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Turkey and Iranian Oil

One of the obstacles, if not the largest obstacle, to peeling Turkey away from Iran is the economic ties between the two, particularly when it comes to energy. Turkey imports 90% of its oil, and Iran was its largest supplier until 2007 when Russia took the top spot. Through March of this year, Turkey was importing 200,000 barrels per day from Iran, which accounted for 30% of Turkey’s oil imports and 7% of Iran’s oil exports. This is obviously a huge barrier for the U.S. to gaining closer cooperation from Turkey in pressuring Iran over its nuclear program, and the announcement last month that Turkey was slashing its oil purchases from Iran by as much as 20% was accordingly a big deal.

Turkey does not import oil from Iran because it is necessarily a supporter of the regime, but because Iran has been a convenient source. There are, however, real bilateral energy issues between the two that make Turkey receptive to U.S. entreaties to get its oil from elsewhere. Turkey consumes around 1.3 trillion cubic feet of natural gas annually and it imports 24% of its gas from Iran, but Iran charges Turkey more than $500 per 1000 cubic meters of gas, which is more than it charges any other country and $100 more than the market price. In contrast, Turkey pays $350 for gas from Azerbaijan and $400 for Russian gas. Turkey is stuck because it signed a 25 year deal with Iran in 1996 and because it has no way of replacing Iranian gas imports, which Tehran knows full well, and in the last few weeks Turkey has taken Iran into international arbitration over its natural gas price gouging. The gas price has become an even bigger problem in the past year as energy prices have risen across the board fueled by insecurity about global energy supplies, which led to a 40% increase in Turkey’s energy imports in 2011 as compared to 2010. The point here is that Turkey may very well be actively looking into ways to reduce its reliance on Iranian oil anyway, U.S. pressure or not. The agreement to buy oil from Libya in conjunction with reducing Iranian imports is a good first step, since it gets Turkey’s foot in the door with the new Libyan government, and might eventually lead to Saudi concessions on price as well.

It is in this context that today’s news that Turkey is starting oil and gas drilling in northern Cyprus should be viewed. Obviously this is partly a response to Cyprus’s own oil and gas exploration, but TPAO’s drilling is not merely symbolic. Turkey’s energy needs are enormous and growing, and the question is whether it will have to continue relying on Iran or if it can fill the gap somewhere else. If the answer ends up being the latter, it will have the effect of isolating Iran further and making a resolution to the nuclear issue that does not involve military strikes more likely. To that end – and to continue beating a dead horse from previous posts – a Turkish-Israeli rapprochement would help Turkey soften the blow from Iranian natural gas once the Tamar and Leviathan natural gas fields are up and running in 2013. In any event, keep an eye out for Turkey exploring any possibility open to it as far as oil and gas are concerned, since that will yield clues as to how the Iranian nuclear standoff is likely to be resolved.

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