BACKGROUND: Turkey and Iran signed a 25-year gas deal in 1996 to supply Turkey with up to 10 billion cubic metres of Iranian gas annually. The $30 billion deal was a major breakthrough for Iran. It has since remained the only significant export contract for a country that has the world’s second largest gas resources, but whose share of international exports is about 0.5 percent. Despite Iran\'s enthusiasm, Turkey\'s serious financial problems delayed the construction of the required pipeline (2,577 kilometre) connecting Ankara to Iran\'s northeastern city of Tabriz, which is in turn linked to the gas resources of the southern Iranian Province of Khuzestan. The pipeline became operational in December 2001, but Turkey stopped gas imports in September 2002, citing their poor quality. The October visit to Tehran of then Turkish Energy Minster Zeki Cakan to renegotiate the Turkish-Iranian gas deal suggested that this may have been an excuse for the Turks to decrease their committed amount of annual imports and to reduce the price. Turkey’s phenomenal financial crisis of 2001, followed by a severe recession, sharply decreased its gas requirements calculated in the 1990s, based on a very optimistic long-term economic growth rate. It therefore sought to secure gas suppliers to meet its expected growing gas consumption in the first decade of the 21st century through agreements with many gas exporters, including Iran and Russia. Facing a free fall of its economy in 2001, it neither needed nor could afford huge amounts of gas imports. Thus, it first demanded and received a nine-percent discount from Russia, which could not leave idle its undersea Blue Line pipeline built exclusively to supply Turkey. Building on that precedent, Cakan demanded and obtained an unknown price reduction on imports from Iran, while removing its legal commitment under the 1996 agreement to import large and growing amounts of gas from that country.

IMPLICATIONS: The same reasons that forced Ankara to seek a price reduction previously, prompted it to call for another round of negotiations with Tehran in 2004. Turkey’s Minster of Energy and Natural Resources, Hilmi Guler, is expected to visit Tehran in early March to negotiate with Iranian Minster of Oil Bijan Namdar Zanganeh. Quoted in Iranian daily Siasat-e Rouz, Guler clearly stated that Turkey could no longer import gas from Iran at the current price. He also made it clear that his desired price reduction would not solve Turkey’s import problems even in the short term. Thus, presumably, economic pressures would likely force it to demand further reductions in the future as he would \"discuss with Iranian officials the addition of a clause to the two countries\' energy agreements in order to be able to change prices at \'certain times\'\". Iran is clearly dissatisfied with another demand for price reduction. Late in February, the National Iranian Gas Company’s Chief (Mohammad Mallaki) even rejected any reason for renegotiating the Iranian-Turkish gas deal. However, economic imperatives pressured the Managing Director of the National Iranian Gas Export Company (Roknoddin Javadi) to soften that firm position by saying that his company was \"considering Ankara\'s call on Tehran to renegotiate the gas prices.\" It is almost certain that the same considerations, which made Tehran accept Ankara\'s 2002 demand, will likely incline it to accept a new price reduction. Additionally, Russia\'s recent discount on gas exports to Turkey, the second since 2001, has put Iran in a tight spot in the pricing of its gas exports. Hence Guler expressed hope on February 26 that he would convince his Iranian counterpart to accept a lower export price based on that reality. Regardless of its degree of success in its talks with Iran, Turkey is clearly unable to import any additional amount of gas from any new supplier, including Turkmenistan. In 1996 Turkey signed a trilateral contract with Turkmenistan and Iran for exporting Turkmen gas to Turkey and Europe via Iran. The contract is yet to become a reality, although Shell conducted a feasibility study in 1997 with positive results. In that year the American government\'s reluctant exclusion of the contract from its sanctions on Iran as requested by Turkey and Turkmenistan facilitated its implementation as it eliminated U.S. punitive measures against would-be non-American investors in the pipeline project. Lack of investors to connect the Turkmen gas pipeline to the Iranian-Turkish gas pipeline has since been a major obstacle to its implementation. The growing involvement of especially European oil companies in Iranian energy projects is now creating hope for its financing. Yet, funds availability is insufficient for its implementation. Turkey\'s economic problems is still a major hurdle since it cannot possibly import large amounts of Turkmen gas in addition to its current imports. In such situation, the lack of a project to connect the Iranian-Turkish pipeline to Greece or Bulgaria removes the possibility of implementing the trilateral project to export Turkmen gas to Europe via Turkey in the short term.

CONCLUSIONS: Iran\'s heavy investment in its infrastructure to export gas to Turkey will likely force Tehran to show flexibility in its negotiations with the Turks for fear of a total cut off of Turkish imports. While this reality should address Turkey\'s import problems for a while, Ankara\'s policy of renegotiations with Iran and Russia has questioned the survival of the Turkey-Iran-Turkmenistan gas deal. Ankara\'s inability to commit to a steady import of Russian and Iranian gas at an agreed price even after renegotiations suggests that this factor, among others, will likely prevent the Turkmenistan gas deal’s implementation at least until certain changes take place: these include, a major and sustainable economic recovery in Turkey to substantially increase its domestic gas requirements; and/or the construction of a pipeline connecting the Iranian-Turkish pipeline to Europe to make feasible Turkmen gas exports to Europe.

AUTHOR’S BIO: Dr. Hooman Peimani works as an independent consultant with international organizations in Geneva and does research in International Relations.