Iran’s Fantasy of European Gas Exports

Iran has repeatedly claimed in recent weeks that it is moving forward with plans to ship Turkmen gas, re-exported from Iran, across Turkey and into Europe. But the story seem to be a fantasy. Sanctions are forcing European companies to divest from touching the Iranian energy sector; Turkey’s relations with Iran - both political and commercial - are getting worse every day; and Iranian gas would be a direct competitor to Ankara’s plans for sourcing Iraqi and Caspian gas. So what is going on?

Iran has been suggesting it is making progress on gas sales to Europe for some time, but the clearest signal came on 8 September when a senior Iranian energy official claimed that Tehran and Ankara had agreed on the transit of Turkmen gas to Europe across Iranian and Turkish soil.

This was somewhat curious: no Turkmen officials were present, and Turkey’s Energy Minister Taner Yildiz had, just a few days before, visited Ashgabat and expressed support for a Trans-Caspian Pipeline for Turkmen gas to Europe. This would compete (at least in the short term) with an overland route through Iran.

Subsequently on 16 September, Iranian media outlets claimed that “Ankara has given the nod to re-export Iran’s natural gas to northern Europe through its soil following new gas agreements between Iran, Turkmenistan and Turkey”. They also said that the negotiations concerned a 20-25mcm deal with an unnamed European state, which may – based on previous reports - be Germany, Greece or Switzerland. The claims were reiterated by Deputy Oil Minister Mohsen Khojastehmehr on 26 September.

As part of the project, Iran is reportedly halfway through the third section of its sixth cross-country gas pipeline, which will allegedly be able to take between 60 and 80mcm of gas per day to Turkey and Europe (of which the 20-25mcm noted above would be sent to Europe).

Turkish, Turkmen and European officials have remained silent on the Iranian claims. Energy experts contacted in Istanbul and London were extremely sceptical that there really is a deal in place.

As noted in an earlier post, the idea has – in principle – been on the cards for years, indeed as far back as the mid-1990s. A deal for a pipeline carrying Turkmen gas to Europe, via Iran and Turkey, was signed in 2007 and envisaged 30bcm of both Turkmen and Iranian gas being exported to Turkey each year, with 16bcm going on to Europe. This concept was gradually fleshed out although the Turkmen link has never come to fruition, due to a lack of adequate infrastructure and Ashgabat’s unwillingness to prioritise a European route through Iran.

The latest iteration of the project is the Iran-Turkey-Europe pipeline, based on a 2008 MoU between Iran and Turkey, which would involve the transit of Turkmen and Iranian gas all the way across Turkey in a brand new pipeline carrying around 35bcm.

This – which is due to start in October, according to the website - appears to be the project which Iranian officials are talking about. But is it really moving forward? This seems extremely unlikely, for four reasons.

Firstly, Turkmenistan has limited appetite for an overland route. This would undermine its search for energy freedom, trading dependence on Russia for dependence on Iran. A Trans-Caspian Pipeline, for all the risks and challenges involved in it, would cut out the middleman.

Secondly, Turkey has been pressing on with cross-country pipelines to Europe which would compete with ITE. Ankara has sunk considerable political capital into the Trans-Anatolian Pipeline, working closely with Azerbaijan on developing this bridge from the Caspian to the border with Europe. It is also in talks to build a gas pipeline from Iraqi Kurdistan which would plug directly into the Turkish domestic market. Why would Ankara undermine both of these prized projects with an enormous, costly pipeline from Iran?

Thirdly, Turkey and Iran are currently at loggerheads over existing gas transit: Turkey has taken Iran to the International Court of Arbitration over the pricing and terms of the gas supply. Earlier this year Turkey was buying Iranian gas at significantly more than supplies from either Russia or Azerbaijan. A senior Turkish energy industry official, speaking in early September, claimed that Iranian gas prices were “beyond any reasonable level” and should be slashed by 30%. So it seems unlikely that Turkey would commit itself to receiving even more Iranian gas before being assured of much lower prices.

Fourthly, underpinning all of these reasons, are the sanctions. With the screws tightening on the Iranian energy sector, buyers of Iranian oil and gas are rapidly divesting, looking for alternative suppliers or struggling to find shady workarounds. Turkey has begun slashing imports of Iranian crude in line with sanctions; EU members are also bound to cut their imports of Iranian energy, and European officials have dismissed Iranian claims of progress on gas exports to Europe.

For Turkey, admittedly, cutting gas imports is more difficult than cutting flexible crude supplies: it has a binding long-term gas contract with Iran and struggles to find sizeable alternative suppliers. However this is even more of a reason for Ankara not to tie itself into a huge new pipeline project. If your long-term contracts are giving you political and commercial headaches, why double down and sign a new one?

These four factors all suggest that getting gas from Turkmenistan, across Iran, through Turkey and onto Europe is nothing but a fantasy. Iran’s claims of a ‘breakthrough’ may reflect nothing more than polite, vague assurances from Turkish officials. If so, it represents an increasingly bizarre attempt to make Iranian energy still seem a force to be reckoned with.

Alex Jackson is an analyst of political, energy and security issues in the Caspian region. He is based in London and can be contacted at ajackson320@gmail.com.