David O’Byrne in Istanbul -

Western sanctions against Iran have been generating frenzied media coverage since long before their final implementation on June 28; the heady combination of the deeply unpleasant regime of President Mahmoud Ahmedinejad and its unwillingness to compromise over Iran's nuclear programme allowed the West to draw a metaphoric and literal line in the sand: those countries supporting sanctions are with us, those who don't are against us. And supporters of the sanctions have been quick to seize on any evidence purporting to show which side of that line various countries are on.

In light of this, the stories that surfaced in mid-July alleging that Turkish gas importer Botas and the country's sole oil refiner Tupras were circumventing sanctions by paying for Iranian oil and gas in gold bullion were perhaps understandable. After all, figures produced by Turkey's own state statistics office clearly show a leap of over 800% in Turkish gold exports to Iran, from $1.7m to $1.39bn (at $51,000 per kilogram, that's 27 tonnes) between February and May. Given that Turkey is a country with a moderately Islamist government which has consistently declined to implement its own sanctions against Iran, this could only mean one thing.

Or could it? In fact, the reality, as ever, is more prosaic and considerably simpler.

All that glitters

The sanctions implemented by the US and the EU oblige those countries subscribing to them to end imports of crude oil from Iran, and has ensured their implementation by isolating the Iranian banking system from the international Swift payment system. But they do not cover gas imports, which leaves Botas free to continue importing Iranian gas under its 1996 contract for 10bn cubic metres a year - good news for Turkish consumers for whom there are no alternative gas supplies available.

The sanctions also allow for exceptions to be made - as with China and India, both of which are allowed to continue importing Iranian crude, so Turkey's Tupras, which last year sourced 51% of its crude from Iran, was granted a 180-day waiver by the US, allowing it to continue importing Iranian crude until late December.

So much for the legality, but why is Turkey sending all that gold to Iran for if it isn't being used to pay for oil and gas.

To begin with, the gold isn't exactly Turkish. Just as Turkish gold exports to Iran have been rising this year - with only minimal domestic gold production - so have Turkish gold imports. Of the 27 tonnes of gold exported to Iran in May, 19.5 tonnes were imported, much of it coming from Dubai. Imports rose again in June to 24 tonnes.

And as one Turkish official points out to bne, even these figures are not high. In mid-2008, prior to the global crisis, Turkey's gold imports hit a monthly record of 48 tonnes, of which over a third was reckoned to be re-exported to neighbouring countries - including Iran, where gold imports are controlled by the central bank and sales are heavily taxed.

With the Iranian banking system all but closed off from the Swift network, it's little surprise rich Iranians and Iranian companies have been investing in a commodity that allows them to easily transport large amounts of value in a comparatively small space, and will - most likely - keep its value.

Which just leaves the matter of how Botas and Tupras are paying for their gas and oil, given the isolation of the Iranian banking system, if not in gold.

As a private company, Tupras is free to make commercial decisions as it sees fit, but state-owned Botas is governed by strict controls. "As a state company, Botas has neither the leeway nor the expertise to start buying gold," a Turkish official tells bne.

Indeed, a banking analyst at an Istanbul brokerage calls buying tonnes of gold and trucking it to Tehran "just silly." He points out that both companies were, prior to the implementation of sanctions, making payments to Tehran using Turkey's state-owned Halkbank, which has its own office in Tehran and is ideally placed to handle such transactions, and is widely reported to have been facilitating payments for Turkish companies permitted to trade with Iran.

Although neither company, nor Halkbank itself, are commenting on how they are facilitating payments, the bank is widely believed to still be able to facilitate money transfers despite the isolation of Iran's banks.

All of which makes the strenuous denial by Turkish Energy Minister Taner Yildiz that Turkey is paying for its oil and gas in gold, all the more believable. Both companies, he said, continue to pay in the currency they contracted to buy in; for state company Botas that's US dollars; for private company Tupras, Turkish Lira.