU approval - something that was not forthcoming.

New direction

As such, Vladimir Putin has chosen to turn to Turkey, in a move that will reverberate throughout the industry, particularly as Turkey will see it as a chance to stake its claim to being the next big thing.

As Mr Putin explained: "If Europe doesn't want to realise this, then it means it won't be realised. We will redirect the flow of our energy resources to other regions of the world."

That means Turkey, and one major boon for the project is that it can already use the infrastructure already built for South Stream and still deliver gas to Europe, albeit by a slightly longer route.

The benefit for Turkey is twofold; not only will the pipeline's capacity be 63 billion cubic metres of gas per year (the same as South Stream's target capacity), but Turkey will also have first option to buy it (with 14 billion cubic metres of that currently earmarked) before sending the rest to the Balkans.

No compromises

One thing that Turkey is keen to stress throughout the formation of the deal is that it will not compromise or be seen as a last resort - something evidenced by it negotiating a six per cent discount on current natural gas supplies from Russia, which will cost Gazprom around $700 million a year.

As former Russian deputy energy minister Vladimir Milov commented, Turkey very much sees itself as an expanding energy hub, and wants to be treated as such.

"Turkey has long dreamed to concentrate all of Russia's transit streams, and now it has that opportunity. Turkey is a much tougher partner than Ukraine with its low transit tariffs. In fact, Turkey has always insisted on the role of a gas re-seller: 'We buy the Russian gas that goes across our land and we sell it on to Europe,'" he explained.

With a similar deal already in place in China, analysts expect Turkey to come out of the arrangement much the better for it, both financially and also in terms of increased prominence on the world stage.

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