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Analysis: Turkey, Iran shiver together

disclaimer: image is for illustration purposes only
by John C.K. Daly
Washington (UPI) Jan 10, 2008
For Iranian consumers, Turkmenistan's halting of natural gas deliveries to the Islamic republic on Dec. 31 has represented a bitter New Year's present, as the country endures its hardest winter in a decade. The weather has caused 21 deaths, and Iran's northern regions are covered with nearly 2 feet of snow.

Turkmenistan halted daily deliveries of up to 23 million cubic meters to Iran because of "technical problems" and the need to undertake emergency repairs.

The incident has a feeling of deja vu. A year ago, Turkmen supplies were halted before an Iranian-Turkmen agreement was signed, stipulating that the price of Turkmen gas exports to Iran would increase and in exchange the volume of gas exported to Iran would double.

Iran can produce 440 million cu m of gas per day, with domestic consumption consisting of about 380 million cu m, having increased from last year by 12 percent. Because of limitations on the production levels, around 20 million to 23 million cu m of gas were imported into Iran each day from Turkmenistan.

Even more so than the country's oil production facilities, because of 29 years of U.S. sanctions, Iran's natural gas potential remains largely unrealized, despite having the world's second-largest natural gas reserves after Russia and in spite of Iran's efforts to maximize energy exports. Because of massive domestic demand and because U.S. sanctions have largely stymied foreign investment in developing Iran's extensive South Pars gas field in the Persian Gulf, Iran is forced to import about 5 percent of its domestic needs from Turkmenistan via the $190 million, 125-mile Korpezhe-Kurt Kui pipeline, built in 1997. Korpezhe-Kurt Kui's capacity is almost 300 billion cubic feet per year.

The unilateral Turkmen action has caused resentment in Tehran, with some Iranian media suggesting that the flow disruption might be linked to a pricing dispute.

"We have said that until the flow of gas from Turkmenistan resumes, we will not have any talks about a review on increasing the price of Turkmenistan's natural gas," Oil Minster Gholamhossein Nozari said.

The affair is roiling national politics, as on Tuesday Rapporteur of Majlis Energy Commission Emad Hosseini said the Majlis called on the Oil Ministry to reconsider the current gas deal between Iran and Turkmenistan and that the request was brought up during a meeting between Nozari and National Iranian Gas Co. officials.

Throwing cold water on Ashgabat's claims of urgently needed emergency repairs, Hosseini dismissed claims the halt had been due to technical failure and repair of pipelines, telling the official Islamic Republic News Agency: "We believe the repair, if required, should have been made in an appropriate time."

Turkmenistan's "pipeline politics" had an immediate impact far beyond Iran. After the cutoff, Iran reduced its gas exports to Turkey by 75 percent, from 20 million to 5 million cu m, as inclement weather hiked domestic demand and gas distribution to some Iranian cities was disrupted. Turkey is Iran's sole export market for natural gas, but the relationship has not been smooth. In January 2006 Iran halved its supplies of natural gas to Turkey to around 7 million cubic feet per day, citing climactic conditions and increased domestic need, while in December 2006 it temporarily shut off supplies completely.

On Jan. 8, Iran stopped all natural gas exports to Turkey as worsening weather boosted domestic demand, forcing Ankara to use as much as a third of its stored fuel. The following day, Turkey halted the flow of Azeri gas to Greece because of the suspension of gas supplies from Iran. Adding to Turkish anxieties, Russia, Turkey's other main supplier of natural gas, also reduced exports, citing severe weather.

Energy-poor Turkey imports almost all its natural gas from Russia and Iran, which powers half of its power generating stations. As Turkey's economy has expanded, gas consumption has risen accordingly. This winter's usage has soared to as much as 140 million cu m, a 17-percent increase over the previous year.

According to an official at Turkey's Energy Ministry, speaking on condition of anonymity, industrial facilities and power plants aren't experiencing shortages because state pipeline company Botas is tapping its gas depot near the town of Silivri, Turkey's sole gas-storage facility, which contains enough reserves to cover the shortfall in Iranian gas for 20-25 days.

The dispute may also have its origin in additional fiscal disputes between Tehran and Ashgabat; in December the Fars news agency quoted a knowledgeable official who said Turkmenistan had defaulted on a $170 million debt that it owed Iran for construction of the friendship dam, proposing to cover the outstanding amount by exporting water to Iran instead.

Despite inclement weather and technical problems, the explanation may be simpler, that Turkmen President Gurbanguly Berdymukhammedov is simply playing by the Gazprom playbook of charging customers rates that they can (barely) bear. After all, in the last 18 months, Ashgabat has managed to force Gazprom to raise its price for Turkmen gas from a paltry $65 per 1,000 cu m to a current rate of $130, which will soar to $150 by year's end. Berdymukhammedov may simply be reprising his tough bargaining position for leverage against Iran. In a world of $100-per-barrel oil, doubtless Ashgabat feels its consumers are getting a bargain, however much they complain, and if they don't like the post-Soviet market realities, they can always shop elsewhere.


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