US sanctions start to bite on Turkish gold exports

By bne IntelliNews February 18, 2013

bne -

Turkish gold exports, which have contributed significantly to Ankara's success in quashing its current account deficit, are being hit hard as a second round of US sanctions against Iran clamp down on the gas-for-gold trade, suggest bankers. However, some argue that could just push the flow of cash from Turkey to Iran further underground.

Raised restrictions are now strangling the system by which Iran has been circumventing the sanctions by using Turkish lira payments for gas to buy gold, which it then exports via courier. The main target of the sanctions is state-controlled Halkbank, according to unnamed bankers speaking to Reuters, which holds the initial Turkish lira payments. It has also been processing Indian payments for Iranian oil.

A provision of the latest US sanctions, made law last summer and implemented from February 6, effectively tightens control on sales of precious metals to Iran and prevents Halkbank from processing oil payments by other countries back to Tehran, the sources told the newswire.

The level of gold exports from Turkey to Iran had already been falling as banks backed off under US pressure. However, the new rules look to be pressing Halkbank to jump into line also, but insisting that the cash can only be used to purchase certain items. Gold is not on the approved shopping list.

"Halkbank can only accept payments for Turkish oil and gas purchases and Iran is only allowed to buy food, medicine and industrial products with that money," one senior Turkish banker said. "The gas-for-gold trade is very difficult after the second round of sanctions. Iranians cannot just withdraw the cash and buy whatever they want. They have to prove what they are buying... so gold exports will definitely fall."

Energy-hungry Turkey has been resisting the sanctions against its biggest gas supplier. Despite admitting last week that the trade has been dropping, Economy Minister Zafer Caglayan reiterated that Turkey will not be swayed by US pressure to halt gold exports to Iran. That resistance is driven by the fact that gold exports helped to reduce Turkey's current account deficit to around 6% by the end of 2012, from over 10% a year earlier. Energy imports are the single biggest contributor to the imbalance, which in turn heavily exposes the country to potential shocks in the European banking system and holds back the country's international ratings.

However, the leverage on the banks may make Ankara's objections irrelevant, say the sources. "You could say that the United States has achieved its aim," said a western diplomat. "If Turkey is going to continue energy imports from Iran, there is no other way to go than trading sanction-free goods."

Turkey was a net gold importer in 2011, but swung to being a net exporter last year. Gold exports to Iran rose to $6.5bn in 2012, more than ten-times the level of 2011, while exports to the United Arab Emirates - much of it for onward shipment to Iran or conversion to hard currency - rose to $4.6bn from $280m. Overall, Turkish bullion exports fell to 10.5 tonnes in December from 15.2 tonnes in November.

Turkey, with its rapidly growing economy, has traditionally been defiant about its right to continue buying Iranian gas, arguing that it cannot simply replace 30% of its daily supply elsewhere. However, Tehran may look for other customers if it can't get at its payments. "With so many restrictions, Iran's cash may accumulate in Halkbank accounts - they may have difficulty getting some of that money out of Turkey," another Turkish banker said.

However, while funds flowing through the likes of Halkbank are relatively easy to check, there is a growing number of smaller targets looking to duck below the radar, reports Trend. To that end, Iranian backed companies have been opening en masse over the past two years, the Azeri newswire reports.

According to a report released by the Turkish Union of Chambers and Commodity Exchanges (TOBB) on February 15, 28 Iranian-funded foreign companies were established in Turkey in January, ranking them just behind German investors. A TOBB report published in September stated that 651 Iranian-funded foreign companies were established in Turkey in the first nine months of 2012 and a total of 2,140 companies funded by Iran in 2011.

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