Iran and Turkey Explore Their Mutual Interests

18 - Jun - 2014

Iranian President Hassan Rouhani -- along with seven Cabinet ministers, Iran's central bank governor and an army of businessmen -- began a two-day state visit to Turkey on Monday. Most of the coverage of this visit will focus on the banal, such as Turkey attempting to negotiate a better price for Iranian natural gas and Iran attempting to forge stronger banking links in Turkey. But there is much more for these two neighbors to discuss in private. With significant geopolitical fluctuations underway, Tehran and Ankara will try to keep their rivalry in check while pursuing other, grander opportunities where their interests are rapidly converging with those of the United States.

Together, Turkey and Iran form the land bridge between Europe and Asia. Whether they like it or not, they tend to attract attention from wealthier and more powerful countries farther afield. At the same time, Turkey and Iran share a borderland where ethnic pockets are easy prey for exploitation as well as a Middle Eastern periphery where their respective spheres of influence are prone to colliding -- as they have shown recently in Syria. For now, however, the geopolitical environment is pushing the two sides toward cooperation.

Two key trends are pointing this direction. First, the United States and Iran are moving toward a diplomatic rapprochement. There will be obstacles along the way, and there is much more to be negotiated beyond the July 20 deadline for nuclear talks, but this is a reality that Turkey has accepted. Second, and obvious to all, the United States is engaged in a prolonged confrontation with Russia, one in which energy will play a central role. Both trends will intertwine to shape Turkey's and Iran's fates over the next few years.

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With Europe financially stressed and politically panicked, it is up to the United States to forge a strategy to develop alternatives to Russian energy. This is part of a long-term effort to whittle away at Russia's influence. Iran falls squarely into those plans. The United States already had an incentive to reach a rapprochement with Iran and thus cross off a major foreign policy distraction in the Middle East, but with Europe struggling to pry itself out of Russia's energy grip (particularly when it comes to natural gas), there is added urgency to the U.S. engagement with Iran. The question is how to get Iranian natural gas to the European market. That's where Turkey comes in.

Turkey already has a natural gas pipeline running from Tabriz, Iran, through the mountains up to the Turkish capital in Ankara. The pipeline carries a modest amount of natural gas, roughly 7 billion to 10 billion cubic meters per year. Much to Turkey's annoyance, that amount is subject to frequent disruptions -- especially in the winter, when Iran prioritizes supplying its population centers in the north. However, should Western investment enable Iran to substantially raise its natural gas production, that pipeline route would become all the more strategic as an energy bridge between Iran and Europe.

Meanwhile, there are conversations taking place among Turkey, Iran, Azerbaijan and Turkmenistan over the possibility of transporting an abundance of Turkmen natural gas across the Caspian Sea. The problem there is that Russia, which is wholly opposed to such a competitor project, has the tools to easily destabilize Turkmenistan should those discussions become more meaningful. Even though much remains to be worked out between Washington and Tehran -- and on the investment and production front before natural gas begins flowing in earnest to European markets -- the Iran-Turkey overland connection is where a lot of our attention will be focused.

But energy prospects alone will not iron out all the creases in the Iranian-Turkish relationship. Both countries are significant regional powers with big ambitions. As Iran rehabilitates itself and as Turkey expands its regional influence, the two will inevitably step on each other's toes.

Much of the competition will be concentrated in Kurdistan, the historical battleground between Turkey and Iran. For example, Turkey has backed the Kurdistan Regional Government's efforts to export Kurdish crude without the consent of Iran's allies in Baghdad. As we expected, this Turkish-Kurdish energy stunt has been quite clumsy, with three tankers floating around the Mediterranean in desperate search of a buyer willing to tolerate Baghdad's wrath. Meanwhile, Iranian military forces have been beefing up their presence along Iran's border with Iraqi Kurdistan. Iraq's Kurdish factions have also been split along multiple lines, with Turkey aligning with Massoud Barzani's Kurdistan Democratic Party and Iran staying close to Barzani's rivals in Jalal Talabani's Patriotic Union of Kurdistan and offshoot competitor Gorran.

Iran and Turkey will continue to joust in Iraqi Kurdistan, and that competition will carry a number of implications for investors in northern Iraq. At the same time, a developing U.S.-Iranian relationship spells new opportunities for Turkish-Iranian energy cooperation down the line. That conversation has likely inched ahead during Rouhani's trip to Turkey.

Published by  Stratfor Global Intelligence

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