Iran Supplies Turkey Instead of Paying Fine

Iran has been exporting gas to Turkey at “a very low price or even free of charge” since January owing to an international court ruling that fined Iran $1.9bn, Hamid Reza Araqi, the CEO of the National Iranian Gas Company (NIGC) announced.

Previously, Araqi said Iran would pay $1.9bn to Turkey in line with the decision of the International Court of Arbitration. He said that the former administration under Mahmoud Ahmedinejad had accepted the need to cut the price by 10% but Turkey had refused Iran’s suggestion and applied to an international court for arbitration which awarded it an even more generous cut of 13.3%.

“However, it should be noted that the current gas export price to Turkey is appropriate and there is no problem in this regard. In the next stage, Turkey wanted us to pay the whole amount of the fine. But, we argued that this method was not doable and that they should deduct the fine from our bills,” he said.

Turkey filed two complaints against Iran in the International Court of Arbitration for low gas deliveries and overpricing on gas purchases during the four-year period 2011-2015. Iran won in the matter of under-deliveries but lost in the matter of the gas price, in February 2016.

In 1996, Iran and Turkey inked a 25-year deal on supplying 10bn m³/yr of gas to Turkey. However, Turkey urged in 2013 for a 35% discount from Iran while Iran said it would agree to the discount if Turkey increased the amount of imported gas.

Araqi told Mehr news agency that in fact any fall in the crude oil price would mean a lower gas purchase price. "But the gas export formula to Turkey had been drafted so that it was not affected by movements in the oil price. They [Turkey] believed that Iran was supposed to cut the gas export price since 2005, referring to the gas export prices of Russia and Azerbaijan to prove their claim.”

Turkey's energy market regulator has reported that Iran has exported more than 1.5bn m³ of gas to Turkey during January-February 2017, which is nearly unchanged compared to the same period last year.

But Turkey’s import of crude oil from Iran has more than doubled in the same period, reaching 205,000 b/d. Turkey stopped importing electricity from Iran in the first half of the past year. Iran says Turkish companies importing Iranian electricity are $200mn in arrears to the energy ministry of Iran.

Turkey is the only importer of Iranian gas. Armenia and Azerbaijan respectively conduct gas-for-electricity and gas swap with Iran in small amounts. Iran delivered 22mn m³/d or a little more than 8bn m³ to Turkey during 2016.

The current president, Hassan Rouhani, will govern for another term following a landslide election victory over the weekend.

Dalga Khatinoglu