Turkey for Iran Rescue

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Turkey to promote closer trade ties with Iran​

By Roula Khalaf and Delphine Strauss in Ankara

Published: July 25 2010 12:21 | Last updated: July 25 2010 12:21

Turkey could emerge as a new safety net for Iranian business as the government insists that it will abide by United Nations sanctions, but not the more sweeping restrictions imposed on Tehran by the US and the European Union.​

Mehmet Simsek, the finance minister, told the Financial Times that Turkey would not shy away from promoting closer trade links with Iran.

“We will fully implement UN resolutions, but when it comes to individual countries’ demands for extra sanctions we do not have to,” said Mr Simsek.

“The facilitation of trade that is not prohibited under UN resolution should and will continue.” If a trade deal needs to be financed, he added, “we will have to find a way to pay for it”.

Mr Simsek’s comments came as the International Energy Agency confirmed that a state-owned Turkish refiner, Tupras, had stepped in to supply Iran after several international companies stopped selling the country refined petroleum.

Meanwhile Turkey’s foreign economic relations board said the country’s ports, notably Mersin and Trabzon, would try to handle some of the trade with Iran that has been going through Dubai. The Gulf emirate is steadily restricting its economic ties with Tehran.

Samet Inanir, a strategy counsellor at the economic relations board, said Istanbul could also offer an alternative to Dubai for Iranian investors in real estate. He noted that more than 120 Iranian companies based in Dubai had recently applied to their country’s embassy for information about doing business in Turkey.

The US Congress passed legislation last month shutting any banks with ties to Iran - or any companies selling petroleum products to the country - out of the American market.

These measures are set to be followed by unilateral European Union sanctions on Monday, including possible restrictions on investment in Iran’s oil and gas sector.

But Turkey has been following a more assertive and independent foreign policy. Eager to promote trade with its neighbours, the government has been going its own way when it comes to Iran, much to the frustration of Washington.

Ankara was one of only two UN Security Council members to oppose Resolution 1929 which tightened sanctions on Iran last month.

People close to the Turkish government suggest that Ankara will watch the behaviour of Russia and China to gauge the extent to which it can afford to ignore unilateral US sanctions. Chinese companies have also been supplying Iran with petroleum.​

For Turkish banks, however, the value of trade with Iran does not justify the risks: exports of some $2bn a year - including iron, steel, furniture, wood and machinery - are only a fraction of Turkey’s total. But Iran is the second biggest supplier of gas to Turkey, and Tehran announced last week a $1.3bn pipeline deal to take gas to its neighbour.

“Iranian banks are coming and going to Turkey to talk about trade facilitation, but because of sanctions, Turkish banks are looking at it rather negatively,” says a senior banker.

The difficulties of financing trade, however, are not deterring Turkish exporters. Mr Inanir said that even major conglomerates now went to gold dealers around Istanbul’s Grand Bazaar to transfer money to Iran though the trust-based, Islamic hawala system. Under hawala, funds are received in local currency in one country and a correspondent is instructed to pay an equivalent amount in another.

One such company is MLS Holding, which exports lubricants, cars and spare parts for construction equipment, with annual sales to Iran of just under $2m. Most are re-exports for foreign companies that do not want direct dealings with Tehran.

“We are expecting more companies from abroad to get in touch with us,” said Ozan Ziylan, the general manager of MLS, adding that he used the hawala system for a significant proportion of sales. “It’s not as safe as the banking system, but you get used to it.”

But Mr Inanir said there were problems other than sanctions. The biggest obstacle for Turkish companies remains Iran’s high tariff barriers – reaching more than 50 per cent on some products – and a generally difficult investment climate.

Additional reporting by Javier Blas in London

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