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Q&A-Turkey's energy trade with Iran

LONDON, Aug 16 (Reuters) - Turkey’s decision to sell gasoline to Iran despite U.S. sanctions, designed to squeeze the Tehran’s supply of petroleum products, has shone a spotlight on the two countries’ growing trade relationship.

Turkey already buys a third of its gas imports from Iran and is looking to expand its relationship to power sales and the transit of Iranian gas to Europe.

Iran is the second-largest crude oil producer in the Organization of the Petroleum Exporting Countries (OPEC) but relies on imports for up to 40 percent of its gasoline needs because it lacks refining capacity.

The U.S. sanctions, in addition to measures from the European Union and the United Nations, aim to pressure the Islamic Regime over its nuclear programme, which the West says may be a front for building nuclear weapons.

Iran says its nuclear programme is for peaceful ends.

Will Turkey continue to step into the breach as sanctions drive Iran’s traditional gasoline trading partners away from dealing with the country?

HOW HAVE SANCTIONS AFFECTED THE TRADE OF OIL PRODUCTS?

Iran has been forced to look to Turkey, Russia, China and even Venezuela for gasoline as a result of the sanctions, which have discouraged its traditional suppliers in Europe and Asia.

After not selling any gasoline to Iran in the previous 18 months, Turkey in June started to supply the equivalent of 10 percent of Iran’s total monthly gasoline use, according to figures from the Turkish government and Iranian oil ministry.

The sale of 1.2 million barrels netted Turkey revenues of $121.8 million -- 25 percent above the normal market rate -- even before sanctions took effect. [ID:nLDE6741UP]

Turkey’s sales of gasoline to Iran nose-dived in July as sanctions took effect, but the Turkish Energy Minister said on Wednesday the government would support private firms that looked to trade refined petroleum products with Iran.

A source at state-owned oil refiner Tupras TUPRS.IS, who did not wish to be identified, perhaps summed up the current mood in Turkey: "For us, Iran is more important than America, because we get crude oil from them. We don't get anything from America."

But not everyone in Turkey has been so relaxed about the risk of the United States targeting companies that breach its sanctions on Iran.

At least one tanker of gasoline meant for Iran was prevented from sailing from Turkey in July, trade and shipping sources said. [ID:nLDE66J1RJ]

Ship owners are concerned about the risks of shipping to Iran after Lloyd’s of London [LOL.UL] said it would not insure or reinsure petroleum shipments going to the Islamic Republic. [ID:nLDE6680Z5]

Ship owners can also refuse to deliver petroleum cargoes to Iran under a new clause developed by shipping associations. [ID:nLDE66J0Y8]

Traders and analysts have said it is possible Turkey may export more gasoline to Iran over the two countries’ land border as a result of the problems of insuring shipping, while the Iranian National Oil Company is expected to charter some of its own tankers to deliver oil products.

HAS THE CRUDE TRADE BETWEEN THE TWO COUNTRIES BEEN IMPACTED?

So far no, and few traders or analysts expect it to be. The sanctions do not target companies facilitating the sale of crude -- only the trade of products such as gasoline and diesel.

Turkey relies on Iran for around 63,000 barrels per day of crude oil imports to feed its refineries.

Some oil market participants have suggested, however, that Iran might start offering favourable swap deals. Iran could offer supplies of crude oil in exchange for gasoline from friendly trading partners.

HAS THE GAS TRADE BEEN IMPACTED?

Iran exports some 10 billion cubic metres of gas to Turkey per year -- one third of Turkey’s total consumption -- and has plans to increase the amount.

As well as relying on Iranian gas for its own energy needs, Turkey is seen as an important and growing energy corridor for Europe.

Turkey has repeatedly said it supports the idea of using Iranian gas for the European Union-backed Nabucco pipeline, which aims to feed the continent’s growing need for gas.

Iran holds the second-largest gas reserves in the world.

The European Union as well as the Nabucco Consortium have so far reacted coolly to the idea, but some analysts say additional infrastructure between Turkey and Iran, such as a planned 110 million cubic metre gas pipeline, would add muscle to Turkey’s proposals.

Nabucco, whose shareholders include Hungary's MOL MOLB.BU, Romania's Transgaz TGNM.BX, Bulgaria's Bulgargaz, Turkey's Botas, Germany's RWE RWEG.DE and Austria's OMV OMVV.VI, has yet to secure any gas. The pipeline's backers hope to secure gas from Central Asia and Iraq.

Previous complications in the exportation of gas to Turkey show Iran to be a sometimes unreliable supplier.

In January 2008 a cut in the flow of gas from Turkmenistan to Iran forced the Islamic Republic to halt exports of gas to Turkey.

Cold weather, disputes over prices and explosions in the pipeline have also hampered the supply of gas to Turkey in the past.

However when gas demand in Turkey has dropped, the country also has at times halted imports. On Tuesday Turkish Energy Minister Taner Yildiz announced that Turkey had paid Iran about $600 million dollars for gas it failed to use but for which it was contracted to pay.

Reporting by David Sheppard, Thomas Grove and Henning Gloystein; editing by Jane Baird

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