IRAN-TURKEY NATURAL GAS MOU

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 001809

SIPDIS

SIPDIS

USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
DOE FOR ALAN HEGBURG
EUR ALSO FOR MATT BRYZA
SCA ALSO FOR STEVE MANN
EEB FOR GALLOGLY AND EIGHMIE
TDA FOR STEIN

E.O. 12958: DECL: 07/16/2017
TAGS: ENRG EPET PREL TU IR
SUBJECT: IRAN-TURKEY NATURAL GAS MOU

REF: A. ANKARA 1608

B. ANKARA 1412

C. ANKARA 0803

Classified By: Acting Economic Counselor Andrew Snow for reasons 1.4 (b
) and (d).


1. (C) Summary: Turkish MFA officials MFA confirm that Energy
Minister Hilmi Guler signed a preliminary MOU with Iranian
Oil Minister Kazem Variri-Hamaneh that, after further study,
may involve (1) construction of pipelines and the transit of
gas from Turkmenistan through Iran to Turkey, (2) development
of phase 22, 23, and 24 of Iran's South Pars gas field by
TPAO, under so-called "buy-back" terms, and (3) construction
of a pipeline to transport South Pars gas to Turkey for sale
to Europe through Nabucco. MFA officials downplayed the
significance of the MOU, emphasized the word "preliminary,"
explained that all details will be developed by a joint
technical working group during the next one to two months as
a proposal for a final agreement, and stressed that the final
agreement will not be contrary to UNSC Resolutions 1737 and

1747. Discussions with an Energy Ministry official and the
Energy Minister's unofficial advisor shed more light on
Turkish thinking, suggesting there may be more to the MOU
than the MFA officials suggested. End summary.

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MFA Officials Downplay Significance but Provide Few Details
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2. (C) MFA Deputy Director General for Energy Vural Altay and
Deputy Director General for South Asia M. Babur Hizlan
requested a meeting to clarify press reports of the
Turkey-Iran natural gas memorandum of understanding (MOU).
Altay confirmed that Iranian Oil Minister Variri-Hamaneh made
an official visit to Ankara on July 13-14 and signed a
"preliminary MOU" with Energy Minister Guler to conduct
technical study of: a) possible transit of Turkmenistan
natural gas through Iran to Turkey, b) possible transit of
Iranian gas to Turkey and beyond to Europe, and c) Turkish
development of South Pars phases 22, 23, and 24. Explaining
that he is speaking on instruction from his superiors, he
stressed, "Only an MOU was signed, not an agreement." Altay
denied that the details reported in the press had been agreed
to. Altay explained that a joint technical working group
will be formed "with the appropriate government institutions"
to prepare and present a paper "maybe by the end of August"
that will serve as the draft for a final agreement.


3. (C) When asked to give examples of inaccurate press
reports, Altay explained that the MOU is "not a historic
agreement" but instead only "a start of a process" to explore
gas options in Iran. Altay explained GOT energy policy has
not changed. Turkey's priorities remain securing its own
energy needs and contributing to European energy supply
through a diversity of sources and a diversity of routes.
Turkey is against any monopolization of gas markets, and
works to prevent a Russian monopoly of gas supplies. Altay
explained that Gazprom's June 23 announcement of the South
Stream pipeline was "disturbing," and the GOT views a gas
agreement with Iran as "balancing the Russian initiative."
When asked how Turkey views the prospects for the
trans-Caspian pipeline (TCP) for Turkmen gas through the
South Caucasus Pipeline, Altay stated Turkey's continued
support for TCP and his hope that the possibility for an
Iranian route for Turkmen gas may accelerate TCP

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decision-making. When asked how Turkey's Nabucco partners
view the MOU, Altay explained that partners have already
discussed the transport of Iranian gas to Europe.
Furthermore, Turkey has existing gas agreements with Iran (10
bcm/year) and Turkmenistan (16 bcm/year).


4. (C) We pointed out that investments in Iran's oil and gas
sector could expand Iran's ability to finance terrorism and
its nuclear program and could raise concerns under the Iran
Sanctions Act (ISA). We also pointed out that this kind of
agreement risked undermining the international community's
efforts to convince Iran to comply with UNSC resolutions.
Altay and Hizlan voiced familiarity with ISA, insisted that
any agreement would be in compliance with UNSC Resolutions
1737 and 1747, and repeated that discussions are still "at
the exploratory stage" with Iranian gas "as one option on the
table."

