Erdogan takes a gamble

President Erdogan is unlikely to buy oil from Saudi Arabia and the UAE due to sustained tensions. However, can Mr. Erdogan continue to buy oil from Iran given its energy requirements?

Background

Strategic issues surrounding Turkey’s procurement of Russian S-400 missile systems and American F-35 fighter jets have resulted in a strained relationship with the US. It has further worsened due to issues of religious freedom and President Erdogan’s authoritarian policies. The killing of the Saudi journalist Jamal Khashoggi at the country’s Istanbul embassy has made the relationship between Turkey and Saudi Arabia fraught with tensions. Meanwhile, Turkey’s relationship with Iran has remained stable due to continued economic interaction between the two nations. Iran, Turkey and Russia have recently begun cooperation over their involvement in the Syrian Civil War. 

In 2015, Iran agreed to a deal on its nuclear programme called the Joint Comprehensive Plan of Action (JCPOA). US President Trump, critical of the JCPOA, withdrew the US from the agreement in 2018. Sanctions were re-imposed on Iran shortly thereafter, halting nearly half of the nations’ imports and exports. 

Considered an ‘energy superpower,’ Iranian oil exports account for 80% of Iranian public revenue. Shortly after the sanctions were imposed, Washington granted waivers to Iran’s major oil buyers that would permit purchases for six months, including for Turkey. Turkey is heavily dependent on imports to meet its energy requirements; 90% of its oil is imported, with approximately 45% coming from Iran before the sanctions. Washington has since announced that the waivers will not be reissued, demanding that purchasers of Iranian oil cease such transactions, or face American sanctions. 

Analysis

Turkey’s economy has recently entered a recession, partially due to rising oil prices. Inflation rates have remained high - standing at about 20%. Rising borrowing costs and correspondingly increasing loan defaults have made it difficult for the nation to kick-start new investments. Turkey’s economy represents the greatest threat to the current government.

Recep Erdogan, Turkey’s President, turned the nation’s parliamentary system of government into an executive presidency through a disputed referendum. Becoming president in 2018, Mr. Erdogan further expanded the powers he accrued following the botched 2016 coup d’état. In order to secure an electoral base, Mr. Erdogan sought to sell Turkey as the home of the caliphate - a religious and political office of tremendous normative value in the Muslim world. Overseeing the revival of Ottoman tradition and the Islamisation of Turkey, Mr. Erdogan has positioned himself as the primary purveyor of Muslim issues, while establishing an authoritarian form of governance. In recent regional elections, Mr. Erdogan lost key urban centres, while retaining his rural majority, pointing to a weakened electoral support over economic performance.

A Turkish presidential spokesperson said, “We have made it clear we would like to continue to buy Iranian oil.” Iran and Turkey announced plans to set up a financial mechanism that allows them to circumvent US sanctions on Iran. However, the US believes Saudi Arabia and the United Arab Emirates (UAE) can replace Iran’s position in Turkey’s energy sector. US Secretary of State, Mike Pompeo, said that supplies from the two anti-Iran allies would ensure that oil prices would remain stable as sanction waivers terminate.

Buying oil from Saudi Arabia is complicated by Mr. Erdogan’s drive to re-capture the regions’ Islamic primacy. Saudi Arabia’s territory includes the two holiest sites in Islam - Mecca and Medina - making it a powerful Islamic actor. Mr. Erdogan’s claim to the caliphate is based on the strength of the Ottoman Empire, whose power he seeks to emulate through Turkey. Buying oil from Saudi Arabia would weaken that position. Additionally, Turkish authorities have said that Saudi and Emirati oil is more expensive than Iranian crude and that the nation does not possess the technical capability to refine crude from the gulf partners. 

In order for Mr. Erdogan to strengthen his grip over Turkey, he would have to secure its financial future. However, the current economic performance is underwhelming. On one hand, he cannot normatively afford to re-align with Saudi Arabia and purchase its more expensive crude. On the other hand, the continued purchase of Iranian oil would mean the implementation of US sanctions, resulting in devastating effects on Turkey’s economy. America is unlikely to allow another round of waivers for Turkey given the growing diplomatic spat over the F-35 fighter jet and Russia’s S400 systems. Thus, in order for Mr. Erdogan to secure Turkey’s energy sector, he would have to make a choice between angering the US or losing electoral support by appeasing Saudi Arabia.

Assessment

Our assessment is that Mr. Erdogan will continue Turkey’s purchases of Iranian oil through the newly instituted payment mechanism that circumvents American sanctions. We feel that Mr. Erdogan will seek to reinvigorate domestic and Islamic support, while using Iranian crude to stimulate the economy. To shore up economic performance, we believe that Turkey and Iran will economically engage to a greater extent. However, the threat of American sanctions means that their cooperation will largely be behind the scenes.