Exclusive: Turkey sticks with Iran oil after Saudi talks

DUBAI/ISTANBUL Tue Feb 14, 2012 9:14am EST

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DUBAI/ISTANBUL (Reuters) - Turkey has no plans to cut its imports of Iranian oil, remaining a rare loyal customer of Tehran despite rising pressure from international sanctions and initial signals it may buy more Saudi oil, Turkish and Saudi sources told Reuters.

The sources said Ankara's intentions became clear after a high level delegation travelled to Riyadh over the weekend and decided against requesting additional supplies from top oil exporter Saudi Arabia, the only producer in the world that has spare volumes to offer to replace Iranian barrels.

The development will help Iran avoid extra pain from reduced sales of crude as the European Union seeks to ban Iranian oil imports from July 1 and major Asian customers are signaling they might cut purchases under pressure from Washington.

EU and U.S. sanctions against Iran over its nuclear plans are already hitting oil production in the Islamic Republic and a fall in its output and exports is likely to accelerate if more customers walk away from its oil. This could squeeze the budget and increase internal tensions ahead of parliamentary elections next month.

A Saudi oil ministry official said Turkish energy officials had not ask for additional oil when visiting Riyadh last week.

"Turkey did not ask for more oil, and has no plans to ban imports from Iran," he said.

An Ankara-based energy official said: "Turkey will continue to buy from Iran unless the United Nations supports/endorses the EU and U.S. oil embargo."

A U.N. embargo against Iran now seems very unlikely after Russia and China, the biggest buyer of Iranian crude, blocked U.N. sanctions against Syria.

Turkey's long campaign for EU entry may now be less likely to influence its stance - its relations with the bloc are at their lowest point in years and negotiations on membership, which began in 2005, are stalled with no immediate prospect of resumption.

Turkey imports around 200,000 barrels per day of oil from Iran, covering 30 percent of daily domestic consumption and representing over 7 percent of Iranian oil exports, and had renewed its annual purchase agreement for 2012.

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Map of Iranian oil industry: link.reuters.com/nuh45s

Crude imports from Iran: link.reuters.com/dab65s

Iran oil exports: link.reuters.com/pyw35s

Iran exports to Europe: link.reuters.com/dax35s

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Most industry analysts expect China and Turkey to continue buying the same or increased volumes, despite previous signals from Ankara it could buy more Saudi oil and reports from Beijing that some of its firms are reducing purchases.

Traders say they suspect those signals were part of attempts by both Ankara and Beijing to negotiate lower prices for Iranian oil. The two countries are unlikely to follow the example of major Iranian customers South Korea and Japan, which are seeking to cut purchases to win waivers from U.S. sanctions.

NATO member Turkey has deepened economic and financial ties with Iran in recent years, despite Western efforts to isolate the country because they accuse it of trying to develop bombs under cover of what Tehran says is a nuclear energy program.

On a diplomatic level, Ankara often presents itself as a mediator in talks with the Islamic Republic, which it sees as a balancing force in the region against Israel.

Another Ankara-based oil industry official said Turkey's sole refiner Tupras (TUPRS.IS) was studying alternative crude purchase options but that did not mean it planned to stop buying oil from Iran, the second biggest oil exporter in the Organization of the Petroleum Exporting Countries.

"Tupras gets a really good price from Iran and from their point of view, there is nothing illegal. They pay through legal means and as long as that is the case, why would they stop?" he said, referring to payments via Turkish bank Halkbank.(HALKB.IS)

LIBYAN DEAL

An Istanbul-based energy industry source said Tupras was nevertheless looking to diversify its supply sources and has recently signed a deal with Libya.

"Tupras would like to seize the opportunity presented by Libya's resuming oil exports, but that is not particularly to position itself away from Iran. Currently it does not have an immediate plan to stop buying Iranian crude," the source said.

Libyan oil is sweet and light and cannot replace sour Iranian barrels on a like-for-like basis, unlike heavy Saudi oil grades. Both sweet and sour grades are needed by Turkey's refineries.

A Libya-based industry source said Tupras will import 12 million barrels of Libyan crude in 2012 or one large cargo per month, in the first long-term deal since 2006.

"They (Tupras) were our customers a while ago and now they are coming back as our production increases," the source said. "There is a clause in the agreement which says we might increase the amount proportionally with our production," he said.

Tupras purchased 7.41 million tonnes of crude oil from Iran in 2010, according to a presentation on its website, which makes up almost 43 percent of the 17.3 million tonnes of crude it imported in 2010. It refined 19.6 million tonnes in this period.

(Reporting by Humeyra Pamuk, Amena Bakr, Orhan Coskun, Evrim Ergin; Writing by Dmitry Zhdannikov; Editing by Anthony Barker)

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