The Bosporus Bottleneck

Rising oil production in Russia and the Caspian region is flowing towards Europe. But first it has to get through the Bosporus Strait. Turkey wants to see some of that oil redirected via pipeline to Ceyhan, its deepwater Mediterranean port.

Tired of traffic congestion?

Who isn't? But if you think rush hour is bad in your community, try piloting an oil tanker through the 17-mile-long Bosporus Strait, the narrow waterway separating Europe from Asia.

Delays reached three weeks earlier this month for traffic passing from the Black Sea into the Mediterranean. It added fees of up to $50,000 a day for full, but idled oil tankers. The Bosporus backlog boosted Mediterranean spot market tanker rates more than threefold as 2003 came to a close.

It also had a direct impact on the global oil markets. More than two million barrels per day pass through the Bosporus, which links Russian oil exports to refineries in western and southern Europe. The transport volume requires more than 5,500 oil tankers annually, a little more than 10 percent of the 50,000 vessels that traverse the waterway each year.

At the moment the delays have caused European refineries to scale back production while waiting for additional crude. Global markets can compensate, but it takes a massive game of musical chairs, redirecting tanker-supplied crude from the Caribbean, West Africa, or North Sea away from the Atlantic Basin. The delays could attract larger volumes of Persian Gulf crude to the Atlantic Basin.

The Bosporus created headlines in December when a report by New York maritime brokerage firm Poten and Partners, Inc. detailed the traffic jam at the Bosporus (Poten and Partners, Inc.; see December articles). London's Financial Times picked up the story, and since then versions have appeared in the Washington Post and the Oil and Gas Journal, which reprinted the original Poten and Partners report.

The Bosporus--and Turkey--are two factors in a wider geopolitical context. During the late 1990s the Caspian region in Central Asia became the focus of a potential energy play equivalent in volume to the North Sea that would provide competition to OPEC's market dominance over the next few decades. The U.S., China, Japan, Turkey, Iran, and the Russians all pursued one or more angles in what was then believed to be the next major oil and gas frontier involving up to 30 billion barrels of reserves.

The reality in the early years of the 21st century is less grandiose. Meanwhile, the problem with Caspian oil reserves is that they are geographically remote. There have been a number of proposals to get oil and gas out, mostly focusing on pipelines. But the balkanized nature of the region, where neighborly hostility among eight separate states is a centuries-old cultural norm, means pipelines would have to cross territory and jurisdictions often hostile to the country where the hydrocarbons originate--no matter which way a pipeline goes.

The Russians want pipelines to travel through their sphere of influence, as do the Iranians. At the same time most of the new states carved out of the former Soviet Union are struggling to establish their own viability and have little influence when compared to larger regional powers.

This comes into play when trying to decode the international fingerpointing surrounding delays in moving tanker traffic through the strait. There are allegations that the Turkish government is purposely slowing traffic in an attempt to apply pressure to rejuvenate the BP-managed $3 billion Baku-Tblisi-Ceyhan (BTC) pipeline, which has been projected for completion this year. The project, which will transport up to one million barrels per day from the Caspian oilfields to the Turkish port of Ceyhan, is running behind schedule, and financial arrangements for part of the project have been put on hold after the collapse of the Georgian government following widespread fraud in that nation's presidential elections last Fall.

It is of note that U.S. Secretary of State Colin Powell is in Georgia this week for the inauguration of that country's 36-year old American-educated president. But the political paralysis in Georgia is also a major reason the BTC pipeline is behind schedule.

As far as the Turkish government is concerned, the 1,000-mile pipeline and its terminus at the Turkish Mediterranean port of Ceyhan would decrease tanker traffic--and its hazardous cargo--through the crowded Bosporus. On top of that, Turkey will collect transit fees, which should help the country move out of its lingering recession.

The Turkish government is a signatory to the 1936 Montreux Convention, which provides free passage through the Bosporus Strait. However, it reserves the right to regulate traffic for environmental and safety reasons. In 2002, Turkey closed the strait to night-time transit for larger tankers.

Oil is a major reason large tanker traffic has increased through the busy strait. Russian oil exports doubled after 1995. And this oil passes by the 11 million inhabitants of Istanbul, competing for egress with tourist ferries, fishing boats, cargo ships, and other passenger craft--more than 2,000 crossings daily for local traffic.

Quarter-million-ton oil tankers move through this floating chaos at the rate of two an hour. Think of the Bosporus as Houston, Denver, or LA at rush hour. The larger tankers require a portion of the strait to be shut down to two-way traffic during transit, further aggravating an untenable situation. Besides the Istanbul obstacle course, the 17-mile journey includes 12 significant course corrections, some of them by quarter-million-ton vessels turning waterway corners totally blind.

Jason and the Argonauts transited the strait a long time ago. Others followed, but not all successfully. The Turks have ample reason for concern. There have been more than 200 accidents in the strait over the last decade. These include accident-related oil spills and tankers that lost control and grounded themselves just feet away from residences along the waterway.

The Turks have attempted to get the situation under control and hired Lockheed Martin Corp. to construct a $20-million ship traffic control system that relies on radars and satellites.

But the best solution is to bypass the Bosporus bottleneck. Ceyhan is a deepwater port that can load larger tankers. Furthermore, pipelines traversing Turkey have geopolitical significance for a nation interested in closer ties to the West, including potential membership in the European Union. However, the Russians, who have generally opposed the pipeline because it does not pass through their territory, argue that the BTC pipeline will remove a couple of tankers a day at most from the floating traffic jam.

The Bosporus bottleneck is just one more item in a nervous global oil market where demand continues to grow--it now tops 80 million barrels per day--and supplies tighten.

It will be awhile before global oil markets--and tankers waiting to traverse the Bosporus--find smooth sailing.