There are unique situations in international relations that well suit the phrase “to be caught between a rock and a hard place.” Given the current circumstances and challenges that lie ahead regarding commercial links with its eastern neighbor Iran, Turkey today unwillingly finds itself in this very position.
As a country that has to survive difficulties in a problem-prone geography, Turkey could, in some cases, be required to adjust to meet the demands of its neighbors. Turkey's “Iranian test” -- involving a country that is now in the West's firing line due to its controversial nuclear program -- is maybe the most apparent example of the cost of being in this particular region. Neighbors for hundred of years, Turkey and Iran traditionally refrain from giving an “antagonistic brothers” impression in the international arena. Turkey, along with Brazil, voted against a fourth round of sanctions by the UN Security Council against Iran in 2010, noting the focus should be on efforts for a negotiated solution. But this does not mean everything in Turkish-Iranian relations is a bed of roses. An ongoing impasse on Syria is a clear example of the tension that is taking place behind closed doors.
Considering the aspect of economic sanctions imposed against the Islamic republic, the situation is much more complex than it seems. Some Turkish government officials have recently expressed uneasiness regarding allegations that some Iranian-funded companies in Turkey served as front companies to circumvent UN-sponsored sanctions. The officials were pointing to the fear of a possible confrontation between Ankara and its Western allies due to violation of the US- and EU-imposed sanctions.
Seemingly contrary to these concerns, Turkish Development Minister Cevdet Yılmaz told reporters Tuesday in Tehran that Turkey expected to increase cooperation in trade with Iran. Turkey's mutual trade volume with Iran reached $16 billion last year. Yılmaz expects this number to increase to as high as $35 billion in 2015. Acknowledging problems due to sanctions, Yılmaz said the Turkish government promotes “legitimate trade” with neighbors and is ready to extend help to Turkish businesspeople.
Mixed feelings, possible action
Now that relations with Tehran reflect tension, observers argue Turkey could take stronger measures against Iranian companies that are said to jeopardize its national interests than it did before. Some observers regard some Iranian firms' activities and the use of front companies as interference in Turkey's domestic issues. They argue Iranian authorities could use private firms in Turkey as conduits to finance rallies against Turkish government decisions that Tehran does not like. The number of companies funded by Iran totaled 2,140 as of the end of last year, Turkish Union of Chambers and Commodity Exchanges (TOBB) data show. This was a 40 percent rise over 2010 and more than half of these firms are located in İstanbul.
The vital question is what Turkish authorities can do in practice to take measures against these firms. Iranians are known to use Turkish partners when setting up front companies, making it complicated for Turkish authorities to tell who is who and what they are after. “Turkey apparently has mixed feelings on this issue but it has to define its stance clearly,” Rector of Onsekiz Mart University Sedat Laçiner said in a phone interview with Today's Zaman.
Laçiner explained: “At the end of the day Iran is our neighbor and we need to continue healthy relationships with Iranians. It is true that some Iranian-funded firms are established inside Turkey to circumvent sanctions imposed on them. Turkey might lack some serious measures to combat this. Iran sees Turkey and the Gulf as two major exit lines out of current sanctions. Since the popular Arab Spring uprisings, Iran has had some problems in maintaining good relations with some Gulf countries in the same way as it did in the past.” It is known that the crackdown on Iranian-affiliated businesses in the UAE has forced Tehran to find alternative markets to meet its domestic demand.
Laçin underlines the importance of security concerns in trade ties with Iran: “This is proven by experience. …Some countries could use some businesses as tools to promote their interests or intervene in domestic affairs of a foreign country. This is more apparent in close neighbors and Iran is not exempt from the list of such manipulator countries.” According to Laçiner recent tensions -- due to the situation in Syria -- have increased suspicions of Iran. “Turkish authorities might be forced to take some strict measures on Iranian firms, scrutinizing their source of financing. But Turkey might find itself in a tough situation in this attempt. …Authorities must be careful to spare companies that entered Turkey only for trade reasons,” he opines. Laçiner recalls there are investors from the US and the EU who also engage in business with Iranian-funded firms in Turkey. “They either continue relations with Iranian counterparts prior to sanctions or start ties with new Iranian firms via Turkish market channels.”
Iranian business representatives frequent İstanbul's Atatürk Airport on a regular basis, going through the business circles in the country's largest economic hub. These are mostly officials from Iranian companies who already have investments in Turkey. One such company official from Iran who spoke to Today's Zaman on condition of anonymity says they have very few options other than Turkey to get around the sanctions. “We regularly visit Turkey for a few days to follow ongoing business performance and search the market for further possible business opportunities,” he says.
UN sanctions must be criteria for measures
If Turkey is going to implement measures to regulate Iranian firms, the criteria must be the fourth round of United Nations sanctions against Iran introduced in 2010, Turkey's International Strategic Research Organization (USAK) Vice President Kamer Kasım tells Today's Zaman in a phone interview. “If Turkey reveals that some Iranian firms gain financial benefit from operations in Turkey that violate UN sanctions, then authorities must of course act. These firms should be investigated and Turkey should cooperate with third parties to get the information about these firms it needs.” Iran sits down with world powers seeking curbs on its disputed atomic activity in Baghdad on Wednesday. Kasım says the Baghdad meeting will define the future of Turkey's stance against Iran. “If the meetings conclude that the fourth round sanctions should be maintained, then we have to abide by this. Turkish authorities could intensify the focus on Iranian-funded firms.”
The 2010 Security Council decisions expanded an arms embargo and tightened restrictions on financial and shipping enterprises related to “proliferation-sensitive activities.” A new wave of US sanctions on Iran introduced in February allows US institutions to freeze all property and interests of the Iranian government, the central bank of Iran and all Iranian financial transactions. EU restrictions have also reduced cooperation with Iran in foreign trade, financial services, energy sectors and technologies, and banned the provision of insurance and reinsurance by insurers in member states to companies in Iran or owned by Iranians. The EU also instructed the Brussels-based SWIFT financial messaging network to disconnect 25 Iranian banks on an EU blacklist, including the Central Bank of Iran, from its services. The Iranians have had partial success in withstanding payment problems by using Turkish banks so far. Turkey’s Halkbank had previously been subject to US criticism for it transferred India’s debt repayments for oil it bought from Iran. Tehran even attempted further branching out into Turkish financial markets. Three Iranian banks have recently applied for banking licenses in Turkey. But these developments have been on the radar of Turkey's Western allies.
The US is particularly concerned that some of the business deals between Iran and Turkey may violate US laws prohibiting the sale or transfer of American technology to Iran. Another major problem with the US is the use of financial tools by Iranian firms in Turkey. US officials have separately conveyed their concerns to the Turkish side in the past. Turkey cut its purchases of Iranian oil by 20 percent in March 2012 in face of allegations that US might opt to bar Turkish banks that conducted money transfers for Iran’s oil customers -- including the state-owned Halkbank -- from the US financial system. Halkbank has this week declined these allegations, saying the transfers were legal and that no US official or institution contacted the bank to convey uneasiness as regards this issue.