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Turkey Tries to Negotiate with Iran over Gas Prices

Posted on Feb 12 2012 by spotblue

Turkey is trying to renegotiate the price it pays for gas from Iran and has recently taken the case to international arbitration as it feels the rates are too high, while Iran is set on keeping the price unchanged. Turkey has few natural energy resources and is reliant on buying gas from other countries, but Iran is charging the most which is increasing tensions between the two countries.

At the moment Turkey is able to buy a cubic meter of gas from Azerbaijan for $330, while Russia charges $400, but Iran charges $505 for each cubic meter which pushes up Turkey’s annual bill for natural gas by $800 million. International markets sell natural gas for $400, and Turkey would like to see Iran bring the price down to match international levels.

It’s not the first time Turkey has had a dispute over the price of natural gas, as it faced a similar situation with Russia. However this was resolved when Turkey reached an agreement allowing the Russian South Stream pipeline to pass through Turkish territorial waters for a discount.

As a result Russia reduced its prices to match the international levels of $400 a cubic meter. Any resolution is unlikely to be quick as arbitration could take several years, but Turkey is in a relatively strong bargaining position as it could be Iran’s only Western trade partner once US and European sanctions take full effect.

It’s most likely that arbitration will be held at the International Chamber of commerce in Switzerland where Turkey was awarded $800 million of compensation in 2009 as a result of a previous dispute with Iran.

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