Turkey Vows to Defy U.S. Sanctions on Iran – Again

As the August 6 deadline approaches for the reinstatement of U.S. sanctions on Iran, Turkey has declared it “will not obey” and is vowing to continue buying oil from the Islamic Republic. Ankara played a pivotal role in Tehran’s efforts to evade U.S. sanctions prior to the nuclear deal in 2015. With U.S.-Turkish relations at a historic low point, Turkey appears poised to undermine U.S. policy toward Iran once again.

Pursuant to the U.S. withdrawal from the Iran nuclear deal on May 8, suspended sanctions will return in two phases, 90 and 180 days after the withdrawal, respectively. The Treasury Department described the timeframe as a “wind-down period” for foreign businesses to end operations in Iran. At the 90-day mark on August 6, the U.S. will reinstate sanctions on the precious metals trade as well as automotive sanctions. The second, much more comprehensive phase, which begins on November 4, entails the return of sanctions on the energy, shipping, and financial sectors, among others.

When the U.S. last levied oil sanctions on Iran in 2012, Turkey took significant steps toward compliance while laying the foundation for sanctions evasion on a massive scale. By reducing its imports of Iranian oil, Ankara received exemptions and ultimately waivers from the State Department to continue purchasing Iranian oil and gas.

Payment for these imports accumulated in special escrow accounts prescribed by U.S. legislation. Turkish businesspeople then laundered those escrow funds back to Iran in the form of gold, thanks to a loophole in the U.S. sanctions regime that permitted trade with Iran in precious metals. The scheme yielded Tehran at least $13 billion between 2012 and 2013 alone.

The Turkish “gas-for-gold” scheme only unraveled after a high-profile court case in the United States last year, when the Southern District of New York prosecuted Mehmet Hakan Atilla, a deputy manager of Turkey’s state-owned Halkbank, for bank fraud, money laundering, and sanctions violations. The court sentenced Atilla to a 32-month prison term. The U.S. Treasury is expected to slap a massive fine – rumored to be some $37.5 billion – on Halkbank for its violations – a major point of contention in U.S.-Turkish relations.

In light of this record, Turkish responses to sanctions requires careful scrutiny. Since the nuclear deal went into effect, Turkey has grown its oil imports, reportedly purchasing the same amount of oil from Iran as it did before 2012 – about 200,000 barrels per day. Last week, Turkish Foreign Minister Mevlut Cavusoglu stated, “We do not have to adhere to the sanctions imposed on a country by another country,” adding, “We don’t find the sanctions right, either.”

The immediate challenge facing Washington is how to persuade Ankara – a nominal NATO ally that now leans toward Tehran and Moscow – to reduce sharply its imports of Iranian oil. Yet even if Turkey slashes its imports, the U.S. should not conclude that Ankara accepts the legitimacy of sanctions or plans to enforce them. Rather, the U.S. will need to stay one step ahead of Turkish efforts to find new loopholes and employ illicit means to evade sanctions while maintaining a façade of compliance.

Merve Tahiroglu is a research associate focusing on Turkey at the Foundation for Defense of Democracies (FDD), where Behnam Ben Taleblu is a research fellow focusing on Iran. Follow Merve on Twitter @MerveTahiroglu.

Follow FDD on Twitter @FDD. FDD is a Washington-based, nonpartisan research institute focusing on national security and foreign policy.