Turkey's Iranian Oil Dilemma

Article Summary
The US has been pressuring Turkey to join in on sanctions against Iran’s oil industry. However, Turkey finds itself in a unique position given the current volume and low transaction costs of its energy imports from Iran, writes Okan Muderrisoglu. Giving up Iranian oil would impact the Turkish economy.

The global "pincer" movement to rein in Iran’s nuclear program is causing significant hardships for Turkey. The US is pressuring Turkey to join in its efforts to curtail Iran’s oil and natural gas sales. However, for Turkey, buying oil from Iran has advantages that are hard to ignore and do not make it an easy thing to give up. We keep hearing reports that US actors are monitoring Turkish banks and oil-refinery companies and that they tour their offices and issue ultimatums to “sever your ties to Iran, or else.”

We know that the oil which is now being sold for $128 per barrel now will pass the $240 mark in the case of an attack against Iran’s nuclear facilities, and that this will affect global growth.

Washington has passed special laws that target Iran’s economic interests and has secured UN sanctions which have thus far achieved effective results. Turkey’s position is more nuanced. Here, let me cite comments from three important figures on the issue:

Foreign Minister Ahmet Davutoglu: "We are bound by the UN’s decisions, and we will implement these decisions."

Minister of Energy Taner Yildiz:  "We get half of our crude oil from Iran. We are neighbors, and this puts us in a different position from other countries."

Hasan Koktas, President of the Energy Market Regulatory Authority (EMRA): "We need Iran’s heavy oil for the operation of some our own refineries, and to produce asphalt."

Iran’s vital importance for Turkey is exemplified by our oil-gas trade. Iran has a special status for Turkey, which paid $54 billion in energy imports in 2011. Turkey buys at least 40% of Iran’s crude oil, and 11 billion cubic meters of natural gas annually. These trades are carried out with each country’s respective currency. Energy imports from Iran do not add to the burden of our balance of payments. To get our energy from elsewhere would mean higher costs. Moreover as this would require payment in foreign currency, this scenario would entail another $10 billion in transaction costs at current rates. A $10 increase in oil prices would mean $4 billion in additional costs to the Turkish economy. 

Local elections are coming up in 2014, which will mean a higher demand for asphalt. If we take this fact into account, it won’t be easy to give up Iranian oil.

Found in: us sanctions, us, turkish energy imports, turkey, sanctions on iran, oil prices, oil, natural gas, international trade

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