A recent decision to take Iran to international arbitrary is proof that Turkey is trying its best to remain at the bargaining table and negotiate an impasse over the price of gas it buys from the Islamic Republic -- which it finds "unfairly high" -- while the latter is still adamant on keeping the rates unchanged, experts say, Today's Zaman reported.
Of the natural gas that Turkey buys, Iran charges the most, and this is the main cause of rising tensions between the two countries. Turkey currently buys a cubic meter of Azeri gas for $330 and pays Russia $400 for the same amount. However, Iran sells its gas to Turkey for $505 for each cubic meter, which increases Turkey's natural gas bill by an extra $800 million annually. The price of a cubic meter of natural gas is sold for $400 in international markets.
Turkey wants Iran to bring the price down to international levels. A similar situation arose between Turkey and Russia in the past; however, it ended when Turkey traded an agreement allowing the Russian South Stream pipeline to pass through Turkish territorial waters for a price discount. As a result, the price Turkey pays to Russia was reduced to $400.
Speaking to Today's Zaman, World Energy Council's Turkish Member Committee board member Oguz Turkyılmaz said on Sunday, "Both parties have shown their trump cards yet continue to stay at the bargaining table, and they will reconcile over the price sooner or later." He said, "The arbitration may take up to four or five years, and it is not rational for Iran to scuffle with Turkey, who will be its only Western trade partner when the US and European sanctions against Iran take full effect."
Turkyılmaz suggested both countries should conduct barter trade in the future, where Turkey can supply Iran with goods that are being embargoed by Western countries and, in return, Turkey can receive natural gas. He believes it is a solution that can benefit and satisfy both countries since it will help Iran to cope with sanctions and help heal Turkey's current account deficit (CAD). He also added the idea of purchasing gas from, for example, Russia is not a solution since the pipelines are already operating at full capacity, and they would not able to supply the eastern region of the country due to the lack of the necessary infrastructure.
Necdet Pamir, an energy policy expert and also a World Energy Council Turkish National Committee board member underlined that Turkey has every right to take the issue to arbitration and has a high chance of being proven right. He said Iran will not step back and lower prices in order to protect its image, but since Iranian politicians always benefit from good relations in its domestic politics with Turkey -- who has not joined the West to impose an embargo on Iran -- barter is a great option for both sides. "Barter will provide an advantage to Turkey since the current trade volume between the two countries is $11 billion, in which Turkey exports $3 billion while Iran exports $8 billion," Pamir added.
Meanwhile, Iranian officials noted that the discount on natural gas is bound to legal limitations, which will be presented during arbitration. Although it has not been specified where Turkey is seeking arbitration, the International Chamber of Commerce in Switzerland, which awarded Turkey $800 million in compensation in 2009 in a previous dispute with Iran, is the most likely place where the arbitration will be held.
Turkey decided at the end of January to take its dispute with Iran to international arbitration. Energy Minister Taner Yıldız has said the price Iran offers is way above international market prices. He said Iran's refusal to lower the price -- the country is Turkey's second largest supplier after Russia -- made it inevitable for Turkey to bring the issue to arbitration. Besides high prices, the "take or pay" condition in the natural gas contract between Turkey and Iran also brings a challenge to the bargaining process. The condition requires Turkey to import a predetermined amount of natural gas annually, meaning Turkey has to pay Iran a specific amount of money whether it needs that much gas or not.
Energy Minister Taner Yıldız announced on Saturday that the use of natural gas to produce electricity will be reduced as new measures will be implemented to lower the county's large energy imports.
Speaking to participants at an electricity sector meeting in the province of Bolu, Yıldız noted 50 percent of Turkey's electricity is provided by natural gas and said, "We plan to reduce this figure to 30 percent by 2023." He said those who use coal in producing electricity will be given special incentives, and there will be limits imposed on future projects that use natural gas to produce electricity.
Responding to concerns over a reduction in the supply of natural gas through the Western Corridor pipeline, he said, "We are experiencing the coldest weather of the last 42 years, and there have been no cutoffs in the supply of natural gas." However, he added that the measures being taken will lessen the country's natural gas imports, especially to prevent possible cut-offs of supplies in the future.
Noting that difficulties will be faced during the implementation of such a reduction, Yıldız concluded by saying the details will be announced during the year, and its effects will be discussed. Commenting on Yıldız's announcement, Pamir noted the increasing presence of plants that use imported coal and critically asked how it could be possible to lessen energy dependence while importing coal. He noted energy dependence has risen from 67 percent in 2002 to 74 percent in 2010 and said that even if electricity would be produced through the use of coal, it is important for those plants to be environment friendly.