Turkey Swaps Gold for Iranian Gas (Nov 2012)

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Source: WSJ – Turkey Swaps Gold for Iranian Gas

Notable excerpts:

Turkey on Friday acknowledged that a surge in its gold exports this year is related to payments for imports of Iranian natural gas, shedding light on Ankara’s role in breaching U.S.-led sanctions against Tehran.

The continuing trade deal offers the most striking example of how Iran is using creative ways to sidestep Western sanctions over its disputed nuclear program, which have largely frozen it out of the global banking system.

The disclosure was made by Turkey’s Deputy Prime Minister and top economic policy maker Ali Babacan in answers to questions from the parliamentary budget committee.

Iran provides 18% of Turkey’s natural gas and 51% of its oil. But since U.S. and European Union sanctions ban Tehran from receiving payments in dollars or euros, Ankara pays Iran for the gas in Turkish liras. The lira is of limited value for buying goods on international markets but ideal for purchasing Turkish gold. The government hasn’t specified how it pays for Iranian oil.

In Turkey, state-run lender Turkiye Halk Bankasi AS has been responsible for processing the payments, since the U.S. adopted a measure in January to stop dealing with financial institutions working with Iran’s central bank, freezing out private Turkish banks from facilitating payments.

Mr. Babacan’s remarks Friday helped clarify an aspect of Turkish trade policy that has been a source of speculation since unusually high exports to Iran first appeared in March, the month Iran was cut off from the Swift global payments network, effectively blocking the country from performing international financial transactions.

Tehran has sought alternative means of payment for energy exports—its main foreign currency earner and economic lifeblood—including renminbi and rupees, as well as gold, in an attempt to skirt international sanctions and pay for its soaring food costs.

Analysts cautioned that although the trade with Iran wasn’t illegal, Ankara wanted to keep details out of the public eye for fear of raising the ire of Washington, which is leading the international push against Tehran for its alleged push to develop nuclear weapons. Iran says its program is for peaceful purposes including medical treatments.

Turkey sold $6.4 billion of gold to Iran in the first nine months of this year, up from just $54 million in 2011, according to official data, tripling Ankara’s exports to its eastern neighbor and almost evening the trade balance that historically has been dramatically in Tehran’s favor. Iran accounts for 60% of Turkey’s gold exports this year, followed by the United Arab Emirates with 30% of the total.

Although Turkish gold sales to Iran spiked parallel to U.S. and European Union sanctions, August and September saw bullion exports shrink amid a jump in sales to the United Arab Emirates, leading to speculation that the gold is now traveling to Iran through the U.A.E.

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