Behind the façade of maintaining good neighborly relations with Iran as often portrayed in the public remarks of Turkish officials, there is a starkly different picture in reality driving the policies of the Turkish government. I hear, for example, that during Cabinet meetings, Turkish Energy Minister Taner Yıldız, frustrated at the Iranian government’s no-good promises for years, was lashing out at Iran while publicly limiting his remarks to the point that Turkey and Iran will continue to trade in gas and oil.
Turkey understands very well the risks associated with the energy deals it has with the overzealous mullah regime in Tehran that has made a habit of cloaking Persian nationalist policies under the guise of Shiite ideology. Frankly, it does not need US or EU sanctions to remind it of the risks of engaging with Iran. Quietly but surely, Ankara has already been implementing an action plan to replace its dependency on Iran, be it for natural gas or oil. Therefore, no matter how many times you hear a Turkish minister utter a statement saying that Turkey will only stick to the UN-imposed restrictions on Iran and will blatantly disregard the unilateral US or EU sanctions, it does not mean anything but a lot of hot air.
For example, Turkey has effectively abandoned an agreement to develop gas fields in Iran’s South Pars that was part of a deal signed in October 2009 during Prime Minister Recep Tayyip Erdoğan’s visit to Tehran. The joint development project, contracted to the Turkish Petroleum Corporation (TPAO) as the lead investor, was valued at $6 billion. The deal was also aiming to bring Turkmen gas to Turkey and Europe via Iran as well. Now it has fallen apart after Turkey gave up on the development prospects. The fact that the Iranians tried to shortchange Turkey by offering not-so-promising fields did help the cancellation, of course. Objections from the US to the deal were duly noted in Ankara’s diplomatic circles, but were not the decisive factor in the Turkish decision to cancel it.
We have known for some time that Turkey has been working to diversify its suppliers in oil and gas, effectively increasing the number of countries from which it imports, from five to nine in gas and from 11 to 18 in oil. The US and EU sanctions on Iran have simply hastened this search, giving a serious nudge to Turkish officials to act. For the time being, Ankara is talking to Libya, Nigeria, Saudi Arabia, Russia, Kazakhstan and Iraq to increase the volume of its exports to make up the projected shortfall in Iranian oil imports. It has even offered Venezuela the opportunity to build mass housing projects in exchange for crude oil while speeding up its own exploration schemes in the Black Sea, the Mediterranean and in the southeastern part of the country.
All this points to one thing: Turkey is seriously disengaging from Iran in the trade of strategic commodities like gas and oil. Let’s review the steps that have been taken this year so far. The 2011 agreement with Libya covering 1 million tons of crude oil annually is expected to be renewed for another term and the volume will be adjusted as well. Considering that Turkey imports 9 million tons of crude oil from Iran, Libyan exports to Turkey correspond to 12 percent of the volume Turkey obtains from Iran. In recent months, Turkey has already imported more than a million barrels a month from Libya. It has also bought spot purchases from Saudi Arabia and will continue to do so in the short term until an official long-term contract agreement is in place. Another contingency on the table is to increase the volume of oil Turkey extracts from the Kirkuk-Yumurtalık oil pipeline that carries Iraqi oil to a Mediterranean port in Turkey.
During Erdoğan’s visit to Tehran in late March of this year, officials from Turkey’s largest conglomerate, Koç Holding, which owns the country’s sole oil importer, Turkish Petroleum Refineries Corporation (Tüpraş), told Iranian officials that the company will reduce oil imports from Iran by 20 percent with further cuts under review. Obviously Tüpraş’s decision to slash imports from Iran was made with pressure from the Turkish government being exerted on the company.
When the existing Tüpraş oil contract with Iran ends in August, we will likely see further reductions on Iranian oil under the looming threat of placing Turkey on the US sanctions list ahead of the June 28 deadline. Turkey did not qualify for a group of 11 countries the US exempted from its sanctions list and realizes it needs to make drastic reductions in Iranian oil imports before it qualifies for US President Barack Obama’s waiver. The good news is that, according to the Energy Market Regulatory Agency’s (EPDK) latest report for February, there was a dramatic drop in Iranian imports. The crude oil Turkey imported from Iran in February was down to 401,000 tons from 865,000 tons in January, a decline of 54 percent. As such, the share of Iranian oil in Turkey’s overall oil imports dropped from 43 percent in January to 19 percent in February. Turkey made up the shortfall with a surge in imports from Nigeria, Iraq, Russia and Libya in February.
