How US-imposed sanctions against Iran affect oil-importing Turkey

Washington recently decided to end sanctions waivers, which permitted several major economies, including Turkey, to buy crude oil from Iran, escalating fears across the world markets that the move could destabilise energy prices. 

Beside Turkey, the other sanctions-exempted countries are Japan, India, China, Italy, Greece, Taiwan and South Korea. The US move has sparked a rise in oil prices to $74 a barrel, which is a first in six months. 

But apparently, the US decision-makers don't much care about the possibility of Iranian sanctions triggering shock waves across the world, pushing oil prices to record levels. 

“We’re going to zero—going to zero across the board,” said US Secretary of State Mike Pompeo confidently during the announcement on April 22. 

China and Turkey, a US ally, which is also a neighbouring country to Iran, are the most vocal in  their opposition to Washington’s decision. 

Ankara openly lobbied for an extension in Washington, reminding the Trump administration that Iranian oil plays a crucial role in helping Turkey meet its energy needs. 

“The US decision to end sanctions waivers on Iran oil imports will not serve regional peace and stability, yet will harm Iranian people. Turkey rejects unilateral sanctions and impositions on how to conduct relations with neighbors,” said Mevlut Cavusoglu, Turkey’s Foreign Minister, on Twitter. 

“China consistently opposes US unilateral sanctions and long-arm jurisdiction. China-Iran cooperation is open, transparent and in accordance with law, it should be respected,” Geng Shuang, a spokesman for China’s Foreign Ministry, said on April 22. 

The exchange has once again impacted the already fragile relations between the two NATO allies, Ankara and Washington. They have been in disagreement on a number of issues ranging from US support to the YPG, which is the Syrian wing of the PKK, a terrorist organisation to both Washington and Ankara, to the US refusal of delivering F-35s to Turkey. 

Besides causing a major friction, Washington’s decision could affect the Turkish energy market at a time when the country has been battling high inflation and rising unemployment. 

“The main impact will be costlier for crude oil’s effect in producer prices and consumer prices. Since Turkey cannot produce the vast majority of its crude oil needs, which constitute a sizable chunk of Turkish firms’ costs, inflationary pressures will rise,” said Omer Emec, Chief Economist at Al Baraka Turk, one of the leading Islamic financial institutions. 

But Emec believes Turkey has already been substantially substituting Iran’s crude oil with Iraqi crude, another oil-rich neighbour’s sources, decreasing possible risks. 

“We do not think that it will constitute a major issue because Turkey’s oil imports are already reasonably diversified and the refineries should be able to find crude oil similar to what Iran produces. The only caveat is what they find probably won’t be as cheap as Iranian crude and transportation costs would likely increase,” Emec told TRT World. 

Last year, Turkish President Recep Tayyip Erdogan has indicated that Ankara will continue to buy Iranian oil despite the US embargo against Tehran. 

Global impact 

Despite Washington’s confidence that there will be no supply disruptions, many analysts see “huge risks” in the recent US move, which aims to punish Iran for its Middle East policy and anti-Israeli stance. 

In order to fill the Iranian oil supply gap, the US needs to rely upon other major oil producers like Venezuela, Nigeria and Libya. But both Venezuela and Nigeria have been currently experiencing political crises while Libya is still going through a bloody civil war. 

Reaping the benefits of recently discovered shale gas, the US is on the path of decreasing its dependency on foreign oil, and doesn't appear concerned about any supply disruption hitting the country. 

In addition to that, Washington relies on Saudi Arabia and the United Arab Emirates (UAE), hoping that the oil rich kingdoms can offset any supply disruption if other oil producing countries could not fill the deficit. 

But Iran has warned Washington about closing down the Strait of Hormuz if the country’s economy was threatened with oil sanctions. The strait is a major route for oil shipments for both Iran and Saudi Arabia.