Turkey’s President Recep Tayyip Erdoğan did not arrive empty-handed during his visit to Hungary.
In fact, he came with an offer to supply 275 million cubic meters (mcm) annually to Hungary, helping to cover around 3% of the country’s annual consumption from 2024.
On the face of things, the deal signed between the Turkish oil and gas incumbent BOTAS and the Hungarian electricity company MVM on 21 August looks very attractive. It arguably ticks the right boxes of supply and route diversification.
In reality, it may be part of a complex and opaque scheme that could see more Russian gas transiting Turkey to flood Central and Eastern Europe, while blocking real supply diversification. This is a worry and ought to require a response.
Earlier this year, Turkey said it had signed a 13-year agreement to allow the Bulgarian state gas company Bulgargaz to access gas via its infrastructure. Additional details were kept under wraps and Bulgaria hastened to describe the agreement as containing trade secrets.
Nevertheless, information leaked to the media in July showed that the agreement will in fact allow Turkey to use Bulgarian companies and the Bulgarian transmission system as a springboard to access all European markets, including Hungary’s.
This could be done in several ways.
For example, BOTAS can instruct Bulgargaz to buy and deliver cargoes of liquefied natural gas (LNG) to any European importing terminal on its behalf.
In exchange, the Turkish company will deliver the same amount of gas to Bulgaria for its needs via an old pipeline linking the two countries.
BOTAS can also export its own pipeline gas via this interconnector. The quantities can be delivered either in Bulgaria or can be shipped further to neighboring countries including, Romania, Serbia, or Hungary.
Ironically, Turkey itself may be used by Russia to whitewash its gas supplies, despite the EU setting a 2027 deadline to phase them out.
Turkey’s deals with Bulgaria and Hungary astutely avoid any mention of the source of gas.
However, it does not require a highly developed imagination to figure out that volumes transiting Turkey would originate in Russia, which Turkey is connected to through various pipelines, and which has openly discussed the possibility of establishing a gas hub in Turkey.
To be clear, the deal signed by the previous Bulgarian caretaker government with Turkey and announced earlier this year is not illegal. Nevertheless, it raises problems for Bulgaria as well as for neighboring countries, and the EU as a whole.
For this reason, the newly elected Bulgarian government opened an investigation in August.
Firstly, Bulgaria is expected to pay a daily service fee to BOTAS, regardless of whether it receives gas from Turkey or not.
Over the 13-year period of the contract, this will exceed $2bn, which will be paid by Bulgarian taxpayers.
The terms of the deal are so restrictive that it will be very difficult, if not impossible, to cancel it ahead of time.
Even more controversially, the deal could block regional competition.
The volumes entering Bulgaria from Turkey for both Bulgarian and regional use could be close to 4bn cubic meters, which would be nearly double Bulgaria’s own annual consumption.
These would be in addition to around 13bn cubic meters which Russia already supplies to the region via Turkey and Bulgaria under long-term contracts with EU buyers, including Hungary.
As a result of the current gas glut, Bulgaria itself may no longer need alternative supplies given that it already has contracts to import gas from other sources including from the Caspian region or as LNG.
Other countries such as Romania, which is making some progress in bringing its own offshore Black Sea gas reserves upstream, may also see its efforts thwarted by the gas glut building up regionally.
Meanwhile, Greece’s plans to bring alternative LNG supplies via four new terminals it is developing could be stymied if the region is oversupplied by a tide of imports transiting Turkey.
For Russia, gas is political. The Kremlin launched a hybrid war in the run-up to its all-out invasion of Ukraine and then tried to humble the continent’s democracies by reducing supplies by 80% in the hope that they would choose its gas over Ukraine’s freedom. Having failed, and lost a large part of its old market, it is now trying to regain some of its lost revenue to feed the growing demands of its war industries.
Central and Eastern Europe may be its easiest target, not least because of deep commercial and political links with the region dating back to communist days (although oil giants like UK-based Shell continue to trade large amounts of Russian energy despite pledges to stop, as has Total Energies of France)
The novelty is that the Turkish-Bulgarian deal now provides a convenient template for Russian gas exports to penetrate European markets while shielding behind other countries.
Unless the EU decides to ban Russian gas and LNG imports and carry out thorough checks of supplies entering its markets, similar schemes will proliferate, perpetuating its vulnerability to a country that has been using gas exports to wage a hybrid war against it.
Unfortunately, there are no indications this may happen any time soon.
Dr. Aura Sabadus is a senior energy journalist who writes about Eastern Europe, Turkey, and Ukraine for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider.
The views expressed are her own.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.
