Growing Trade Signals Deeper Ties Between Iran and Turkey

According to Turkish government sources, bilateral trade between Turkey and Iran increased sharply over the last six months. Although formally a U.S. ally through NATO, Turkey appears determined to deepen its economic ties with Tehran, recalling its facilitation of Iranian sanctions evasion prior to 2016.

In September, the Turkish Institute of Statistics (TUIK) reported a 49 percent increase in non-oil and gas imports from Iran in March through August 2022 as compared to the same period during the previous year. (The data is available in files posted for download on the TUIK website.) Additionally, Turkey reported a 20 percent increase in overall exports to Iran in the first six months of 2022 as compared to 2021.

The rise in trade between the two neighbors is broadly reflective of Turkey’s desire to increase bilateral trade with Iran. During the July 2022 meeting of the Turkey-Iran High Level Cooperation Council, Turkish President Recep Tayyip Erdogan declared, “we have reached $7.5 billion as of now. I believe that we will achieve $30 billion” — an aspiration mirrored by his Iranian counterpart.

These aspirations may not be plausible, however, as the level of trade between Ankara and Tehran has fallen dramatically over the past several years, due in part to the reimposition of U.S. sanctions on Iran in 2018 and the impact of the COVID-19 pandemic. In the first six months of 2020, trade declined by 73 percent, and overall Turkish imports from Iran are approximately 50 percent lower than they were in 2017. This year’s increase hints at a post-pandemic recovery and/or an intention by both regimes to increase trade to pre-pandemic levels and possibly surpass it.

Independent of economic matters, Tehran and Ankara remain suspicious of one another’s intentions. Although both Erdogan and Iranian President Ebrahim Raisi have expressed interest in combatting Kurdish separatist movements, they favor opposing policies in places such as Syria and Iraq, where Turkey would like to see Iranian influence diminished.

The Biden administration should be wary of any increase in trade between Iran and Turkey that points toward sanctions evasion, for which there is ample precedent. In a six-count indictment in October 2019, federal prosecutors in the Southern District of New York charged Halkbank, a major Turkish public lender, with fraud, money laundering, and sanctions offenses related to the bank’s alleged participation in “a multibillion-dollar scheme to evade U.S. sanctions on Iran.” The prosecutors accused the bank of helping Tehran transfer $20 billion worth of restricted funds, with at least $1 billion laundered through the U.S. financial system. While Turkey has appealed to the U.S. Supreme Court to invalidate the indictment on jurisdictional grounds, the administration has good reason to be suspicious.

In addition to monitoring Turkish trade with Iran, the United States should be willing to help secure oil and natural gas offsets for Turkey to reduce its dependency on Iranian energy sources. Furthermore, the U.S. government should look for common ground with Ankara given their shared concern about Iranian proxy networks, especially in Iraq and Syria. High-level dialogue between Ankara and Washington on Iran could be a valuable means to contain Iranian regional aspirations if Erdogan is prepared to respect sanctions.

Sinan Ciddi is a non-resident senior fellow at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s Turkey Program and Center on Military and Political Power (CMPP). For more analysis from Sinan, the Turkey Program, and CMPP, please subscribe HERE. Follow Sinan on Twitter @SinanCiddi. Follow FDD on Twitter @FDD and @FDD_CMPP. FDD is a Washington, DC-based, nonpartisan research institute focused on national security and foreign policy.