Publication: Eurasia Daily Monitor Volume: 4 Issue: 208

Iran and Turkey are broadening their energy cooperation to include electricity. According to recent statements by Turkish Minister of Energy Hilmi Guler, Ankara is determined to proceed with energy agreements signed with Tehran earlier this year. Specifically, on August 20 Turkey signed a deal with Iran to import 3–6 billion kilowatt-hours of electricity from Tehran annually. In return, Turkey has said that it will build three natural gas transformation power plants, with a capacity of 2,000 megawatts, in Iran.

He reiterated Turkey’s intentions in response to a question posed by a reporter during a press conference held in Istanbul over the U.S. reaction to Turkey’s energy deals with neighboring Iran (Anka, November 2).

An Iranian technical delegation is to visit Ankara, arriving November 9 to lay groundwork for an upcoming visit by Iranian Electricity Minister Parviz Fattah. The two countries are expected to conclude an agreement regarding the connection of electricity lines between the two countries during that visit. This development could pave the way for building natural gas plants in both Iran and Turkey, Guler said. The electricity line connections between Iran and Turkey are planned to be finished in a year.

“Iran seeks [a contractor in] the Turkish private sector to construct a 10,000-megawatt hydroelectric power plant in this country,” he explained. “Once we conclude a deal with the Iranian Minister of Electricity [Fattah], Iranian Oil Minister Seyyed Kazem Vaziri-Hamaneh will visit Ankara. There has been no change in the earlier planned schedule with Iran on energy deals. Thus, both this month and the coming month will be a very important period” regarding energy deals with Iran, he said.

In July, Iran and Turkey signed a memorandum of understanding, valid for six months, that should pave the way for $3.5 billion worth of Turkish investment in Iran’s South Pars gas field on a buy-back basis. The deal would also turn Iran into a transport country for Turkmen gas on its way to Turkey. The Turkish Petroleum Corporation (TPAO) hopes to start investing in Iran’s South Pars gas field project as soon as an agreement is signed, likely later this year.

Turkey depends on foreign sources for almost 80% of its oil and gas needs, and Iran is Turkey’s second-largest natural gas supplier after Russia. Consequently, Ankara has strengthened energy ties with Iran in recent months, despite protests from the United States, which opposes trade and investment with Iran because of its failure to suspend its nuclear energy program.

Washington criticized the July memorandum of understanding, reminding NATO member Ankara of the existing sanctions against Iran while stressing U.S. commitments to pursue Trans-Caspian energy policies that bypass the busy Dardanelles and Bosphorus Straits, as well as avoiding routes that pass through Iran.

Under a 25-year, $30 billion contract signed between Iran and Turkey in 1996, which went into effect in December 2001, Iran has exported a cumulative 20.74 billion cubic meters of natural gas to Turkey.

U.S. sources in Ankara told Jamestown that Washington does not object to Turkey’s imports and exports of gas and oil, but it is troubled by reports that Turkey might invest in Iranian efforts to build power plants.

The Iran Sanctions Act of 1999 states that any foreign company that invests more than $20 million in Iran’s gas and oil sector is subject to U.S. sanctions.

But due to its significant concerns over its increasing energy needs, Ankara seems determined to press ahead with its Iranian energy deals, provided that Ankara will ensure maximum guarantees from Tehran for its own energy security.

“If the United States is able to speed up plans for Iraqi exports of gas and oil via Turkey, Ankara may then consider delaying or halting energy deals with Iran. Alternatives such as shipping gas via Central Asia fail to meet Turkey’s urgent energy needs,” said an energy ministry official.

Furthermore, in return for investment, Iran should agree to reduce the price of gas that it has been selling to Turkey and to withdraw its claim from an international arbitration court that is currently examining both countries’ complaints over gas prices.

Meanwhile, according to the latest data from the Turkish Statistics Board, one-fifth ($23.3 billion) of Turkey’s total imports in the first nine months of this year consisted of energy imports, including crude oil, fuel oil, natural gas, liquefied natural gas (LNG), and coal (Anka, November 8). Thus energy imports accounted for almost half (44.1%) of Turkey’s foreign trade deficit recorded during the same period.

Turkey’s energy imports reached to $19.6 billion in the first nine months of this year compared with $18.6 billion during the same period last year. Turkey’s total imports are estimated to reach to $166 billion this year. A deal with Iran could bring in more energy at a lower cost.