Corporate Debt Review

The Turkish-Iranian “Gold-for-Oil” Scheme

Iran’s Golden Egg Gets Goosed

The case unfolding in The US District court for the Southern District of New York involving banking attempts to subvert US sanctions against Iran has revealed a detailed network.

Much if this ends up being about the trade in gold – or what it could be collateralized into – and the trade in Iranian crude oil.

Turkish mega-banker Mehmet Hakan Atilla may be the principal defendant, but much of the spotlight has been centered on his co-defendant Turkish-Iranian gold trader Reza Zarrab, after the latter’s being arrested in Miami last March for allegedly evading US Iranian sanctions by means of multiple money transfers.

Those sanctions were actually lifted three months before his arrest but the actions in question predated the sanctions’ suspension.  Zarrab pled guilty in October and has been serving as a government witness against Atilla.

In the process, Zarrab’s testimony has produced headlines. These include explanations of how he avoided sanctions on Iran by structuring complex, shadily documented and excessive levels of gold trade between Turkey and the United Arab Emirates (UAE) to cover the deliberate bypassing of US sanctions.

Before Washington put gold on its Iran sanctions list, the surge in Turkish gold exports to Iran and the UAE was a clear indication that Turkey had begun paying for its crude oil and natural gas imports with gold. As several observers have noted, there is no other way to explain Turkish gold exports to Iran moving from $54 million in 2011 to $6.5 billion in 2012.

The US succeeded in blocking SWIFT transfer access to Iran in March 2012; that meant banks could no longer transfer payments for the oil and gas. According to the New York court prosecution and Zarrab’s intriguing testimonial additions, Turkish interests then deposited payments into an account Iran opened at Turkey’s major public bank, Halkbank. Money in that account was then converted to gold and transferred to Iran, until gold was added to the US sanctions list.

Zarrab alleged in court that he helped Iran use funds deposited in Halkbank to buy gold, which was smuggled to Dubai and sold for cash. Halkbank rejected the claims and stressed that all of its transactions complied with national and international regulations.

It was when Zarrab decided to cooperate with US authorities and testify as a witness that Atilla, a deputy general manager of Halkbank, became the main defendant in the case.

Fuzzy Math

With gold exports to Iran halted, Zarrab said that Turkey found itself holding onto a large amount of gold intended for Teheran. In response, Iran devised gold transfers from Turkey to the UAE.

But the underlying trade mechanism – at least according to manifests – changed significantly. Zarrab confessed in court that subsequent to the US adding gold to the sanctions list fictitious food exports replaced gold as the major commodity. In colluding with Iran to evade the sanctions, the UAE became the biggest foreign trade partner of Iran, with a 23.6% share in 2013.

Though everyone thought the illegal gold trade had ceased, data issued by the Turkish Statistical Institute has caused much confusion. Turkey imported $4.2 billion worth of gold through the first 10 months of 2017. Over the same period, Turkey exported $5.6 billion of gold to the UAE. The year before, however, Turkey’s gold imports were $3.1 billion and exports amounted to $1.6 billion. In 2012, when Zarrab initiated the gold trade, Turkey’s imports were also $3.1 billion, and exports to the UAE were valued at $2.6 billion.

When the US realized the blocking of the SWIFT route had led Iran to turn to gold, it moved to embargo the gold trade. Gold exports from Turkey sank to $1 billion while imports were about $4.6 billion. In 2014, when the embargo was most effective, exports fell to $480 million and remained at around $858 million in 2015 as the gold trade lost its utility as a tool of bypassing the embargo.

As economists in several locations have been quick to point out, Turkey’s total gold exports were worth $6.1 billion in 2017, with 82% of it going to the UAE. It was hardly normal for a country that doesn’t produce much gold – under 1,000,000 ounces, or less than US$1.2B worth in 2016 – to suddenly become UAE’s top supplier.

Turkish Gold – A Delight to Iran

According to a report circulated by Turkish media sources, Faik Oztrak, Turkey’s former undersecretary of the treasury and now opposition lawmaker, thinks one reason Turkey’s gold imports skyrocketed by 281% this year to $13.2 billion could be the central bank’s efforts to strengthen its reserves. There has been a 60% increase in the central bank’s gold reserves over the last 10 months. Nonetheless, Oztrak doesn’t dismiss a continuation of the Iranian mechanism.

“There is an incredible increase in imports. The UAE has become our top trade partner,” Oztrak said in an address to the Turkish parliamentary General Assembly in late November. “We don’t know who is behind it, but the central bank is reinforcing its gold reserves. This prompts the question of whether there is an imminent extraordinary situation in Turkey. Meanwhile, the public demand for gold is increasing because of fears of a pending economic crisis. The treasury is issuing gold certificates. Ziraat Bank [the second-largest state-owned bank in Turkey] has launched a campaign to encourage the public to put their gold holdings into banks. But this method could also be used for money laundering.”

He further queried, “What is the reason for the extraordinary increase in gold imports? How much of this gold is being kept in which countries?” Oztrak asked why there had been a six-fold increase in gold exports to the UAE this year, as well as a 250% increase in imports from that country. “This amount of nonmonetary gold exports and imports with the UAE needs an explanation. In previous years nonmonetary gold was particularly used to pay for gas. Is this what Turkey will be doing also this year to pay for its imports from certain countries?”

All of my sources knowledgeable in the regional trade dynamics contend that the increase in imports cannot be explained by any increase in domestic demand. The export and import of gold with the UAE are not considered routine economic activities, hence the speculation that gold is once again being used as ensuring payments to Iran.

In response, Turkish Deputy Prime Minister Bekir Bozdağ stressed in a Turkish television interview that Turkey has not violated any international law in its trade relations with Iran and said that the ongoing case in New York was a clear plot against Turkey. He further charged that the case is being conducted with the cooperation of the Gülenist Terror Group (FETÖ) and its operatives in the US, including the judge overseeing the case, several witnesses, and a research institution used to support the prosecution’s position.

Meanwhile, the Nationalist Movement Party (MHP) Chair Devlet Bahçeli lashed out at the U.S. for its attempt to “judge and target Turkey.” On Dec. 9, Bahçeli indicated in his criticism that the case in New York attempts to judge Turkey based on the “slanders of Zarrab.” He contended that if there were any unlawful transactions “the trial should be in Turkey, not the US.”

Stressing that Turkey can trade with Iran, the MHP chairman said, “As a sovereign country, we decide with whom we trade or form economic and trade relations.” He added that Turkey would not give up its political or economic interests because of the US.

As one of my close Persian Gulf confidants noted to me over the weekend, the gold-for-oil scheme has too much going for it to be either a political smear or a campaign against the government in Ankara.

“Where there is this much smoke,” he told me, “there is always a fire somewhere.” He then added partially tongue-in-cheek, “On this occasion, much of the flames appear to be gilded in Turkish gold while the blaze has been fueled by Iranian oil.”

About the Author


Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment.

He serves as an advisor to the highest levels of 27 countries, including the U.S., Russian, Kazakh, Chinese, Iraqi, and Kurdish governments, to the governors of several U.S. states, and to the premiers of two Canadian provinces. He’s served as a consultant to private companies, financial institutions and law firms in 29 countries, and has appeared more than 2,300 times as a featured radio-and-television commentator. He appears regularly on ABC, BBC, Bloomberg TV, CBS, CNBC, CNN, NBC, Russian RTV, and the Fox Business Network.

A prolific writer and lecturer, his six books, more than 2,700 professional and market publications, and over 650 private/public sector presentations and workshops have appeared in 47 countries.