Zülfikar Doğan
Nov 09 2018

Iran sanctions a sparkling opportunity for Turkey

When the United States put a new round of sanctions on Iranian financial activities and oil and gas sales into force on Nov. 5, Turkey was one of eight countries granted an exemption for six months.

Exemption or not, President Recep Tayyip Erdoğan has made it clear his country will continue its energy trade with Iran, one of Turkey’s top suppliers. Without Iranian gas, Erdoğan said this week, Turks could find themselves facing a grim winter unable to heat their homes.

In fact, Turkey has a history in contravening sanctions on Iran. A scheme run through a Turkish bank to trade Iranian oil for gold was a lifeline for the Islamic Republic, before it signed the 2015 nuclear agreement with the United States, the four other members of the United Nations Security Council, Germany and the European Union.

The sanction-busting scheme moved a reported sum of between $22 billion and $24 billion, making it the largest such plot to date. A deputy manager of Turkish state-run Halkbank is now in jail in the United States for his part in the ruse and other unnamed Turkish officials could face arrest under sealed indictments should they set foot on U.S. soil or land in a country that might extradite them to the United States. The U.S. Treasury is currently deciding whether to impose fines on Halkbank that could run into the billions of dollars.

When the 2015 nuclear deal opened Iran up to the international markets, it had its pick of European and Asian countries to deal with, and the volume of trade with Turkey fell back.

But the introduction of new sanctions could cut out the competition – a boon for businesses in Turkey, where talk has reportedly already turned to new mechanisms that could get past the U.S. plan to ban Iran from SWIFT money transfers and exclude it from the international financial system.

“At the moment many countries and companies are withdrawing from Iran,” said Bilgin Aygül, a businessman who for years has headed the Foreign Economic Relations Board’s Turkish-Iranian trade council.

European companies, he said, were wary of secondary sanctions and even China wished to avoid risky trade with Iran despite currently being the most active country in the Iranian market.

“This is quickly creating a large gap in the Iranian market, and the country which has most luck in terms of being able to fill it is Turkey. It is already Iran’s neighbour, but it is also the only industrialised country nearby that can meet all of Iran’s needs,” he said.

Since Iran has been targeted by sanctions for almost 40 years, it has already developed a range of mechanisms to contravene embargoes.

But thanks to the weakness of both Turkey and Iran’s currencies, these mechanisms are unlikely to include trading in local currencies.

“That’s why they will trade in dollars and euros, and Istanbul’s money dealers are already at work ... During the previous sanctions, over 200 of Iran’s frontrunning companies and businesspeople set up companies and offices in Turkey,” Aygül said.

Goods produced by Iranian companies in Turkey were sent back home to Iran, and a repeat of this, combined with the lively border trade that sanctions are bound to encourage, will mean a significant jump in cash and gold transactions, he said.

Another fact in Turkey’s favour is that, since its release of U.S. pastor Andrew Brunson, relations have improved with the United States, which Aygül said was therefore likely to extend Turkey’s exemption.

“This is why Turkey can turn these sanctions into an opportunity,” he said. “At the moment we are almost without rival in the Iranian market.”

Turkish company Hayat Holding has already cornered the market in disposable hygiene products, the Turkish chemical and fertiliser giant Gübretaş has invested billions in Iran, and Turkish textile and cosmetics companies have made their mark. Aygül expects Turkish companies to consolidate their hold over the Iranian market in the coming months and make their presence in the country permanent.

“Trade, which had peaked at $22 billion fell to around $10 billion, and not counting gold trade to only $2 billion or $3 billion. This will rise quickly,” Aygül said, noting that the prospect of increased trade had already raised excitement in the eastern Turkish city of Van, near the border with Iran, and Gaziantep, a southeastern province whose developed industrial sector he expects will play a key role in supplying the Iranian market.

“There may not be industry in Van, but there’s been the start of incredible activity in Gaziantep, and these two provinces will be Iran’s new lifeline,” he said.

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.