November 12, 2018 | Foreign Policy

Trump Waives Iran Sanctions for Turkey

How Erdogan could use the exception to outsmart the United States, again.
November 12, 2018 | Foreign Policy

Trump Waives Iran Sanctions for Turkey

How Erdogan could use the exception to outsmart the United States, again.

For all the Trump administration’s tough talk about Iran, on Nov. 5, it handed the country a little relief. In remarks at the White House, U.S. Secretary of State Mike Pompeo granted a special exemption to allow Turkey to continue purchasing oil from Iran despite the return of sanctions.

Pompeo explained that the temporary pass, given to eight buyers in all, came in response to their pledges either to greatly reduce oil purchases or to end them altogether. The very next day, however, Turkish President Recep Tayyip Erdogan lambasted U.S. sanctions as “imperial” and vowed to defy them. The Trump administration should pay close attention to his words, lest it become the second U.S. government in quick succession to be outsmarted by Erdogan.

Turkey is dependent on foreign energy, and it imports half of its oil—about 200,000 barrels per day at full capacity—and a fifth of its gas from Iran. That makes the country among Iran’s top customers for oil. In 2012, when the United States last imposed sanctions on Tehran, Ankara reduced its oil imports to around 120,000 barrels per day to qualify for similar waivers from the State Department. This time around, Turkey likewise cut its imports to 129,000 barrels per day—and succeeded in earning one of Washington’s eight exemptions.

Before Erdogan harsh words on Nov. 6, Ankara had given hints that it was prepared to comply with President Donald Trump’s sanctions. Earlier in the month, Reuters reported that a private Turkish oil company, Petrol Ofisi, had refused fuel to Iranian airplanes operating in Turkey. In October, an unnamed Turkish “industry source” told Reuters that Turkey’s top refiner was in talks with U.S. officials to obtain a waiver, and “if the U.S. would tell them to stop [importing oil], they [Turkey] will oblige.”

Erdogan made the same gestures of compliance the last time around, all the while double-dealing behind the scenes. During the Obama administration, after turning over its payments to Iran for oil and gas imports to special escrow accounts mandated by U.S. sanctions, Turkey then allowed individual sanctions-busters to access the accounts and launder the money back to Iran in the form of gold or as payments for fake exports. The scheme yielded Tehran at least $13 billion in 2012 and 2013 alone.

That operation still causes Erdogan headaches. In January, a federal court in Manhattan convicted Turkish banker Mehmet Hakan Atilla, a deputy manager of Turkey’s state-owned Halkbank, for his role in violating the sanctions. The U.S. Treasury is also expected to slap a massive fine on Halkbank, which is a major point of contention in U.S.-Turkish relations. The Turkish strongman wants nothing more than to make the whole thing—including future U.S. investigations into Turkish sanctions evasion—go away.

His wishes may be coming true. In October, Turkey finally released from prison a U.S. pastor, Andrew Brunson, who had been held for the last two years on farcical charges of terrorism and espionage. The pastor’s return to the United States provided Trump ample photo-ops before the Nov. 6 midterm elections in the United States. The Turkish court’s sharp U-turnon Brunson raised the question of what Erdogan got in return, since Ankara had for months tried to extract concessions from Washington in exchange for the pastor.

All signs point the sides having come to an arrangement on Halkbank, which Turkey had reportedly requested over the summer. On Nov. 3, two days before the United States announced its exception for Turkish oil purchases from Iran, Erdogan had a phone call with Trump to discuss the Halkbank fine. Although such negotiations have been ongoing since the Atilla trial ended in January, this was Erdogan’s first public acknowledgement of the discussions.

Turkey has also been making moves to torpedo future U.S. investigations into Turkish sanctions-busting.

Although Atilla was convicted, the status of the scheme’s central figure, Turkish-Iranian gold trader Reza Zarrab, is still in flux. Last fall, Zarrab took a last-minute plea deal, which turned him from the case’s main defendant into the state’s star witness. He has since been helping the FBI uncover further Iranian sanctions-evasion plots on Turkish soil.The Turkish president, whose former cabinet members reaped millions of dollars in bribes as part of the scheme, is worried about what Zarrab might divulge regarding Erdogan’s own role in these illicit activities. During the trial, Turkey declared Zarrab a traitor and seized all of his assets. Curiously, however, this week a Turkish court issued an arrest warrant for Zarrab for carrying out illegal restorations on his Istanbul villa some years ago. The belated warrant fulfills the first requirement for Turkey to demand Zarrab’s extradition, which would end the ringleader’s cooperation with U.S. authorities. And Erdogan seems to believe that Trump has given him the green light.

If Trump in fact won Brunson’s freedom and Turkish promises to eventually comply with Iran sanctions by agreeing to Erdogan’s demands on Halkbank and Zarrab, Washington may soon come to regret it. Erdogan sincerely believes that he can continue to oppose U.S. sanctions without consequence and is looking to European partners for cover. (However unlikely to succeed, the European Union has been devising plans to invest in Iran through alternative financial structures, such as euro-denominated loans to Iran and payment systems.) By potentially sweeping Erdogan’s past violations under the carpet with a lenient fine and a hostage deal, Trump will have only emboldened the Turkish president.

Special waivers, whether they are for defiant Turkey or compliant partners, have their own logic. It is neither realistic to expect Iran’s energy-dependent clients to bring their imports immediately down to zero nor desirable to upset global markets or push up global oil prices, which could inadvertently boost Iranian revenues. But Erdogan likely sees the waiver, and his interactions with the White House that secured it, as a license for more chicanery.

Trump would be wise to learn from the Obama administration’s bitter experience with Erdogan’s double-dealing. Otherwise, Erdogan could yet again collude with Tehran to undermine Washington’s sanctions strategy against Iran.

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Issues:

Sanctions and Illicit Finance Turkey