Rial Loses Value as New Sanctions on Gold Trading Go into Effect

New U.S. sanctions against Iran, including a ban on gold trading, came in force today. Reacting to the new sanctions, the rial retreated against the dollar in Iran’s open currency markets. On Monday, the currency was traded at 34,000 rials for one dollar. In the days after Rouhani’s victory, the rial had regained some of its lost value, trading as low as 28,000 rials a dollar.

Because of earlier sanctions on banking sector and financial transactions, Iran is increasingly trading its oil for gold with countries like Turkey, and the new ban on gold trading is meant to stop Iran from circumventing those sanctions. 

Turkish Gold Export to Iran at $118 Million in February

Turkey exported $118 million worth of gold to Iran in a natural gas for gold semi-barter arrangement between the two countries, Turkish Statistics Institute (TUIK) announced today. The gold export provides Iran with one of its few links to foreign financial markets still available. The United States has given Turkey a six-month waiver exempting it from sanctions on gold trade with Iran, which is due to expire in July. (Hurriyet Daily News, 1 April)

Turkey’s monthly gold sales to Iran peaked at $1.8 billion last July, more than 10 times the amount exported to Iran in February.

“Trade with Iran continues; there will always be transfers. Looking at this year’s figures, the February exports to Iran are quite low, so it shouldn’t cause issues,” said a gold trader in Istanbul. (Reuters/Hurriyet Daily News, 1 April)

Turkey receives natural gas from Iran. Its payments are deposited in local currency lira in a Halkbank account. The Iranians then use those liras to buy gold in Turkey. Couriers then carry bullion worth millions of dollars in hand luggage to Dubai, where it can be sold for foreign currency or shipped to Iran.

New Sanctions Wipe Out Gold-for-Gas Deals Between Iran and Turkey

Iran Cash in Turkey Accumulating – Difficulty to Get Money Out 

Turkish bankers told Reuters on Friday that the tightening U.S. sanctions are killing off Turkey's gold-for-gas trade with Iran.

Turkey, Iran's biggest natural gas customer, has been paying Iran for its imports with Turkish lira, because sanctions prevent it from paying in dollars or euros. Iranians then use those lira, held in state-run Halkbank accounts, to buy gold in Turkey, and couriers carry bullion worth millions of dollars in hand luggage to Dubai, where it can be sold for foreign currency or shipped to Iran. New U.S. sanctions that went into effect on 6 February now prevent the sales of precious metals to Iran.

“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,” said a senior Turkish banker. (Reuters, 15 February)

“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,” the banker told Reuters.

“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 senior Turkish banker told Reuters.

Halkbank has also stopped processing other countries’ oil payments to Iran. A portion of India’s payments to Iran was processed through Halkbank until now. The new sanctions prevent Halkbank from processing those payments.

File photo: Turkey's Halkbank headquarters in Ankara (REUTERS/Umit Bektas)

Iran Buying Turkish Gold for Gas Exports

Avoiding Sanctions on Dollar Transactions

Iranians are buying Turkish gold bullion in record numbers. The Turkish Deputy Prime Minister Ali Babacan told parliament on Friday that Iran is buying gold with Turkish Lira that has been deposited into their accounts in exchange for Turkey’s purchase of Iranian natural gas.

“As Iran could not transfer the payment to [its own banks] in foreign exchange, the country buys gold with Turkish lira, and then takes the gold to its country. I do not know how Iran transports the gold, but this is the root of the matter. The gold export to Iran in reality becomes payment for the natural gas we buy from Iran,” Babacan said. (Hurriyet Daily News/Reuters, 24 November)

Photo: AA/Hurriyet