PM ERDOGAN AND MINISTER YILDIZ POSITIVE ON

C O N F I D E N T I A L ANKARA 001797

SIPDIS

DEPARTMENT FOR EEB/S-EEE RICHARD MORNINGSTAR
DOE FOR OFFICE OF RUSSIAN AND EURASIAN AFFAIRS: LANA EKIMOFF

E.O. 12958: DECL: 12/16/2019
TAGS: ENRG EPET PREL TU
SUBJECT: PM ERDOGAN AND MINISTER YILDIZ POSITIVE ON
NEGOTIATIONS WITH AZERIS AND IRAQ ENERGY

Classified By: DCM Doug Silliman for reasons 1.4 (b,d).


1. (C) SUMMARY: In separate meetings with Special Envoy for
Eurasian Energy Morningstar on December 2, PM Erdogan and
Energy Minister Yildiz both spoke positively of reaching
agreement with the Azeris on Shah Deniz gas and cooperating
more closely with the U.S. to develop Iraq's energy sector.
Erdogan stressed the importance of pushing for agreement
between Erbil and Baghdad on hydrocarbons. Yildiz was
confident Iraqi gas supplies would be plentiful enough for
export in three to five years. He said Turkish Petroleum
Company (TPAO) will bid on 10 Iraqi oil fields (Note: they
won only one bid) in the new bidding round, and will decide
whether to expand activity in northern Iraq based on the
results. End summary.


2. (C) On December 2, Special Envoy for Eurasian Energy
Morningstar met with PM Erdogan, who was accompanied by
Energy Minster Yildiz. The tone of the meeting was positive
and friendly, and the PM began by noting he was greatly
looking forward to meeting with President Obama December 7
and making his visit to the U.S. a success. He said the new
Strategic Framework agreement to be announced in Washington
was a critically important step in our bilateral relations.

Erdogan Positive toward Azeris, Presses on NK and US Attitude
toward Russia
--------------


3. (C) Erdogan said he very much wants to conclude an
agreement with the Azeris on Shah Deniz gas. He added,
however, that Turkey wants to play a regional leadership role
only if there is a worthwhile role to play. He said Turkey's
primary focus is on the Middle East. He acknowledged the
strategic importance of the Nabucco project for Turkey and
for Europe. He said he and Azeri President Aliyev had agreed
on "basic principles" for a deal with Azerbaijan.


4. (C) Erdogan raised the issue of Nargono-Karabakh (NK)
with Morningstar. He said the Minsk Group needed to work
harder to find a solution. He had done what he could by
signing the protocols to normalize relations with Armenia but
it was politically impossible to go ahead without major
breakthroughs on NK. Turning to another subject, Erdogan
asked why the U.S. criticizes Turkey on its relations with
Russia. He appeared pleasantly surprised when Morningstar
responded that we are not critical and are trying to engage
constructively with Russia. Erdogan suggested Russia could
become a third-party supplier to Nabucco, and Morningstar
indicated that we had not ruled out Russia as a potential
shipper, not a shareholder, but that Russia had not indicated
any interest in Nabucco thus far.

GoT Will Push for Baghdad-Erbil Hydrocarbon Agreement
--------------


5. (C) The parties discussed Iraq as an energy supplier for
Europe and agreed that development of Iraq's energy sector is
a good area for U.S.-Turkey cooperation. Erdogan said both
the GoT and the USG must push for agreement between Erbil and
Baghdad. He believes nothing will be done prior to the
elections and that the KRG will be in a better position to
negotiate with Baghdad after the election.

Yildiz Positive on Reaching Agreement with Azeris
--------------


6. (C) In a separate December 2 meeting with Special Envoy
for Eurasian Energy Morningstar, Ambassador Jeffrey, and
other State, Energy and embassy staff, Yildiz said he was
hopeful of reaching a final agreement with the Azeris on Shah
Deniz gas and would be happy to have signed an agreement in
principle prior to the meeting of President Obama and Prime
Minister Erdogan on December 7. To that end, Yildiz planned
to call his Azeri counterpart and invite the negotiators to
Ankara on December 5.


7. (C) Although Yildiz several times expressed confidence of
reaching an agreement with the Azeris, he also discussed some
of the challenges of the negotiations. He said each meeting
in the process should build on previous discussions, but
instead each has been like an independent meeting, with the
parties losing ground and having to start over. To
illustrate the Turks' flexibility and the Azeris'
unwillingness to move forward, Yildiz offered "an anecdote."
He said the difference between the two sides' proposals on
transit fees was about USD 70 million. Realizing this is
less than a tenth of a percent of the USD 80-90 billion total

value of the project, the Turks offered to compensate the
difference by adding payments up to USD 85 million elsewhere
in the deal, but the Azeris would not agree. In response,
Morningstar observed that the obstacles may be more political
than commercial.


8. (C) Note: According to Sefa Aytekin, head of the Ministry
of Energy Foreign Relations Department, Yildiz personally
participated in negotiations December 5-7, but no agreement
was reached. Aytekin said the Azeris did not counter the
technical points raised by the Turkish side and instead
brought political issues to the agenda. End note.

Turkey Wants Iraqi Energy Resources, Preferably from Baghdad
--------------


9. (C) In regard to Iraqi gas, Yildiz said the GoI priorities
he heard on the October 15 visit to Baghdad with PM Erdogan
were, in order: Iraqi citizens, electricity generation, and
export. He said given these priorities, significant exports
are expected in three to five years, so there will be enough
gas to count on supplies for Nabucco, as mentioned in the MOU
signed on October 15.


10. (C) Yildiz stressed that the GoT realizes the importance
of the hydrocarbons law, and he believes the Iraqis will be
able to finalize the law within three to five months after
the elections. While waiting for the law, Turkey is acting
in a limited manner in the energy sector in northern Iraq.
Yildiz said the Turkish Petroleum Company (TPAO) will bid on
ten tenders in the round to be announced by the GoI in
December. Depending on the results, they will decide how to
proceed in northern Iraq. (Note: TPAO was successful in only
one bid, for the Badra oil field near the Iranian border,
according to TPAO General Manager Mehmet Uysal. End note.)


11. (C) When asked where the U.S. might best lend support,
Yildiz said by continuing to push for passage of the
hydrocarbons law, which the GoT will also do. Yildiz noted
that TPAO would like to partner with U.S. companies on some
of its upcoming bids. He finished by suggesting he and
Morningstar meet on a regular basis every few months.


12. (U) SEEE Morningstar cleared this cable.
JEFFREY

"Visit Ankara's Classified Web Site at http://www.intelink.s
gov.gov/wiki/Portal:Turkey"