SCENESETTER FOR THE VISIT OF SECRETARY OF ENERGY

C O N F I D E N T I A L ANKARA 002742

SIPDIS

SIPDIS

ENERGY FOR HEGBERG/EKIMOFF/WASHINGTON

E.O. 12958: DECL: 11/08/2017
TAGS: ENRG EPET IR IZ KZ RS TU
SUBJECT: SCENESETTER FOR THE VISIT OF SECRETARY OF ENERGY
SAMUEL BODMAN TO TURKEY, NOVEMBER 15-18, 2007

Classified By: CDA Nancy McEldowney for reasons 1.4 (b) and (d)


1. (SBU) Summary. Your first official visit to Turkey will
be an opportunity to reaffirm U.S ) Turkish shared strategic
vision on the development of Caspian oil and gas resources
and diversification of transit routes to lessen Europe's
dependence on Russia. You will need to encourage Turkey to
continue to look to the Caspian or other resource rich
neighbors like Iraq, rather than Iran, to meet its growing
energy demand. You will need to remind Turkey of U.S. policy
and law which imposes sanctions on companies that investment
in Iran. In addition to meeting with Turkish leadership, you
will make two public speeches; one at the Turkish American
Business Council (TAIK) on November 16 and one at the
Turkey-Greece Interconnector (TGI) ceremony on November 18.
This ceremony marks an important milestone in our vision to
bring non-Russian sources of gas to Europe. It is the only
non-Russian route for Caspian gas that is in operation.


2. (C) Summary continued: Your visit follows President
Bush,s successful November 5 meeting with PM Erdogan in
Washington and Secretary Rice's constructive Ankara meetings
with Erdogan, President Gul and FM Babacan on November 2.
The President and Secretary Rice were able to pull
Turkish-American relations from the brink by pledging
increased, real-time intelligence sharing to help eradicate
the terrorist PKK. Media and the public remain wary that
Turkey will be put off once again with words instead of
results. The ball is now in the GOT's court, according to
many Turks who believe Erdogan must act decisively. This
shift, along with the suspension of action on Congress's
Armenian genocide resolution (H.R. 106),opens a window for
discussions on other key bilateral issues such as energy.
Your visit is an ideal opportunity to emphasize the many
other vital interests Turkey and AMERICA have in common. End
summary.

Turkish Nuclear Energy Ambitions
--------------

3. (SBU) On November 7, the Turkish Parliament began
debating the Nuclear Energy law. This law lays the
foundation for the commercial development of nuclear power in
Turkey. While environmental groups oppose the law, the GOT
is firmly behind the law and we expect its passage within 90
days. Tenders are likely to be issued shortly thereafter
(approximately March 2008).


4. (SBU) Turks would very much welcome good news on the
status of the U.S. ratification of the Peaceful Uses of
Nuclear Energy (PUNE) agreement during your visit. Turkish
officials have in the past indicated a preference for U.S.
nuclear energy technology. However, without U.S.
ratification of the PUNE (also known as the 123 Agreement),
U.S. companies will be frozen out of these tenders and Turkey
likely will turn to Russia or France to supply nuclear
equipment and fuel. Strategically, a deal with Russia would
increase Turkey's energy dependence on Russia at the same
time that Turkey is trying to reduce its dependence on
Russian gas.

Turkey and U.S. Caspian Strategy
--------------

5. (U) Turkey plays a major role in our Caspian strategy
because it is the non-Russian, physical link between the oil
and gas resources of Central Asia and the growing demand for
those products in Europe. U.S. policy envisions Turkey as a
strategic energy bridge between East and West and seeks to
ensure that Turkey is a reliable and transparent transit
country. Currently, more than three million bbl of Caspian
oil pass every day through the Bosporus Straits, and nearly
one million bbl/d of oil pass through the Baku-Tbilisi-Ceyhan
(BTC) pipeline, the first pipeline for Caspian oil that does
not cross Russian soil. Turkey aspires to increase its role
as a main export transit country and further link its future
to Europe's by piping natural gas to meet Europe's growing
needs.


6. (SBU) In addition to its role as a transit country,
Turkey aspires to be a regional energy player. With the
planned construction of the Samsun-Ceyhan oil pipeline, new
refining capacity at Ceyhan, and the possibility of a
liquefied natural gas terminal at the same location, Turkey

envisions itself as a regional energy hub and a natural
marketplace between Middle East, North African, and Caspian
suppliers and customers in Europe.


7. (SBU) While the U.S. has primarily viewed Turkey as a
transit country for Caspian energy, the Turks also look at
Caspian gas as a potential solution to their domestic energy
needs. 55% of Turkey's natural gas consumption now is for
electricity. That percentage will rise as natural gas
consumption doubles by 2015. Turkey is unsure from where
this additional gas will come. Consequently, Turkey is
pursuing an &all fronts8 strategy, increasing energy
cooperation with Iraq, Iran, Azerbaijan and Turkmenistan.


