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Iran and Turkey moving closer to gas deals?

The relationship between Iran and Turkey appears to be strengthening, with two potential deals on the horizon that could benefit both nations.

Earlier this year, Turkey applied to the International Court of Arbitration in a bid to reduce the price of importing gas from Iran by 25 per cent, and hopes were high that the latter country would acquiesce, though as is the case with such matters, a resolution cannot happen overnight.

One caveat was that Iran was relying heavily on oil and gas exports for revenue due to international sanctions, but that now appears to be less of a problem after the UN and Unites States both pledged to lift energy-related sanctions.

Key conditions

This will occur as long as monitors from the International Atomic Energy Agency verify that Tehran delivers on its promises reached in Lausanne recently, but again this is likely to take time.

Following negotiations between the so-called 'P5+1 group' of the US, UK, France, Germany, China and Russia, Iran will reduce its uranium enrichment programme and also limit the number of centrifuges in the country, but such a wide-ranging move cannot happen immediately, and in the meantime Iran will need to boost its profits from existing sources.

This will in part mean gas, for which Turkey pays the nation as much as $480 per 1,000 cubic metres, alongside its two other major sources - Russia and Azerbaijan.

Though an agreement resulting in a discount cannot be ruled out, Iran has yet to make any concessions so far and some analysts claim that a deal to do so is unlikely unless a new agreement is formed.

Sufficient capacity

Another issue is Iran's ability to provide the volume of natural gas that Turkey requires, with conservative estimates indicating it could be as long as five years before the nation has the capacity to do so.

On the political front, any hope of a new deal may be helped by the improving relationship between Turkish President Recep Tayyip Erdogan and Iran's leaders.

Recently, President Erdogan met with President Rouhani and Supreme Leader Ayatollah Ali Khamenei to discuss areas of mutual interest, one of which was the ongoing business relationship between the nations, including oil and gas supplies.

Following the meetings, Presidents Erdogan said Tehran and Ankara have pledged to double the volume of bilateral trade and are also taking steps to replace the US dollar as the main currency used for transactions between the nations.

Further developments

These relations could be further boosted after it was suggested that Turkey may sell part of its stake in the Trans-Anatolian Natural Gas Pipeline (TANAP) project.

The comments - made by Turkish Energy Minister Taner Yildiz - imply that such a deal would be mutually beneficial, on the proviso that Iran adheres to specific commercial conditions.

Although it is too early to report anything definite with regards to a partnership, Mr Yildiz noted that Turkey will be open to offers regarding TANAP, which will transport gas from Azerbaijan’s Shah Deniz field on the Georgian-Turkish border to the western borders of Turkey.

Current shareholders on the project, which is expected to be finished by 2019, include Azerbaijani oil giant SOCAR (58 per cent), Turkish state-owned Botas (30 per cent) and British firm BP (12 per cent).

Aside from Iran, Turkmenistan is also likely to be interested in the project, but with Turkish-Iranian relations steadily improving and bilateral trade increasing, the possibility of new deals is rising.


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