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Arbitration court orders Iran to discount gas exports to Turkey

The International Chamber of Commerce (ICC) has ordered Iran to discount the price of natural gas it exports to Turkey by 10-15 percent

Published: Updated:

The International Chamber of Commerce (ICC) has ordered Iran to discount the price of natural gas it exports to Turkey by 10-15 percent, backdated to 2011, an Iranian gas official and Turkey’s energy minister said on Tuesday.

Turkey, which is largely dependent on imports for its energy needs, took Tehran to the ICC’s international court of arbitration in Switzerland in January 2012 after Tehran rejected Ankara’s complaint that the price was too high.

Turkey imports 10 billion cubic metres (bcm) of natural gas from Iran annually, or about a fifth of its 50 bcm annual needs.

Turkish Energy Minister Berat Albayrak said the ICC had ordered a 13.3-15.8 percent discount.

“The final cut will be based on a process between the two parties,” he told reporters in Chile, where he has been accompanying President Tayyip Erdogan on an official visit.

“If there is no agreement within a couple of months, then the ICC itself will set a discount within that range,” he said in comments broadcast on Turkish state television TRT.

The ICC’s international court of arbitration is the world’s leading body for the resolution of disputes by arbitration. Its rulings are binding, final and susceptible of enforcement anywhere in the world, according to its website.

“The Turkish side made a claim to reduce the cost of gas imported from Iran by 35.5 percent, and the court agreed to a reduction of 10 to 15 percent,” National Iranian Gas Company director Hamidreza Araghi was quoted as saying by Iran’s Shana news agency.

The price cut would apply from 2011, Araghi said.

Turkey has ramped up efforts to find new sources of natural gas due to a sharp deterioration in ties with Russia, which supplies it with 28-30 bcm of natural gas annually.

BGC Partners chief economist Ozgur Altug said he calculated that such a discount would reduce Turkey’s annual current account deficit, traditionally a weakness in the economy, by around $400 million.

“More importantly, if such a discount triggers a local natural gas price cut by 10 percent, it will reduce Turkey’s annual CPI inflation by around 0.2 percent,” he said in a note.

Albayrak predicted a domestic gas price cut this year, once the ruling comes into effect. “We are considering to pass this as (price) reduction on to our people as soon as possible,” he said.

Turkey is anticipating a boost to its trade with neighbouring Iran after the end of sanctions against Tehran following its nuclear deal with world powers.

Tensions between Turkey and Iran flared last month, with Ankara summoning Tehran’s ambassador to demand a halt to media reports linking Saudi Arabia’s execution of a Shi’ite cleric with a visit to Riyadh by President Tayyip Erdogan.