The past decade has seen Turkey’s economy take off, but one significant drag on its performance is the country’s paucity of indigenous hydrocarbon resources, resulting in massive energy import bills. Turkey’s booming economy is the envy of its Middle Eastern and European neighbors. In 2013 the World Bank reported, “Turkey is one of the largest middle-income partners of the World Bank Group (WBG). With a Gross Domestic Product (GDP) of $735 billion, Turkey is the 18th largest economy in the world. In less than a decade, per capita income in the country has nearly tripled and now exceeds $10,000. Although economic growth was slowed by the onset of the global economic crisis in 2008, it has nonetheless remained resilient - making Turkey an example from which other countries in the region can learn.”

Energy imports in 2012 cost Turkey $60.1 billion, an 11 percent increase over 2011, according to data from the state statistics body TÜ?K. Energy accordingly accounted for a quarter of Turkey’s $237 billion spent on imports in 2012, and the International Monetary Fund forecasts that by 2017 Turkey’s annual energy import costs will surpass $70 billion. In 2010 and 2011, Turkey's economy was one of the fastest growing economies in the world, at over 8 percent annual growth rates.

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The authoritative U.S. government’s Energy Information Administration reports in its country brief on Turkey last year that the country’s proven oil reserves stood at a mere 270 million barrels, located mostly in the country’s southeast region. The EIA continues, “Turkey's oil production peaked in 1991 at 85 thousand barrels per day (bbl/d), but then declined each year and bottomed out in 2004 at 43 thousand bbl/d. Although Turkey's production of liquid fuels has increased slightly since 2004, it is far short of what the country consumes each year.”

It is in this context that the 13 January announcement by state-owned Turkish Petroleum Corporation (TPAO) that it had discovered oil at a high gravity well in Silopi district in Turkey’s eastern ??rnak province along the country’s 205 mile-long border with Iraq and near its frontier with Iran. Notably, both Iraq and Iran are major oil producers.

High-gravity oil was found at a depth of 1.8 miles at TPAO’s Çal??kan-1 well, which it started exploring six months ago less than a mile from Hezil Creek. TPAO said this is its first discovery of so-called high gravity oil in the region, but offered no estimate of the site’s reserve potential. TPAO Batman Regional Director Gökhan Ak?n said, “Sometimes water is also encountered in high-gravity oil and the capacity of it will be cleared within a week.”

While TPAO’s Çal??kan-1 well discovery is potentially good news, any viable production to make a dent in Turkey's oil consumption rates, which averaged 706,000 bpd in 2011, is still years away, and Ankara is accordingly seeking to diversify it oil import sources, from Russia to Iran and Iraq.

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A recent contract signed in Iraq’s northern Kurdish region has the potential to strain Turkey’s relations with Baghdad, however. Turkey’s Genel Energy Plc, the biggest oil and gas operator in Kurdistan, said shipments of crude to Turkey through a new pipeline will start shortly, allowing the company to receive higher prices for its Iraqi production. On 15 January Genel Energy Plc stated that Iraq’s Kurdistan Regional Government “expects sales via the pipeline to commence in the near future and ramp up over the remainder of the year.” Some “early oil” crude has already flowed Turkey’s Mediterranean deepwater Ceyhan oil port.

The Iraqi government, which insists that the KRG has no right to unilaterally conclude oil agreements without Baghdad’s permission, has reacted angrily to the development. On 17 January Iraq’s Oil Minister Abdul Karim Luaibi stated, "The Oil Ministry has taken the necessary procedures by asking the legal parties in Baghdad and Ankara to start the legal process to conduct a lawsuit against the Turkish government because it allows the (Kurdistan) region to pump oil through the export pipeline without the approval of the central government," according to a statement given to Platts. Whether Baghdad will follow through on its threat remains to be seen.

And TPAO’s Çal??kan-1 well discovery is also becoming a political bone of contention; Turkey Energy Minister Taner Y?ld?z has said the government will not share the results of the study regarding oil discovered by TPAO in ??rnak, in order to prevent accusations of exploitation ahead of the coming local elections, scheduled for March, commenting, “even if we find oil, we won’t say.”

In the meantime, Turkey’s energy import bills continue to rise.

By. John C.K. Daly of Oilprice.com