Iran's arbitrative adjustment to the high natural gas price - ERDAL TANAS KARAGÖL

Iran's arbitrative adjustment to the high natural gas price

Turkey's second-highest natural gas supplier is Iran. Turkey managed to sustain its energy trade with Iran despite many problems in a time Iran was isolated from the world.

Turkey pays the most for the gas it buys from Iran when compared to Russia and Azerbaijan. Thus, taking the natural gas issue to arbitration is not a new topic. In 2004, Turkey filed a claim against Iran for the same reason. Iran was sentenced to paying Turkey $900 million in compensation, as a decision to lower the rates by 16.5 percent was made.

Today, the result for the gas sold dearly between 2011-2015 is in Turkey's favor. The discount rate is not certain yet; however, the rate is thought to be between 13.3 and 15.8 percent. This also means that the excess amount of money Turkey paid Iran will be returned.

Moreover, once the discount rate is put into effect, this rate will reflect on the prices we pay too.


Putting aside economic embargos and freeing itself from the pressure of sanctions, Iran's greatest economic income trump is its energy. It wants to get a foothold in the oil market besides the natural gas market.

Expanding the sanctions in 2012 and decreasing its oil production to 1-1.5 million barrels, Iran wants to soon increase its production rates. However, it is a period of “the countries that form energy markets and energy demand security” not a period of “the countries that own energy.”

In such an environment, regulating energy prices as it wishes will not benefit Iran. Besides, societal dynamics have to integrate into the global economy and make the most of them. The most important income source to ensure this is oil and natural gas.

Iran trying to sell its energy for high prices does not make much sense when Saudi Arabia has dropped its barrel price to $30 (to prove its power in the oil market) and other countries want to enter the market, especially when it seriously needs to invest in this field to become a power in natural gas and oil.

If Iran wants to increase its value and make an economic move, freeing itself from the West's sanctions is not enough. It should also end its high price sanctions on natural gas.

Thus, the Russian-EU crisis, Saudi Arabia's oil move and lifting of sanctions on Iran will enable Iran to enter the energy market. However, Iran remaining in the energy market depends on its energy policies.


After arbitration, the bill Turkey pays for natural gas to Iran will decrease. Russia's cooperation with Iran also has an arbitration period continuing. The arbitration decision favoring Turkey will make Iran more attractive and competitive in terms of natural gas.

Although there are political problems between Turkey and Russia, the two countries did not bring these problems into their energy relations. Thus, in the case a discount decision is made at the end of an arbitration period, Russia, a country in an economic bottleneck, will want to sell more gas to Turkey if oil prices fall.

In such a scenario, Iran would not want to forego its place in Turkey's natural gas market. Turkey will then have stronger arguments for discounts.

Most importantly, when considering that the countries in the Caspian Region want to export their oil and natural gas resources to the European market, and the most important route for this is Turkey, Iran should be more careful in serving Turkey's energy expectations.


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