Q&A-Turkey’s energy trade with Iran

LONDON, Aug 16 (BestGrowthStock) – Turkey’s decision to sell
gasoline to Iran despite U.S. sanctions, designed to squeeze the
Tehran’s supply of petroleum products, has shone a spotlight on
the two countries’ growing trade relationship.

Turkey already buys a third of its gas imports from Iran and
is looking to expand its relationship to power sales and the
transit of Iranian gas to Europe.

Iran is the second-largest crude oil producer in the
Organization of the Petroleum Exporting Countries (OPEC) but
relies on imports for up to 40 percent of its gasoline needs
because it lacks refining capacity.

The U.S. sanctions, in addition to measures from the
European Union and the United Nations, aim to pressure the
Islamic Regime over its nuclear programme, which the West says
may be a front for building nuclear weapons.

Iran says its nuclear programme is for peaceful ends.

Will Turkey continue to step into the breach as sanctions
drive Iran’s traditional gasoline trading partners away from
dealing with the country?

HOW HAVE SANCTIONS AFFECTED THE TRADE OF OIL PRODUCTS?

Iran has been forced to look to Turkey, Russia, China and
even Venezuela for gasoline as a result of the sanctions, which
have discouraged its traditional suppliers in Europe and Asia.

After not selling any gasoline to Iran in the previous 18
months, Turkey in June started to supply the equivalent of 10
percent of Iran’s total monthly gasoline use, according to
figures from the Turkish government and Iranian oil ministry.

The sale of 1.2 million barrels netted Turkey revenues of
$121.8 million — 25 percent above the normal market rate —
even before sanctions took effect. [ID:nLDE6741UP]

Turkey’s sales of gasoline to Iran nose-dived in July as
sanctions took effect, but the Turkish Energy Minister said on
Wednesday the government would support private firms that looked
to trade refined petroleum products with Iran.

A source at state-owned oil refiner Tupras (TUPRS.IS: ), who
did not wish to be identified, perhaps summed up the current
mood in Turkey: “For us, Iran is more important than America,
because we get crude oil from them. We don’t get anything from
America.”

But not everyone in Turkey has been so relaxed about the
risk of the United States targeting companies that breach its
sanctions on Iran.

At least one tanker of gasoline meant for Iran was prevented
from sailing from Turkey in July, trade and shipping sources
said. [ID:nLDE66J1RJ]

Ship owners are concerned about the risks of shipping to
Iran after Lloyd’s of London [LOL.UL] said it would not insure
or reinsure petroleum shipments going to the Islamic Republic.
[ID:nLDE6680Z5]

Ship owners can also refuse to deliver petroleum cargoes to
Iran under a new clause developed by shipping associations.
[ID:nLDE66J0Y8]

Traders and analysts have said it is possible Turkey may
export more gasoline to Iran over the two countries’ land border
as a result of the problems of insuring shipping, while the
Iranian National Oil Company is expected to charter some of its
own tankers to deliver oil products.

HAS THE CRUDE TRADE BETWEEN THE TWO COUNTRIES BEEN IMPACTED?

So far no, and few traders or analysts expect it to be. The
sanctions do not target companies facilitating the sale of crude
— only the trade of products such as gasoline and diesel.

Turkey relies on Iran for around 63,000 barrels per day of
crude oil imports to feed its refineries.

Some oil market participants have suggested, however, that
Iran might start offering favourable swap deals. Iran could
offer supplies of crude oil in exchange for gasoline from
friendly trading partners.

HAS THE GAS TRADE BEEN IMPACTED?

Iran exports some 10 billion cubic metres of gas to Turkey
per year — one third of Turkey’s total consumption — and has
plans to increase the amount.

As well as relying on Iranian gas for its own energy needs,
Turkey is seen as an important and growing energy corridor for
Europe.

Turkey has repeatedly said it supports the idea of using
Iranian gas for the European Union-backed Nabucco pipeline,
which aims to feed the continent’s growing need for gas.

Iran holds the second-largest gas reserves in the world.

The European Union as well as the Nabucco Consortium have so
far reacted coolly to the idea, but some analysts say additional
infrastructure between Turkey and Iran, such as a planned 110
million cubic metre gas pipeline, would add muscle to Turkey’s
proposals.

Nabucco, whose shareholders include Hungary’s MOL (MOLB.BU: ),
Romania’s Transgaz (TGNM.BX: ), Bulgaria’s Bulgargaz, Turkey’s
Botas, Germany’s RWE (RWEG.DE: ) and Austria’s OMV (OMVV.VI: ), has
yet to secure any gas. The pipeline’s backers hope to secure gas
from Central Asia and Iraq.

Previous complications in the exportation of gas to Turkey
show Iran to be a sometimes unreliable supplier.

In January 2008 a cut in the flow of gas from Turkmenistan
to Iran forced the Islamic Republic to halt exports of gas to
Turkey.

Cold weather, disputes over prices and explosions in the
pipeline have also hampered the supply of gas to Turkey in the
past.

However when gas demand in Turkey has dropped, the country
also has at times halted imports. On Tuesday Turkish Energy
Minister Taner Yildiz announced that Turkey had paid Iran about
$600 million dollars for gas it failed to use but for which it
was contracted to pay.

(Reporting by David Sheppard, Thomas Grove and Henning
Gloystein; editing by Jane Baird)

Q&A-Turkey’s energy trade with Iran