How Turkey, Russia Benefit From Iran Sanctions

From Al Monitor

By Denise Natali

Tougher US sanctions against Iran, recently approved by the US Senate, are expected to create new obstacles to Tehran’s nuclear-weapons program by expanding the list of embargoed items and companies trading in energy and related industries. While crippling the country’s economy, the sanctions also have had unintended consequences on energy-dependent regional states, particularly Turkey, which has circumvented the embargo and turned to Russia for alternative energy supplies. These reactions not only reinforce Ankara’s foreign-policy independence and Moscow’s energy dominance, but they highlight the growing tensions between US policy objectives and regional energy and security interests.

Indeed, more than three decades of international sanctions, alongside Iranian mismanagement, have weakened Tehran’s oil-based economy and potential regime capabilities. From a pre-1979 revolutionary level of five million barrels per day (bpd), Iranian oil exports have declined over the past year, from about two million to less than one million bpd. During this period, the country also incurred about $60 billion worth of losses in energy-sector investment (1979-2011), $32 billion in lost revenues since early 2012, rising food prices, a currency that has been devalued by more than 60% and exclusion from the world banking system.

While it is unclear if these economic measures will significantly alter Tehran’s nuclear-development policies, they have influenced the behavior of regional states dependent upon Iranian energy. Most important is Turkey, which is nearly entirely reliant upon imported oil and gas, mainly from Russia and Iran, and pressured by skyrocketing domestic energy demand, increased fuel costs and limited underground storage facilities. Thus far, Ankara, as well as other key energy importers, has received a US waiver permitting it to continue to purchase Iranian energy products at reduced levels. By October 2012, Turkey’s Iranian energy imports declined from over 50% to 18%, with another 20% reduction planned.

Turkey also has found creative ways to circumvent the sanctions and even gain financially. The sheer volume of the “gold-for-gas” exchange that emerged between Ankara and Tehran, or about $6.4 billion in gold paid to Iran for gas imports during the first nine months of this year, has helped Ankara reduce its current account deficit and receive an investment-grade credit rating — a first after nearly twenty years. During this period, Turkey’s trade value with Iran also increased to nearly $20 billion.

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