The Turkish government is also talking to Russia, Qatar, Algeria and other suppliers to reduce its dependency on natural gas from Iran as well. The fact that Iranian gas flowing to Turkey is way too expensive compared to Russian or Azerbaijani gas also confirms the common perception in the Turkish capital that Tehran does not play fair. For example, Turkey currently buys one cubic meter of Azerbaijani gas for $330 and pays Russia $400 for the same amount. However, Iran sells its gas to Turkey for $505 per cubic meter, which increases Turkey’s natural gas bill by an extra $800 million annually. Since the price of a cubic meter of natural gas is sold for around $400 in international markets, Turkey has taken the issue to an international court of arbitration after negotiations with the stubborn Iranians failed.
Moreover, Turkey is not happy with burgeoning trade imbalance it maintains with Iran. For example, the trade volume for 2011 was $16 billion, for which Turkey paid $12.5 billion for imports, mostly gas and oil, from Iran. This volume was $10.7 billion in 2010, with Turkey exporting $3 billion worth of goods while the rest was made up of imports from Iran. In other words, the trade relations with Iran are not working in Turkey’s favor, but rather helping to widen Turkey’s current account deficit (CAD), which is one of the major headaches of Turkish economy czars. As it stands, trade relations with Iran are simply not sustainable.
Iranian oil is not the only thing that may put Turkey in Washington’s crosshairs. Hit by financial sanctions as well, Iran has been having a hard time finalizing international financial transactions with its clients, especially for oil payments. Therefore, Tehran has targeted Turkish financial and banking institutions to circumvent these sanctions. Our reporters discovered last week that Iranian banks have submitted written requests to Turkey’s watchdog agency, the Banking Regulation and Supervision Agency (BDDK), through the Ministry of Foreign Affairs. State-owned Tejarat Bank and privately owned Pasargad Bank were named as financial institutions that are seeking to establish a foothold in Turkey. However, they have a very slim chance of getting a license from the Turkish government at this juncture.
Turkey’s watchdog agency also closely monitors the activities of the Iranian Bank Mellat, which has branches in the Turkish cities of Ankara, İstanbul and İzmir. Turkey strictly complies with the letter and spirit of UN Security Council Resolution 1803, which calls on all member states to exercise vigilance over the activities of financial institutions in their territories with all banks domiciled in Iran, in particular with Bank Melli and Bank Saderat, and their branches and subsidiaries abroad.
Though Erdoğan has said both countries have set the target of $35 billion for trade volume by 2015, I don’t think he seriously believes that either. Otherwise he wouldn’t have let Tüpraş announce a cut of 20 percent on Iranian oil imports less than 24 hours before making an appearance in Tehran.
Incidentally, Erdoğan must have really gotten mad at Iranian officials for delaying the meeting scheduled for March 28 with Iranian President Mahmoud Ahmadinejad for another 24 hours, citing the president’s sudden illness. While Iranian officials say Ahmadinejad fell seriously ill and was confined to bed, he received two official delegations from abroad according to the Iranian official news agency, IRNA, on March 28. One was the Syrian president’s special envoy and Deputy Foreign Minister Faisal Miqdad and the other was a delegation headed by the vice chairman of the Turkmen Cabinet of Ministers, Baimurad Khojamukhamedov. From the pictures transmitted by IRNA to its subscribers, Ahmadinejad looked very healthy that day.
I guess the matters with Syria and Turkmenistan were so important that Ahmadinejad must have received the two delegations at his sick bed on March 28 while refusing to meet with the Turkish prime minister on the same day. Contrary to customary diplomatic traditions, there was no joint declaration or press briefing after the March 29 meeting either. Opposition parties in Turkey made a big fuss about this “one-day” delay and considered it an insult to Turkey’s pride. One deputy from the Republican People’s Party (CHP) even submitted a motion to Parliament asking for details of this scandalous last-minute deferment of the scheduled meeting between Erdoğan and Ahmadinejad. Knowing Erdoğan, he will never forget this treatment he was subjected to in Tehran.