Turkey’s delicate game with Iran and the West

Turkey is playing a very delicate and inherently very dangerous game to balance out the conflicting interests of its major ally the United States and its most important neighbor after Russia – Iran — when it comes to the sanctions imposed on Tehran over its controversial nuclear program.

Though Turkey officially declares it will only obey United Nations Security Council (UNSC) mandated sanctions and disregard unilateral ones including those of the US and European Union, in practice it did not quite work the way Ankara wanted it to be played out. We know, from our sources in the government, that Turkey intervened to stop the shipment of some so called “dual-use” materials to Iran because these materials could potentially be used in building nuclear reactors or be converted as parts for the missile arsenal.

On more than one occasion, the Turkish government acted to intervene in halting the trade of a Turkish company from going forward with an Iranian partner at the request of the US administration, which provided the details of the transaction. Interestingly, the goods and materials in question were not necessarily covered by the scope of the UN-mandated list of prohibited materials. After a senior government official shared some of the confidential information on the issue last week with us, we now have good reason to believe that Ankara went along with the requests of Washington.

After doing some digging, we learned for example that the US has been closely monitoring 54 Turkish companies that produce materials that could potentially be used in Iran’s nuclear program and that the Turkish government has banned these companies from trading with Iran upon a request from the US administration. The so called “Iranian watchers” among the staff of the US Embassy in Ankara and consulates in İstanbul, Adana and the consular agent in İzmir have for some time now been gathering information on Turkish companies that either trade with Iran or manufacture materials that can be used in shoring up the defense of the Iranian regime.

The watchdog agency in Turkey that oversees goods that potentially violate the UN, US and EU-sanctioned lists is the Foreign Trade Undersecretariat (DTM), run by Cabinet-level Minister Zafer Çağlayan. The agency maintains a list of companies and materials that can be a problem for Turkey to be in compliance with the Iranian sanctions but keeps it highly classified for fear of provoking a backlash at home or triggering a crisis with Iran. Ironically, the DTM is the lead government agency to spearhead boosting trade with Iran from its current level of an estimated $12 billion in 2010 to $30 billion in the next couple of years.

Under current conditions, it seems the $30 billion trade volume is not only an ambitious goal but unrealistic as well. The sanctions regime alone chipped away $1 billion since the middle of 2010 and will likely increase in 2011. What is more, the notoriously cumbersome and nationalist Iranian bureaucracy would do anything to prevent Turkish companies from making inroads in the Iranian market. Unless you have a strong broker or partner who is very close to one of the power centers in Tehran — be it religious leadership or Parliament or the Office of the President — you are doomed to suffer from unexplainable difficulties at each step along the way.

It is public knowledge that the Revolutionary Guards that run multiple enterprises do not like the idea of giving up lucrative deals to foreigners, which surely includes Turkish businesses. The bitter experience of Turkish airport management company TAV in Iran still lingers in the memories of Turkish investors and traders. The company, along with its Austrian partner, was awarded the contract to run the newly built airport in Iran but was quickly thrown out after the Revolutionary Guards took over the airport by force. The negative impacts of sanctions on Turkish interests are not limited to trade only. Fearing that its business interests may suffer in the US and European markets, the Turkish government quietly told Turkish bankers to use extreme vigilance in financing trade deals with Iranian companies and avoid extending credits to Iranian investments by Turkish companies. The state banks, Halk Bank and Ziraat Bank, which had been searching to establish branches in Tehran to stimulate trade with Iran, were told to suspend their efforts until the tense situation diffuses between Iran and Western powers.

Mindful of sanctions, we are where we are now primarily because neither senior government-level contacts between Turkey and Iran nor the seemingly strong commitment of the diverse Iranian leadership has succeeded so far in cutting the red tape in Iranian bureaucracy, hampering trade from growing more. Though it is clear that Turkey would never be the United Arab Emirates, the major Iranian trade partner, in caving in to the pressure brought to bear by American and European powers in curbing trade with the Iranian regime, Ankara nevertheless is feeling the heat and trying to perform a balancing act in order to satisfy both sides.

Undoubtedly that is not an easy undertaking. Stuck between a rock and a hard place, Ankara could very well be a scapegoat or a fall guy to blame by both sides when everything goes south in this part of the world.

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