Will Turkish pressure on Saudi Arabia lead to an oil deal?

5 November 2018
30 October 2018, Week 43, Issue 698

Turkey is applying unprecedented pressure on Saudi over the Khashoggi murder giving it common cause with the US which is pressuring Turkey to cut Iranian oil imports. David O’Byrne reports from Istanbul

What: Turkey has exposed the murder of Saudi Journalist Jamal Khashoggi in the kingdom’s Istanbul Consulate, tacitly confirming that the consulate was bugged.

Why: With its own appalling record on press freedom, Turkey’s interest in the killing could be motivated by other factors, such as finding a source of cheap crude to replace Iranian imports.

What Next: Turkey is pressing for Riyadh to produce Khashoggi’s body, and to extradite those responsible but it may have other demands.

The murder of Saudi Journalist Jamal Khashoggi inside Saudi Arabia’s Istanbul consulate has captured the world’s attention. But while international media coverage has focused largely on the gruesome aspects of the crime, little has been said about the broader political and economic implications of the ensuing diplomatic spat. 

One facet that has been all but ignored is that Riyadh has been forced to admit to the killing, owing to evidence gathered by covert surveillance from within the consulate premises – in a word, ‘bugging’.

While such “black ops” are common knowledge among diplomatic communities it is unprecedented for a host nation to leak evidence of such behaviour to the international community, and it begs the question as to what Turkey hopes to gain, beyond obfuscating its own less than stellar reputation for press freedom.

There is clearly a regional power struggle, with both Turkish president Tayyip Erdogan and Saudi crown prince Muhammad bin Salman (MbS) trying to position themselves as de-facto leaders of the global Sunni Muslim community, and more specific differences over Qatar and Yemen. Equally though, there are other factors at play.

Turkey and trade

Saudi Arabia is one of Turkey’s main trading partners.

Turkish exports to the Kingdom in 2016 reached US$3.2 billion, against imports of only US$1.8 billion, with Saudi being a major market for Turkish construction and contracting groups, for Turkish food products and consumer goods and home to tens of thousands of Turkish expats. 

At the same time, the kingdom is a growing market for the Turkish tourism sector, with Saudi arrivals in 2017 reaching 651,000 up 45% on 2015. In short, this is not a market that Turkey is about to abandon.

With apparently little likelihood that MbS will be replaced as the Kingdom’s heir apparent, Ankara will at some point have to agree to a compromise. The question is, what form will such a compromise take?

One possibly suggests itself through the sudden “common cause” found between Turkey and the US over the killing, which has seen US president Donald Trump echoing Erdogan’s calls for Riyadh to come clean.

US-Turkish relations hit an all time low over the summer as Washington ramped up pressure on Ankara to re-impose sanctions against Iran – a move which would oblige Turkey to cut imports of natural gas and crude oil.

With Turkish officials refusing point blank to fall in line, or to compromise on other issues – such as the continued trial of US pastor Andrew Brunson – the Lira all but collapsed.

The subsequent release of Brunson relaxed tensions, and Washington apparently eased its demands on Turkey to “reducing imports” of Iranian crude, essentially the same requirement as under the previous sanctions regime. 

This though presents the problem of where replacement volumes of crude will be sourced.

Under the previous sanctions regime Turkey’s then sole oil refiner was able to boost imports from Iraq – including volumes from the semi autonomous Kurdistan Region of northern Iraq, as well as diversifying supplies with smaller volumes from countries such as Kuwait, Saudi, Egypt and even Colombia.

Turkey began regular crude imports from Saudi Arabia, albeit seldom beyond 150,000 tonnes (1.1 million barrels) per month and with Saudi officials confirming that no discounts had been given.

Imports from Saudi last year totalled 1.8 million tonnes (13.2 million barrels), only 4.7% of total imports, with the latest data, for August, showing imports at 151,000 tonnes (1.11 million barrels), 4.40%.

However with Ankara still at loggerheads with the Kurdistan Regional Government (KRG) over its referendum on formal independence from Baghdad held last year, substituting the bulk of Iranian imports with volumes from Iraq may not now be such a simple option. Meanwhile, the recent commissioning of Azeri state firm SOCAR’s new STAR refinery near Izmir, has both boosted Turkish crude demand and added a new buyer to compete with Tupras.

Golden handshake

Given such an impasse, and ongoing tensions between Riyadh, Ankara and Washington, a sweetheart deal with Saudi, under which the kingdom agrees to a long-term crude deal with Turkish refiners on similar preferential terms as those believed to be given by Iran, would present a neat solution.

Turkey and Saudi could to some extent paper over their current differences – Ankara would be able to comply with US demands to reduce Iran crude imports, improving relations with Washington, while as Khashoggi’s murder slips from the international news agenda Washington too would find itself under less pressure to distance itself from the Saudi regime.

For Erdogan too, under pressure owing to the deterioration of the Lira, and Turkey’s ongoing current account deficit, there would be the added benefit that cheaper crude would allow his government to re-increase taxes on retail fuel sales, reduced over the summer to avoid political fall out, to the benefit of government coffers.

In short, a win-win solution for three governments involved, albeit more broadly at the expense of press freedom. Neither Ankara nor Riyadh has a spotless record in this regard, nor have they shown much interest in its promotion.

Edited by

Ian Simm

Editor

Any questions? Please get in touch