Iran sanctions bode ill for Turkey’s economy
As the West tightens the noose on Iran with toughening sanctions, Turkey may find itself trapped in the middle - and strong economic ties with a neighbor could be the first to suffer.
On the last day of 2011, U.S. President Barack Obama signed into law new sanctions to be imposed on financial institutions dealing with Iran’s central bank. The measures aim at hurting Iran’s ability to export oil. On Jan. 4, EU governments have “in principle” agreed to ban oil imports from Iran. How these decisions will be implemented remains to be seen - many countries including Turkey are reportedly seeking exemptions
Turkey, unfortunately, has got a lot to lose if it’s forced to cut economic relations, above all energy ties, with its neighbor. Bilateral trade between the two countries rose to $15 billion in the first 11 months of 2011, according to a recent IRNA report. And most of this trade is about feeding the energy appetite of Turkey. Nearly 20 percent of Turkey’s natural gas is imported from Iran. Annual gas imports from Iran total around 10 billion cubic meters, and according to a 1996 agreement, such imports will continue until 2021.
Tüpraş, the giant Turkish refinery owned by conglomerate Koç, ranks among the biggest buyers of Iranian crude. Last month, Tüpraş renewed its contract with Iran. According to General Manager Yavuz Erkut, the firm imports 9 million tons of crude from Iran per year. This corresponds to over 30 percent of Turkey’s oil imports, according to data from the International Energy Agency. Analysts speaking to Reuters late last year said the share of Iranian crude in Tüpraş’s imports could rise to over 40 percent, due to a price advantage over rivals.
And then we have the “intermediary” factor: Turkish public lenders, mostly Halkbank, are reportedly at the forefront of this energy trade. Quoting unnamed industry sources, Reuters said in a Jan. 4 story that Halkbank handles payments to Iran by Tüpraş – an activity that probably brings handsome profits to Ankara.
There’s a possibility that Tüpraş’ imports could receive a waiver from Washington, but for that, the Obama administration should be “convinced” that Turkey has minimized other economic ties with Iran. The Hürriyet Daily News on Jan. 5 reported that an Energy Ministry official paid a visit to the U.S. Embassy in Ankara, seeking to understand details of the new sanctions.
If the U.S. succeeds in “persuading” Turkey, the latter could well face huge losses while further antagonizing a neighbor who’s already rattled due to the NATO radar system that’s been installed in the eastern province of Malatya.
Of course, one should not forget the swelling tab from the freeze in ties with Syria and the de facto loss of Libya’s construction sector.
One remembers the bill that Turkey was forced to pay after the 1990 Gulf War. In a report released before the 2003 Iraq invasion, the Turkish-Iraqi Business Council had estimated a $100 billion loss incurred just between 1990 and 2003.
Turkish policymakers are striving hard to turn the “Arab Spring” into their advantage. But the outlook increasingly reminds us of an old Turkish proverb about losing the wheat at home while looking for rice from Damietta - an Egyptian port city.