"Iran is now putting the finishing touches to its natural gas pipeline link-up with Turkey, thus enabling it to embark on transmitting its natural gas to its neighbour for the first time...," said a state oil company statement.

Turkey and Iran agreed a landmark $23 billion deal in 1996 that Turkey would initially buy three billion cubic metres (BCM) of gas from Iran through a pipeline from Iran's Tabriz to Turkey's capital Ankara.

Construction has proceeded on the new link but Turkish energy minister Cumhur Ersumer expressed doubts on last Wednesday that Iran could begin deliveries as quickly as it hopes.

He said construction of the Turkish side of the pipeline was still in progress and he did not believe that Iran was ready in terms of pipelines or gas supplies.

"We know that the pipelines in Iran are not ready," he said when asked about the statement. "We know that Iran does not have the amounts of gas which it has pledged to us." He said the head of Turkey's pipeline company Botas would visit Iran next week for discussions on the deal.

The start of deliveries through the new link could raise tensions in a region where oil and gas deals are often entangled in geopolitics. The United States, which has mounted a political and economic campaign to isolate Iran, had opposed the deal.

Washington has repeatedly urged Turkey, which needs diverse energy sources to help close its power deficits, to consider alternative gas suppliers."Regional projects will go ahead as along as they are commercially sound and no matter what politics dictates. Economics undermine sanctions," an Iranian official said.

Analysts said the exports to Turkey will be another political coup for Iran which is looking to carry out such high profile deals to prove that the United States has failed to harm its interests with the threat of sanctions."This is the first time ever that Iranian gas is exported to Turkey.

Officially the United States sanctions are still in place. It's another big boost for Iran," said Mehdi Varzi, director of research at Dresdner Kleinwort Benson in London.

Shell deal sets pace for others
In November, Iran signed an $800 million deal with oil giant Royal Dutch/Shell to develop two offshore oil fields in the Gulf. The agreement defied the threat of the US sanctions against companies that do business with Iran.

Iran is expected to sign further such deals under the country's biggest energy opening since the 1979 Islamic Revolution-40 projects worth more than $8 billion tendered last year.

Washington is still sticking to its Iran Libya Sanctions Act (ILSA), which threatens to punish foreign firms investing in Iranian energy, even though it has failed to act against recent deals by France's Total Fina and Elf Aquitaine, Malaysia's Petronas and Russia's Gazprom.

The 1996 Iran-Turkey gas deal was heralded as vital to Turkey's efforts to increase gas imports to meet demand expected to rise to 15.8 BCM next year from 13 BCM this year. Turkish gas needs were seen rising to 55 BCM by 2010.