Turkey long has sought to become a regional energy hub. Traditionally, it has received oil and gas from not only Iraq and Azerbaijan, but also Turkmenistan via gas swaps with Iran. This has continued despite sanctions, largely because of cut-outs and exemptions. The Shah Deniz field in Azerbaijan, for example, keeps delivering gas to Turkey and Europe, despite its Iranian ownership, because of specific sanctions exceptions.
At the same time, U.S. sanctions worries have now stopped Turkmen gas transported through Iran to Turkey. That contrast lays bare a limit in Turkish President Recep Tayyip Erdoğan’s strategy: Lining up suppliers and building pipelines does not automatically deliver gas reliably to fulfill European contracts.
Energy Minister Alparslan Bayraktar has said Washington stepped in, even though Turkey made no direct payments to Iran, suggesting the reason for U.S. sanctions, though proof of violations is not public.
The Shah Deniz field in Azerbaijan, for example, keeps delivering gas to Turkey and Europe, despite its Iranian ownership, because of specific sanctions exceptions.
Turkmenistan’s agreement with Turkey relied on a swap by which Turkmenistan would send gas to Iran, and Iran would supply the same amount of gas to Turkey. It is unclear if Tehran received fees, retained gas, or other recompense.
These particulars are important since U.S. sanctions do not simply prohibit Iranian gas transactions. Natural gas is exempt from Section 1244 of the Iran Freedom and Counter-Proliferation Act; related financial transactions, though, are still subject to limitations.
Significant transactions with the National Iranian Oil Company or Naftiran Intertrade Company and material assistance for specified entities may be penalized by separate authorities if they do not meet the pertinent exceptions.
Thus, Turkmen origin does not provide universal protection, any more than gas from any other state would. A swap may subject participating banks or firms to sanctions, depending on the counterparties and payment agreements. Paying Iran with gas instead of cash would not eliminate that risk on its own. Claiming that Washington discovered a specific infringement goes beyond the facts in the absence of complaints by the U.S. Department of the Treasury Office of Foreign Assets Control.
Because enforcement uncertainty makes financially beneficial agreements risky, banks and governments also may decide to leave them. This impacts Azerbaijan as well. Azerbaijan’s main export corridor runs through Georgia and Turkey to bypass Iranian territory, though Azerbaijan and Turkey rely on Iranian infrastructure for other trade. Still, Iran’s Naftiran Intertrade Company holds a 10 percent stake in the Shah Deniz field and the related South Caucasus Pipeline. The Office of Foreign Assets Control preserves the exceptions for the project that supplies gas from Shah Deniz to Turkey and Europe, even with Iranian participation. It is a major loophole from the point of view of those who seek more pressure on Iran.
Russian involvement is present as well. Russia’s Lukoil’s has a 19.99 percent interest in Shah Deniz. Russian equity does not turn Azerbaijani production into Russian gas, yet it shows why claims that the corridor is insulated from sanctions oversimplify the picture. Operators must manage ownership stakes, payments, and regulatory permissions with care to ensure they do not run afoul of limited sanctions exemptions.
Could Azerbaijani gas face restrictions similar to those that halted the Turkmen swap? Yes, if companies arrange Iranian swaps without proper authorization or cut corners. That remains a risk, not evidence of an approaching ban. Russian gas marketed through Azerbaijan would raise a separate issue: European Union rules now require verification of the country of production as Europe phases out Russian imports. An Azerbaijani seller cannot erase Russian origin.
European Union rules now require verification of the country of production as Europe phases out Russian imports. An Azerbaijani seller cannot erase Russian origin.
The deeper lesson concerns bargaining power. The proposed Turkmen arrangement offered only 1.3 billion cubic meters, a modest addition to Turkey’s portfolio. Its real value lay in the extra option it gave Ankara during price talks. Losing that lever leaves remaining suppliers freer to bargain harder.
Ankara still has alternatives, each with clear trade-offs. A Trans-Caspian pipeline would bypass Iranian transit and link Turkmen reserves to Azerbaijan, yet it still needs financing, firm purchase commitments, and years of construction before any gas flows. Extra Azerbaijani production demands further investment and time.
Liquified natural gas provides greater sourcing flexibility, though its cost depends on contracts and market conditions and is not automatically higher than pipeline gas. None of these options offers an immediate substitute for the lost Turkmenistan gas.
While Turkey seeks to be an energy hub, implementing that strategy is increasingly difficult. Erdoğan’s government must secure contracts, transparent supply records, and reliable regulatory access. Shah Deniz demonstrates that sustained diplomacy can protect valuable projects, but the Turkmen episode shows the cost of assuming that ambition alone will secure the same treatment.