8. (SBU) Turkey is aware of U.S. policy on Iran but argues
that unless the U.S. can show a reliable, guaranteed energy
supply, Turkey cannot ignore Iran's huge reserves. Turkey
also believes it has a competitive commercial advantage in
Iran because Iranian gas cannot reach European markets by
pipeline without transiting Iran. Also, Turkey is being
asked by the European Union to allow non-Russian gas,
including Iranian gas, to transit Turkey, and Turkey views
this as an aid to its bid to join the EU. Turkey's Iran
experts also recognize that Iran has been an unreliable
supplier and any new gas negotiations will take a long time
and have extremely low expectations they will bear fruit.
Watching what the Europeans are doing, Turkey doesn't want to
be left behind.


9. (U) Understanding that Turkey's priority concerning
natural gas is its domestic need for electricity opens up
several areas for US-Turkish cooperation to aid our Caspian
strategy, including alternative energy sources (nuclear,
clean coal, wind and other renewables) and electricity
imports in addition to or in place of natural gas. Many of
these open up commercial opportunities for US companies.

Turkey and Iraq
--------------

10. (C) Despite ongoing tensions, Turkey and Iraq are both
benefiting from Ankara's consistent push to support the Iraqi
central government. The GOT has continued to try to help PM
Maliki consolidate central government control through regular
Sunni outreach (including inviting VP al-Hashimi twice in
recent months),as well as the August Maliki visit to Ankara.
The Turks maintain a consulate in Mosul and are opening
another in Basra. And at the high water mark in bilateral
tensions, FM Babacan made the first high-level GOT visit
since 2003 to Baghdad October 23, taking Turkey's message
directly to the full array of Iraqi leadership. USG pressure
on Iraqi Kurdish leaders to tighten the noose on PKK
operations in northern Iraq and other measures agreed to at
the November 3 Iraq Neighbors Ministerial in Istanbul have
also improved relations. The lull in tensions may be
short-lived if the PKK launches more violent attacks or an
impatient and frustrated Turkish public fails to see the
concrete action against the PKK it demands.


11. (C) On October 31, the Turkish Council of Ministers
approved -- but has not yet disclosed or implemented --
economic sanctions against northern Iraq and the PKK. Among
the possible sanctions is a cutoff of electricity exports
(Turkey supplies about 9% of Northern Iraq's electricity),
overflight denials, trade restrictions and closure of Habur
Gate border crossing. None of these measures are cost-free
and Turkey appears to be in no hurry to implement them.
There also have been reports that Turkey has been seizing
Iraqi oil transiting the Kirkuk-Ceyhan pipeline, but this
appears to be a debt collection issue, not part of any
sanctions regime.


Economic Overview
--------------

12. (SBU) The Turkish economy has recovered strongly from the
2001 financial crisis, completing five years of GDP growth
averaging over 7% -- the highest rate of any OECD country. In
dollar terms, per capita GDP doubled to $5,500 over the past
five years. For the first time since the early 1970,s,
inflation has been in single digits for three years. Turkey
has reduced its vulnerability to financial problems, with the
net public sector debt to GDP ratio falling from 90% in 2001

to 45% in 2006. Turkey achieved this through its
IMF-sponsored economic program, including a 6.5% primary
surplus target for the public sector, and orthodox,
pro-investor, pro-market policies. Foreign investment has
grown tenfold, to over $20 billion last year and approaching
$25 billion this year. Turkey remains vulnerable to global
market trends because of its large current account deficit
(8% of GDP in 2006),the public sector's continued reliance
on foreign portfolio investors rolling over mostly short-term
debt, heavy private sector borrowing in foreign currencies,
and risks of political or regional instability.


13. (SBU) With two-way bilateral trade around $10 billion,
roughly in balance between exports and imports, the U.S. is
an important trading partner for Turkey. Half of Turkey,s
trade is with the EU, and Turkish trade with the Middle East,
African and former Soviet Union countries is growing.

Political Overview
--------------

14. (C) Erdogan's Government: Since the July parliamentary
election, when the ruling Justice and Development Party (AKP)
won 47.7% of the vote, PM Erdogan's new government has been
event-driven. First came a contentious presidential election
which installed Abdullah Gul in Cankaya. Then the AKP
launched an ambitious and controversial effort to revise the
1982 military-written constitution. After Ramadan, the
House Foreign Affairs Committee voted out the Armenian
genocide resolution, inflaming already high anti-American
sentiment in Turkey. The spate of vicious PKK attacks
ratcheted up pressure on the GOT to reject USG calls for
restraint in striking PKK forces in northern Iraq. In the
aftermath of two bloody ambushes, Erdogan brought a
cross-border operation (CBO) authorization motion before
parliament; he managed his party with determination, having
learned his lessons from March 1, 2003. But the onus,
especially after a third large attack on October 21, remains
squarely on his shoulders.

Visit Ankara's Classified Web Site at
http://www.state.sgov.gov/p/eur/ankara/

MCELDOWNEY