Turkey a Gateway for International Investors to Iran?
Azerbaijan and Armenia are getting ready for business opportunities stemming from the likely lifting of international sanctions against Iran. Indeed, Iranian officials showed interest for “projects like TAP and TANAP”, while Armenia voiced its willingness to take part in the construction of a gas pipeline sidetracking Russia. A ratification of the P5+1-Iran deal on Iran’s nuclear program would change the rules of the game for these two countries.
At the same time, another important player - Turkey - could join them and try to reap the benefit of recent developments. Ankara could take advantage of a possible decrease in oil prices due to an uptick in Iranian export, but this is a process that will require time for three reasons: the business environment in Iran is difficult; international investors remain cautious and look at the country with an attentive eye, while a smokey cloud of political uncertainties hangs over the deal in the US, where President Barack Obama is about to face internal strifes to stop the deal. In this sense, the relation between Turkey and Iran requires time, relatively stable and predictable diplomatic developments, and a proof of leadership from Barack Obama.
IRAN NEEDS TIME, THE BUSINESS ENVIRONMENT IS MORE COMPLEX THAN 10 YEARS AGO
“Iran has long been an elephant in the room in world energy because of the sanctions. Now that this constraint will be progressively lifted from early 2016 Iran can move forward to fully utilise its oil and gas potential” Mehmet Öğütçü, chairman, Global Resources Partnership, told Natural Gas Europe.
The interest for Iran’s riches is clear. It comes as no surprise that, after hosting the negotiations, Vienna will capitalise on the thaw of ties between Iran and the six world powers. On Thursday and Friday, the Iran-EU conference will take place in Vienna, along with Austrian speakers, high-profile Iranian experts, ranging from Deputy Ministers to scientists, will make the case for investments in the country. Iran could be soon under the financial spotlights. Nonetheless, this will not immediately translate into oil and gas production.
As said in February by Manfred Hafner, Professor at Johns Hopkins SAIS, Sciences Po Paris, Teheran will need at least 10 years to fully develop its potentials. Öğütçü agrees, adding that Iran will soon face a new business environment, where producers have significantly less bargaining power than a decade ago. This will also come along with another set of difficulties.
“Tehran will have to deal with the new global energy dynamics where the buyers are likely to be the king in the face of oversupply in oil and gas. Also, Iran has to inspire confidence among the international investors given the bitter past experiences. Its terms of production sharing contracts have to be revised to offer more carrots. We do not have a clear picture as to who has the upper hand in decision-making on energy matters - the religious leader, the president, the revolutionary guards? Therefore, we do not expect a surge of investment to Iran’s energy sector in the near future. It will take time” the former Turkish diplomat explained.
WHAT ABOUT THE OPPORTUNITIES?
Several experts contacted by Natural Gas Europe agreed on the room for more cooperation between Iran and Turkey. It is clear: Iran wants to sell hydrocarbons, and Turkey is willing to buy oil and gas to diversify its energy supplies.
“The deal on Iran's nuclear programme reached in Vienna opens new trade opportunities for Turkey, in particular as far as energy is concerned. The lift of international sanctions will indeed allow Iran to consistently expand its oil and gas market” Simone Tagliapietra, Visiting Fellow, Bruegel, wrote to Natural Gas Europe.
He explained that there are two elements to keep in mind.
“First of all, new oil supplies from Iran will naturally have an impact on global oil prices, thus also favouring Turkey's oil import needs. Secondly, new investments will allow Iran to develop its gas sector, currently still underexploited. Considering that the country owns the largest gas reserves in the world, this will represent a game changer for both world gas markets and Turkish gas market. In fact, in the future additional volumes of gas might well reach Turkey if a new trade scheme will enhance the currently weak gas relations between the two players, in the interest of both of them.”
According to Öğütçü, there are other events to keep an eye on. He basically argued that many international firms will not directly enter the Iranian market, but will prefer the Turkish gateway to test the waters, before embarking in long-term commitments in Iran.
“Turkey will benefit from the removal of sanctions in the foreseeable future. Most international firms will prefer to operate in Iran through the Turkish door, at least initially until full confidence will be achieved. Ankara and Tehran do not see eye to eye on regional issues and need to try converging positions or minimise their differences so that a common approach could possibly be forged to mutual benefit. Both nations have imperial spines and co-existed effectively since the Treaty of Kasr-I Sirin without a change in the borders”
There are several complexities in the region, and some divergences between Iran and Turkey. Gas is one of these hot issues. Turkey, which is the main market for Iranian gas exports, is complaining about the price it is paying for Iranian gas. Russian and Azeri gas is indeed significantly cheaper. Ankara is asking for a significant price discount, also eying Kurdish gas as a feasible alternative.
MORE COMPLEXITIES
Celebrations can wait for another reason. In the next two months, the US will be the battleground of serious wrangling between the Obama administration and the Congress. As history shows, American position on Iran is not easy to understand and it could be quite unpredictable. On top of that, Israel might have an influence on these decision-making processes in Washington. Israel’s Deputy Foreign Minister Tzipi Hotovely made it clear on her Twitter account, with statements ranging from “this agreement is a capitulation of historic proportions by the west to the Iran-led axis of evil” to “Israel will act with all means to try to stop the agreement being ratified.” In other words, the next two months could be the beginning of another roller-coaster, this time probably more public than the behind-doors P5+1- Iran negotiations. The outcome of the White House vs Congress battle, though, is equally difficult to foresee.
Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci