Turkey said this week that it stopped buying Iranian gas more than two months ago because of quality problems with the pipeline supplies. The dispute marks the latest trouble in a 25-year deal that promised Iran a gateway for exports to Europe, but it could also raise concerns for other countries that rely on contract pledges for big investments in pipelines.
Boston, 11 September 2002 (RFE/RL) -- After months of speculation, Turkey announced this week that it has halted gas imports from Iran, citing problems with the quality of the fuel. Speaking at a press conference in Ankara on 9 September, Turkish Energy Minister Zeki Cakan said, "We have stopped taking gas from Iran since 24 June because of problems with the composition of the gas."
According to a Reuters report, Cakan gave assurances that Turkey would soon have access to alternate supplies from Russia's underwater Blue Stream pipeline, which is due to start pumping across the Black Sea next month. Cakan said, "We will buy as much gas as we want in 2002 from Blue Stream." Turkey would renew the Iranian gas service when it meets contractual standards, the minister said.
In Tehran, Iranian Oil Minister Bijan Namdar Zanganeh denied that there was anything wrong with his country's gas, saying, "Iran is ready to dispatch international inspectors to test the gas quality."
Zanganeh blamed the interruption on Turkey's lagging demand due to its economic slump. He said Turkish gas officials had raised the issue repeatedly in talks before the cutoff, the official Iranian news agency IRNA reported. He also hinted that Iran could seek penalties against Ankara for breaking its purchase pledges. Zanganeh said, "With respect to the take-or-pay clause in our contract, it does not seem that a cut of supply would be to the benefit of Turkey."
The dispute is the latest hitch in Iran's controversial 25-year export deal, which was originally valued at $20 billion when it was signed with Turkey in 1996. Gas started flowing last December after a long series of delays blamed on a host of causes including slow pipeline construction in Turkey, even slower economic growth, Iran's failure to finish a metering station, and U.S. opposition to the trade.
The biggest factor may be Turkey's economy, which has suffered the steepest slide since World War II in the past 16 months. But the stoppage may be less surprising than the efforts by both Turkey and Iran to keep a diplomatic silence about it for so long. Officials made no public comments on the problem when Turkish Foreign Minister Sukru Sina Gurel visited Tehran last week.
Instead several officials were left to make statements that they now may regret.
On 1 September, a member of Iran's Majlis and the Iran-Turkey Parliamentary Friendship Group, Mohammad Ali Kouzegar, denied "rumors" that Turkey would stop importing Iranian gas, saying, "There has never been a problem threatening the Iran-Turkey natural-gas deal." It now appears that Kouzegar's remark came more than two months after the trade had already stopped.
Other officials including President Mohammad Khatami, Vice President Mohammad Reza Aref and Foreign Minister Kamal Kharrazi praised the link to Turkey and the planned transfer of gas to Europe as a model of cooperation. All the time, the officials must have known that the gas trade had dried up. It now appears that the problem was a major topic of the bilateral talks.
Whether justified or not, Cakan's charge about quality may hardly encourage other countries to buy Iranian gas. Iran's earlier hopes for European transit and broader ties with Turkey are likely to have accounted for its diplomatic restraint.
Questions of quality may be hard to test, since Iran has no other export markets for its gas. But Cakan's claim may be clouded by a statement made in mid-July by Gokhan Bildaci, general director of the Turkish state pipeline company.
Bildaci said Botas had a right to reject sub-standard gas, although he appeared to deny a report by the Turkish daily "Radical" that there were quality problems with Iran's supplies. But according to Cakan's latest statement, the gas had already been shut off for three weeks because of the complaints. It is hard to see how both accounts could be right.
Although Turkey and Iran have kept quiet about their gas-trade figures, signs of trouble have been popping up for months.
In April, Bildaci told a conference that the country had bought 96 percent of the gas it was scheduled to take from Russia in the first three months of the year but only 50 to 60 percent of the set amount from Iran. At the time, Turkey had imported only 285 million cubic meters, compared with a commitment to buy 4 billion cubic meters of Iranian gas this year.
During Gurel's visit last week, officials also said that Turkey's imports from Iran dropped 9 percent in the first half of this year when gas sales should have produced a big boost in trade.
Turkey has repeatedly denied that it has overbought gas as a result of bad demand forecasting throughout the 1990s. But Botas has already lowered its forecasts three times this year. Cakan said on 9 September that the country had negotiated a reduction in purchases and prices from Russia so that it will only buy 2 billion cubic meters instead of 4 billion next year from Blue Stream. The concession may be bad news for Russia's Gazprom and Italy's ENI, which invested in the $2.5 billion project, although they may also have succeeded in outmaneuvering Iran.
It is unclear whether Cakan's disclosure was the result of Iran's refusal to make similar concessions. Other countries like Azerbaijan may see a chance to fill a void if the argument escalates, raising the chance that Iran will lose its opening to the Turkish market permanently. But the problem could also raise questions about the limits of take-or-pay obligations for all investors, particularly since Russia has also been persuaded to revisit its own contract terms.