Q&A: Does Turkey-Armenia deal affect European energy security

(Reuters) - Armenia stands to make huge economic gains from an open border with Turkey, and Ankara can claim a diplomatic triumph if the neighbors see through a promise to restore ties after 100 years of hostility.

The deal, announced Monday, could see a re-alignment of interests in the South Caucasus, for centuries the backdrop for big-power rivalry over the strategic crossroads between East and West and its energy resources in the Caspian Sea.

But it stands to upset Turkish ally Azerbaijan, a supplier of oil and gas to the West.

HOW WILL THE AGREEMENT AFFECT EUROPEAN ENERGY SECURITY?

The move may have negative consequences for European energy security aimed at reducing dependency on Russia.

Azerbaijan, Europe's key hope for supplying gas for the proposed Nabucco pipeline that would run through Turkey and cut Europe's energy dependence on Russia, has warned any deal between Turkey and Armenia that does not include Armenian concessions on Nagorno-Karabakh would run counter to Azeri national interests.

Some analysts have warned it may push Azerbaijan toward Russia, which is offering to buy all their gas at European prices. Other analysts say it is unlikely Baku will redirect all its supplies through Russia.

In March, Azeri state energy firm Socar signed a memorandum with Russian gas export monopoly Gazprom on starting talks on Russia buying Azeri gas from 2010 for export to Europe.

Turkey is also trying to negotiate a natural gas deal with Azerbaijan. Souring of relations between Turkey and Azerbaijan could put that deal at risk.

WHY IS THE BORDER CLOSED?

Turkey closed its land border with Armenia in 1993 in support of ally Azerbaijan during war in Nagorno-Karabakh, a mountain region in Azerbaijan where ethnic Armenians broke away with the backing of Yerevan.

Turkey and Armenia track their own disagreement to the mass killings of Armenians by Ottoman Turks in 1915. Turkey accepts that many Christian Armenians were killed by Ottoman Turks but denies that up to 1.5 million died as a result of genocide. Turkey also objects to Yerevan's claims on some of its land.

WILL IT BOOST TURKEY'S EU BID?

While the EU has no specific policy regarding Turkey opening its border with Armenia, the bloc has said it would be beneficial for relations between the EU and Turkey as it would add to the overall stability of the Caucasus.

Huge Pope, an analyst with the International Crisis Group, said on Tuesday: "A real peace deal or normalization with Armenia will do more for Turkey in Europe than Cyprus. EU accession will grind to a halt this year and if Turkey can show it is dealing with Armenians, this will be major."

WILL THE AGREEMENT AFFECT THE STATUS OF NAGORNO-KARABAKH?

Hard to tell. The dispute between Azerbaijan and Armenia over the Caucasus mountain enclave is one of the most intractable conflicts arising from the Soviet Union's collapse. The Minsk group -- set up in 1992 and co-chaired by Russia, the United States and France -- is seeking a solution, and says it is on the verge of a breakthrough. But analysts say it is very difficult to call.

Some point to Azerbaijan's relatively tempered reaction to Monday's announcement as a sign perhaps the Turkish-Armenian thaw might go hand-in-hand with progress on Nagorno-Karabakh.

Baku, which has close linguistic and cultural ties with Ankara, fears losing leverage over Christian Armenia in the dispute if Turkey reopens the border with Armenia and restores full diplomatic relations.

WILL IT BOOST INVESTOR CONFIDENCE IN TURKEY?

The agreement could have positive implications for investors if Turkey can use it to its advantage in its EU negotiations, convincing Brussels that it is on the side of stability in the region and is a key energy transit state. The agreement itself is not market moving. A possible open border would also mean greater trade between Turkey, Armenia and Europe.