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Iran: Turkey Agrees To Receive Gas Under Tehran Legal Threat

After long delays and threatened legal measures, Turkey has promised to take delivery of Iranian natural gas in December. But Turkey's slumping economy makes it unclear what it will do with gas from both Iran and Russia.

Boston, 14 November 2001 (RFE/RL) -- Turkey is vowing to start buying gas from Iran on 15 December following a threat of legal action against further delays.

On 10 November, Turkish Energy Minister Zeki Cakan cited the new date for gas imports after Iran's oil minister said Tehran would sue to enforce a supply contract that was signed in 1996. The 25-year gas deal has been valued at more than $20 billion.

Oil Minister Bijan Namdar Zanganeh said, "The final deadline for Turkey's import of the Iranian gas has expired, and legal issues are followed," Iran's official news agency IRNA reported.

The threat is the latest episode in one of the region's biggest energy deals, which also marks Iran's first export of gas. Although the country has the world's second-largest reserves after Russia, it has been slow to develop its gas resources and even slower to find markets abroad.

But complications in dealing with Turkey have added to the troubles for Iran. So far, more than 2,500 kilometers of pipeline have been built on the territories of both countries at a cost of $300 million for Iran and $1 billion for Turkey. But no fuel has flowed.

Cakan's latest pledge was reported by the "Turkish Daily News" without an explanation of the specific date of 15 December. Officials of the Turkish state pipeline company Botas have been saying since October that Iran's work on a metering station to measure the gas at the border should be done by mid-December so that deliveries could begin.

Iran says the station has been finished for months, but Turkey claims it does not meet international standards. Zanganeh says the work is open to inspection. Turkish officials have already visited the facility several times.

Turkey has cited the metering station problem in demanding a delay since last 30 July, the most recent of several missed deadlines for the deal. Before that, the supplies were supposed to have started last March. Before that, January 2000 was the agreed-upon date. Before that, deliveries were expected in 1999.

Iran has previously threatened to seek fines of $200 million against Turkey, resulting only in a two-year extension of the contract, which was signed with the Islamist government of former Prime Minister Necmettin Erbakan despite U.S. objections five years ago.

Although each setback has had separate reasons, there appears to be little doubt that Turkey has been stalling this year because of an economic crisis that erupted last February. Officially, the country has not altered its forecasts that its gas demand will rise fourfold by 2010.

But Turkey's industrial output has dropped by 7.5 percent in the first three quarters of this year and 9.2 percent in September. The huge Russian project known as Blue Stream to pipe gas across the Black Sea is expected to start pumping in March 2002. It is unclear what Turkey will do with both Iranian and Russian gas in the near term.

In the long term, pipelines may carry the excess to Europe, but transit lines have yet to be built. Turkey's projects for new power plants to use imported gas have also fallen behind.

Yet Turkish officials have been concerned with the opposite problem of energy shortages. On 12 November, Energy Minister Cakan gave assurances that there would be no power cuts next year because of investments in major projects, the newspaper "Turkiye" reported. The International Monetary Fund has forecast a strong economic recovery over the course of next year.

Cakan mentioned the Blue Stream and the Baku-Ceyhan oil pipeline projects but apparently not the line from Iran. The omission may raise new doubts about the 15 December date.

The problem of the Iranian gas deal has taken place amid fragile relations between Tehran and Ankara. Recently, Tehran raised objections to Turkey's plans to send special forces to Afghanistan, which borders Iran. In August, the two countries also exchanged words over Turkey's support for Azerbaijan following a confrontation with Iran in the Caspian Sea.

Fulfillment of the gas deal may now be needed to get tensions under control.

But a report on 9 November raised further questions about Botas and its readiness to pay for more gas. Turkey's Anadolu news agency quoted Economy Minister Kemal Dervis as saying the pipeline monopoly needs $170 million to $200 million per month to pay for gas supplies. The company's income from domestic gas sales is being converted into dollars and used "in foreign repayments," Dervis said.

The statement seemed to convey little confidence that Botas will be able to fund gas purchases from both Russia and Iran in the next four months. Both countries have take-or-pay contracts that are supposed to guarantee the sales.

The "Russia Journal" also reported on 12 November that Botas will be required to start shifting some of its contracts to other companies in 2002 under a new gas market law passed last May. The change is likely to involve more negotiations and complications with suppliers like Russia and Iran.