Unable to Buy Iran Oil, New Turkish Refinery Turns to Russia

By Ercan Ersoy and Baris Balci

Azerbaijan’s state oil company is turning to Russia to supply a new $6.3 billion refinery it built in Turkey because shipments from one of its preferred suppliers—Iran—are off the table due to U.S. sanctions.

The Star Refinery in Aliaga on the Aegean coast agreed to buy an initial 1 million tons of Urals crude—about one tenth of the plant’s annual processing—from Russia’s Rosneft PJSC, Mesut Ilter, the facility’s chief executive officer, said in an interview.

“If there were no restrictions, we would buy Iranian crude,” he said, adding that the refinery can purchase oil from anywhere “as long as our model supports it,” although in practice Azerbaijan’s own light crude isn’t really suitable.

The Trump administration this year ended waivers that allowed a handful of countries including Turkey to continue importing Iranian oil. Turkey has long opposed U.S. sanctions on Iran, with President Recep Tayyip Erdogan saying the measures violate international law and diplomacy. Tracking shipments from Iran toward Turkey has become trickier since the sanctions ramped up, making it hard to know how much, if any, Iranian oil Turkey is buying.

The State Oil Co. of Azerbaijan, or Socar, started operating the 200,000 barrel-a-day Star Refinery in October, helping to meet Turkey’s growing appetite for processed fuels while curbing imports. The project marked a growing energy interdependence between the two countries, with Turkey already a major destination for Azeri natural gas.

Turkey’s Tupras Turkiye Petrol Rafinerileri AS, owned by Koc Holding AS, was the country’s sole refiner until the Star plant came on stream. The new facility now accounts for a quarter of the nation’s refining capacity.

Product Range

The refinery, which is expanding storage capacity by more than 50% to 2.5 million cubic meters, will process almost 8 million tons of crude this year and 10 million tons thereafter, Ilter said. Refining margins range from $5 to $8 a barrel, he said.

At full capacity, the plant will produce 5 million tons of diesel a year, 2.5 million tons of petrochemical raw materials such as naphtha, and 1.5 million tons of jet fuel.

Turkey will cut its diesel imports to 40% of annual demand from 60% thanks to the new refinery, Ilter said. Along with Tupras, the Star facility will be able to meet all the nation’s domestic jet-fuel demand, even once Istanbul’s new airport reaches full capacity, he said.

However, future growth in demand for oil products will be centered on petrochemicals rather than transportation, according to the CEO.

“We have built this refinery considering Turkey’s long-term dynamics and petrochemical needs.”

Photo: Wikicommons