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Energy Ministry Official Touts inclusion of Turkmen Gas
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5. (C) In a separate meeting, Energy Minister Deputy General
Director Nilgun Acikalin offered her appraisal of the
Turkey-Iran gas MOU. (Note: Acikalin was previously
responsible for oil and gas pipelines within the Energy
Ministry, and she was recently promoted to oversee renewable
energy. End note.) Nilgun confirmed press reports of the
elements of the MOU, but she explained that most important to
Turkey was the agreement by Iran to allow a significant
increase of Turkmen gas to transit to Turkey. She expressed
her hope that the MOU will "make a lightning flash" to
accelerate investment decisions regarding the TCP. She also
explained that technical details, gas volumes, costs,
investments, and investors have not yet been worked out. The
Energy Ministry "will be very busy during the next month."

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Unofficial Advisor Details Turkey's Gas Strategy in Iran
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6. (C) Faruk Demir, the outside -- and unofficial -- advisor
to Energy Minister Guler provided a very different spin, and
much more detail. Unlike the MFA officials, Demir did not
downplay the Iran deal. Instead, he reiterated to us the
strategic vision behind Turkey's pursuit of a gas transit and
production arrangement with Iran. He emphasized that the
U.S. was Turkey's closest ally. He said Turkey's strategy was
designed to counter Russia's monopolistic behavior by
diversifying Turkish and European sources and routes of
supply. Demir said Turkish policy towards Iran was clear:
Turkey opposed the Iranian regime and was quite concerned
about the Iranian nuclear program. He said this view was
shared by the Turkish General Staff, the Prime Minister and
the entire Turkish state. Where Turkey differed with the
U.S. was on the tactical approach, although he claimed Turkey
completely understands the U.S. position and supports the
U.S. and international pressure on Iran.


7. (C) Demir said Iran will change in the next few years, and
by the time these additional gas volumes flow to Turkey --
2011 at the earliest -- Iran will be a different place.
Turkey believes Iran will not be able to develop nuclear
weapons for between five andeight years. If the U.S. and
Turkey wait until Iran has changed to begin engaging, they
will find that other countries, such as Russia and China,

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will already "be in every corner." Although he was well
aware of the Iran Sanctions Act (ISA),Demir stated that
other fields in the South Pars complex were being developed
by Shell and Halliburton. He also said Halliburton was
helping to build a pipeline for Turkmen gas to pass through
Iran to the sea.


8. (C) More specifically on regional energy strategy, Demir
reiterated skepticism about near-term realization of the
Trans-Caspian pipeline given the significant obstacles to
resolving delimitation issues and timing issues resulting
from Russian efforts to strengthen ties with Turkmenistan and
Kazakhstan. He also expressed skepticism about Azerbaijian's
interest in resolving delimitation issues. With TCP looking
remote, and Turkey overly dependent on Russian gas supply,
Turkey needed to act quickly to pursue accessing Turkmen gas
via Iran. Demir echoed the Energy and Foreign Affairs
Ministry officials on one point: the Turkey-Iran announcement
was a response to the announcement of the Gazprom-ENI South
Stream transaction, bypassing Turkey.


9. (C) Demir confirmed that the understanding with Iran, for
the first time, includes Iranian agreement to allow Turkmen
gas to transit Iran to Turkey -- a major breakthrough for
Turkey. Without explicitly saying the Turkmen were consulted
on the Turkey-Iran discussions, Demir implied as much by
referring to Minister Guler's recent trip to Turkmenistan.


10. (C) Demir provided other details on the MOU, along the
lines of press reporting. The total cost of the package of
pipeline and gas field development would be on the order of
$6 billion dollars, of which $2 billion would be the
pipeline. Demir said it was too early to say how it would be
financed but expressed optimism based on the European members
of the Nabucco consortium being able to help in this regard.
Demir said the Nabucco partners were not consulted on the new
MOU since these same companies had been talking separately
with Iran about gas supply. In addition to construction of a
pipeline from the South Pars field to Turkey, the MOU
provides for the Turkish state oil and gas exploration and
production company, TPAO to develop fields, 23, 24 and 25 at
South Pars. Demir said these fields are "ready" for offshore
development. Once final agreement on the details is reached,
construction of the pipeline and the field development is
expected to take approximately four years, such that the
earliest possible completion date would be in 2011.


11. (C) Comment: Demir's explanation needs to be taken with
a grain of salt. Since he is not a government official, he
can speak frankly with us but it is not at all clear he is
expressing official policy. End comment.

Visit Ankara's Classified Web Site at
http://www.state.sgov.gov/p/eur/ankara/

WILSON

Visit Ankara's Classified Web Site at
http://www.state.sgov.gov/p/eur/ankara/

WILSON