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Iran: Tehran Starts Gas Supplies To Turkey

Iran and Turkey have broken a deadlock with the first shipment of gas between the two countries this week. The breakthrough is a long-awaited success for Iran, but deliveries may still depend on Turkey's economic recovery next year.

Boston, 12 December 2001 (RFE/RL) -- The first flows of Iranian gas started moving through a pipeline to Turkey on 10 December, bringing a possible end to a controversy that has lasted for over five years.

The beginning of deliveries announced on 11 December by Turkish Energy Minister Zeki Cakan marks the first major success for Iran in exporting gas to its neighbors, despite the fact that it holds the second-largest gas reserves in the world.

For years, Iran has wasted much of its gas in flaring, or open burning, while it pumped as much as one-third of its production back into the ground to pressurize declining oil fields.

Tehran's dependence on oil revenues and its lack of export outlets produced a long lag in its gas sector, which could now be set to turn around. In addition to reaching the Turkish market after many delays, Iran has hopes for pipelines to Pakistan and India from its huge South Pars gas field in the Persian Gulf.

But the breakthrough with Turkey comes only after a lengthy series of setbacks that may raise doubts about whether all the problems have been solved.

Under an agreement signed in 1996, Iran was supposed to start pumping gas to Turkey by the end of 1999 in a 23-year deal that was valued at some $20 billion. The pact was strongly opposed by the United States when it was signed by the Islamist government of the former Turkish prime minister, Necmettin Erbakan.

The plan for the 2,500-kilometer pipeline between the two countries was specifically aimed at avoiding U.S. sanctions on investment in Iran by making each country responsible only for work on its soil, with the two lines meeting at the border town of Bazargan.

U.S. opposition seems to have played some part in the problems that followed, but most were the result of troubles on either the Iranian or the Turkish side. In Turkey's case, the country has struggled to reconcile its ambitious growth projections with a series of shocks including a 1999 earthquake and two economic crises.

In February 2000, Turkish officials conceded they were not ready to accept the gas after Iran threatened to impose $200 million in fines under its take-or-pay contract. The countries then agreed to a new deadline of 31 July 2001, extending the deal to 25 years.

But Turkey stalled again, citing Iran's failure to build a metering station at Bazargan to measure the gas by international standards. Even in announcing the first deliveries of gas this week, Turkey's energy minister said, "there are still some problems with the measuring facility that have not been resolved," according to AP.

That reservation could spell conflict for the future, especially when payments under the contract come due. An industry source said this week that Turkey has been persuaded to end its foot-dragging because it fears that Russia's Blue Stream project to pipe gas across the Black Sea will not be completed on time next year.

An official of Italy's ENI, which is a partner in the project with Russia's Gazprom, was checking on the report yesterday but said the underwater section of the line has been on schedule so far.

With the passage of years, the value of the Iranian contract may have increased. On 11 December, Iran's official news agency IRNA cited an estimate of $30 billion, making it one of the region's biggest energy deals.

Turkey is expected to buy only 165 million cubic meters of gas from Iran by the end of this year. But the volume will rise to 4 billion cubic meters by the end of 2002 and will reach 10 billion in 2007, Cakan said.

Turkey still seems to be caught between its economic troubles and its plans for recovery. Turkey's gross domestic product fell 6.4 percent in the first three quarters of this year, the State Institute of Statistics reported this month. The drop suggests a steeper decline than the 4.3 percent projected by the International Monetary Fund for 2001.

Ankara also reported an 8.5 percent overall contraction in the economy in the first nine months, without providing a definition. But Cakan predicted last month that Turkey's electricity consumption would rise this year by between zero and 1 percent, a possible sign that the recession is not as deep as official figures suggest. The IMF has forecast a 5.9 percent rebound in GDP next year.

It is still hard to tell what will happen if recovery fails to materialize and Turkey is swamped with both Russian and Iranian gas next year, in addition to supplies from other countries. Ankara has also agreed to buy gas in the future from Azerbaijan.

Turkey remains behind on its plans to build new power plants as a result of its economy and a scandal in the energy sector. Plans for new pipelines to sell excess gas to Europe have also yet to be realized.

Although the start of gas supplies from Iran may end an old argument, it may not end all the problems. But it now seems that both countries share an interest in Turkey's recovery.