What’s Iran doing with Turkish gold?
July 9, 2012 8:10 pmby beyondbrics
By Humay Guliyeva and Pan Kwan Yuk
That is the question beyondbrics found itself asking after it had a look at Turkey’s latest trade figures.
According to data released by the Turkish Statistical Institute (TurkStat), Turkey’s trade with Iran in May rose a whopping 513.2 per cent to hit $1.7bn. Of this, gold exports to its eastern neighbour accounted for the bulk of the increase. Nearly $1.4bn worth of gold was exported to Iran, accounting for 84 per cent of Turkey’s trade with the country.
So what’s going on?
In a nutshell – sanctions and oil.
In recent months, western powers, notably the US and the European Union, have tightened financial sanctions on the Islamic regime in an attempt to force Iran to scale back or halt its efforts to enrich uranium.
In March, Iran was cut off from from Swift, the global payments network, effectively blocking the country from performing any international financial transactions.
With Tehran struggling to repatriate the hard currency it earns from crude oil exports – its main foreign currency earner and the economic lifeblood of the country - Iran has began accepting alternative means of payments – including gold, renminbi and rupees, for oil in an attempt to skirt international sanctions and pay for its soaring food costs.
“Iran is very keen to increase the share of gold in its total reserves,” says Gokhan Aksu, vice chairman of Istanbul Gold Refinery, one of Turkey’s biggest gold firms. “You can always transfer gold into cash without losing value.”
Turkey’s gold exports to Iran are part of the picture. As TurkStat itself noted, the gold exports were for “non-monetary purpose exportation”. Translation: they were sent in place of dollars for oil.
Iran furnishes about 40 percent of Turkey’s oil, making it the largest single supplier, according to Turkey’s energy ministry. While Turkey has sharply reduced its oil imports from Iran as a result of pressure from the US and the EU, it is unlikely to cut this to zero. The country pays about $6 a barrel less for Iranian oil than Brent crude, according to a recent Goldman Sachs report.
According to Ugur Gurses, an economic and financial columnist for the Turkish daily Radikal, Turkey exported 58 tonnes of gold to Iran between March and May this year alone.
“I saw the surge back in March, when gold exports increased by 36 times compared to March of 2011,” Gurses told beyondbrics. “I waited to see if the trend would evolve. Effectively, Iran converted $3bn of its reserves into gold through financial operations with Turkey, bypassing sanctions.”
Iran’s woes have proved to be a boon to Turkey’s current accounts. Turkey’s trade deficit narrowed by $1.6bn in May, compared to the same period last year. For the year to end of May, the deficit narrowed by $8.3bn, compared to the same period last year.