Turkey negotiates with Iran for better gas deal

by Dr Hooman Peimani

Turkish Minister of Energy Zaki Chekan arrived in the Iranian capital of Tehran to negotiate Turkey's resumption of imports of Iranian natural gas, which the Turks stopped in September for its "poor quality". As the quality has remained the same as agreed when the export began in December 2001, evidence suggests that Turkey's poor economy and American efforts to isolate Iran are the main reasons for the latest situation.
According to Chekan, three major issues needed to be resolved between the two countries: The lower than agreed quality of the exported gas, the annual amount of exports, and their price.
Being raised after nine months of imports, the quality issue seems to be nothing more than a ploy to create grounds for renegotiating the gas agreement. The Iranian oil ministry's readiness to let foreign experts test the gas quality confirms this point. Thus, apart from a political factor, two economic reasons seem to be the major reasons for the dispute.

According to the Turkish-Iranian gas agreement, Turkey is obliged to import from Iran 4 bn cf of gas this year. The annual import will increase to 10 bn cf by 2010. In reality, Turkey does not need and cannot afford such imports. In determining their future annual gas requirements in the 1990s, the Turks based their calculations on unrealistic economic growth rates.
They therefore signed agreements for large annual imports from Iran, Russia, Azerbaijan, Turkmenistan, Egypt and Nigeria. Not only have those economic growth rates not been achieved, Turkey has experienced a severe economic recession since 2001, while its foreign debt has soared to over $ 100 bn. Unsurprisingly, its gas consumption is estimated to decrease by 14 % in 2002 compared to that of 2001.

Given this situation, the Turks must convince the Iranians to agree on a lower amount of annual exports and on a price reduction since the Turks state that the agreed price is now very high for them. As the Russians, who have recently begun to export gas to Turkey via a sea-based pipeline, have been forced to give a 9 %-discount on their gas price, the Iranians may find it difficult to insist on their current price.
Thanks to the American pressure, the discount is estimated to help Turkey save about $ 280 mm on its gas imports from Russia over the next three years. Legally speaking, Turkey is in violation of its agreement signed with Iran about six years ago. At that time, the two sides agreed on a schedule for annual gas exports from Iran to Turkey at a certain price. Iran has invested in a pipeline for this purpose based on a specified amount of exports at a sensible price justifying its investment. However, from its beginning, Turkey has failed to meet its obligations under the agreement. Its failure to finish its part of the pipeline on time delayed the exports by several months.

After that costly delay for Iran, Turkey unilaterally stopped importing after only nine months, creating both financial losses and technical difficulties for Iran, which now has to divert the ready-to-export gas to other projects, such as injecting its oil wells. Since the Iranian-Turkish gas agreement is based on the concept of take or pay, Turkey is compelled to pay for the amount of agreed gas exports, which it has refused to deliver. However, that would require a lengthy legal battle, which Iran does not seem to be interested in, at least for political and security reasons.
As the deployment of American troops in Afghanistan, Pakistan, Central Asia, the Caucasus and the southern Persian Gulf countries has almost completed Iran's encirclement by the hostile Americans, the Iranian government does not wish to deteriorate its ties with Turkey, a NATO country hosting American military forces, to create grounds for hostility from the Turks as well. No wonder if Iranian Minister of Oil Bijan Namdar Zangeneh has not rejected Iran's willingness to accommodate Turkey's requests.

Commenting on his talks with his Turkish counterpart and the possibility of Iran's flexibility, he stated on October 7, "In trade negotiations, everything is possible." Turkey's mentioned economic difficulties have been part of the reason for its sudden cut of gas imports. Yet it is not a secret that the American pressure on the Turks has played a significant role in their behaviour.
Being contrary to the American policy of isolating Iran and weakening its economy, the Americans have opposed the deal since the Turkish government under the Welfare Party (Refah), a party with religious tendencies and a positive attitude towards Iran, signed the agreement in 1996. For that matter, the American considered to apply the D'Amato Act to Turkey providing economic sanctions on countries or companies investing in the fossil energy industries of Iran and Libya.

Apart from technical difficulty of applying the act, as the gas agreement did not require Turkey's investment in Iran, the Americans decided not to impose any sanction on Turkey, mainly to avoid a conflict with their regional ally, although the agreement violated the spirit of the act seeking to deny Iran economic gains. Nevertheless, they did not hide their disappointment as the export of Iranian gas to Turkey via an Iranian pipeline weakened the American case to push for the controversial Baku-Tbilisi-Ceyhan oil pipeline aimed at bypassing Iran and Russia for the long-term export of Caspian oil.
The Americans and the Turks have been its major promoters, which, if fully operational, could significantly increase Turkey's international status, while generating for it a significant annual income.

Turkey's cutting its imports a few days before the pipeline's construction began in mid-September suggests political considerations as a factor in Ankara's decision. Regardless of the Americans' hope, Turkey cannot abrogate its gas agreement with Iran without paying a price in cash and in deteriorating its ties with a large neighbour.
However, it has certainly taken advantage of a guaranteed American backing in its dealing with Iran tosqueeze the Iranians for concessions when they are in a tight economic and political spot, a function of their international isolation. As Tehran is becoming increasingly concerned about the American policy towards Iran and its surrounding regions, the Turks may eventually get their desired gas deal from a fearful regime eager to secure Turkey's friendship.

Dr Hooman Peimani works as an independent consultant with international organizations in Geneva and does research in international relations.