Publication: Eurasia Daily Monitor Volume: 5 Issue: 120

On June 23 the European Union approved new sanctions against Iran, including freezing the assets of the country’s biggest bank, Bank Melli, which is suspected of providing services to Iran’s nuclear and ballistic missile programs and was blacklisted by the United States last year. The EU said that it would announce additional financial and travel sanctions effective immediately against several Iranian companies and “senior experts” linked to Tehran’s nuclear program (International Herald Tribune, June 23).

Prior to the EU’s recent move to freeze Iranian assets in European banks, Iran already had decided to cut off its relations with the banks in Europe and withdrawn its assets from them. Iranian Deputy Foreign Minister Muhsin Telai said that Iran had terminated its relations with the HSBC bank, which held 60% of Iranian money. Telai also said that Iran would work with the “smaller banks around the globe” (NTV, June 11). On June 16 it was reported that Iran had withdrawn $75 billion from European banks (CNNTurk, June 16). Parallel to these developments, Turkish banking circles speculate that in addition to East Asian countries, Iran might invest some share of its assets in neighboring countries, such as Russia and Turkey (Zaman, June 17).

Given the uncertainty of the Turkish economy caused by internal quarrels in Turkish politics and Turkey’s unpredictable position on the Iranian nuclear issue, it is not very likely for Iran to deposit large portions of its assets in Turkey. Nonetheless, since Iran has been isolated further from the rest of the Western world with the EU’s new move, it might as well consider using some of its money as a strategic tool to ensure that Turkey remains neutral even if it is not going to side with Iran.

As a matter of fact, Iran has taken some steps that might be intended to draw Turkey to its side. In his recent visit, Minister of State Kursat Tuzmen and his counterpart on the Iranian side reached an agreement to initiate working level meetings to discuss the feasibility of using Iranian and Turkish currencies. Bilateral trade between the two countries surpassed $8 billion in 2007 (Zaman, May 8). Maintaining good relations with Iran has further benefits to the Turkish economy. Revenue from Iranian tourists, for instance, has been growing, with more than a million Iranian tourists visiting Turkey in 2007. This year Iranian airline companies have added additional flights to Turkey (Sabah, March 24).

As part of its efforts to strengthen relations with Turkey, Iran has offered to act as an energy hub between Europe, Iran and Central Asia. Ahmed Noorani, Iran’s economic and trade attaché in the Iranian Embassy in Ankara, said, “Iran is ready to sign the natural gas contract but Turkey wants to work on details.” Noorani further urged Turkey to sign the contract; “because the South Pars gas drilling site has been given to Turkey without competitive bidding [although] several problems have occurred on the Iranian side We are expecting to sign the final agreement” (NTV, June 15).

In the subsequent days, similar demands have been raised by Iran’s Deputy Oil Minister and Managing Director of the National Iranian Gas Company (NIGC) Reza Kassaeizadeh Mahabadi. “We aim at penetrating European markets via Turkey through the South Pars Pipeline Project,” Mahabadi said. He also added that a 1,860-kilometer pipeline, with a 110 million cubic meter capacity, stretching from the Persian Gulf to Turkey, would be built. In addition to the cost of 17 compressor stations, Iran predicts that the pipeline, scheduled to be ready in 2014, will require an investment of $8 billion. Once the pipeline is connected to Nabucco via Turkey, natural gas sales in Europe are likely to be affected” (Turkish Daily News, June 19).

The United States ambassador to Turkey has outlined the American expectations from Turkey and warned Turkish officials to discontinue the energy projects with Iran (see, EDM, June 17). Turkish Energy Minister Hilmi Guler said in response that “our priority is to safeguard Turkey’s interests,” and added that “such projects started before this government and will continue in the future” (TRT, June 17).

In addition to its concern over Turkey’s energy contracts with Iran, U.S. officials have another concern: “the U.S. need for assurances from the Turkish government that highly sensitive U.S. real-time intelligence is not passed on to Iran. The Turkish Foreign Ministry has assured the United States that Ankara has not shared any U.S.-supplied information with Iran” (Today’s Zaman, June 20).

This highlighted the continuing distrust between the two allies following Turkey’s insistence on going ahead with additional gas deals with neighboring Iran. In the meantime, interesting video footage, which was supplied to the Turkish military by the U.S. unmanned aircraft, was leaked to the journalist Mehmet Ali Birand, who is known to have good relations with western diplomats in Ankara. The footage shows PKK militants in northern Iraq preparing an attack against the Turkish military station on the Turkish side of the border (Kanal D, June 20). As a matter of fact the attack took place and the PKK militants killed 6 Turkish soldiers. The footage led people to question why the Turkish military had not taken appropriate measures before the PKK attack took place.

It is quite likely that the video footage was leaked by an anonymous source to convince the Turkish public that although the United States had been helping Turkey, some Turkish government officials and generals, including the incoming Chief of Staff Ilker Basbug, may want to continue cooperating with Iran on the issues of energy and fighting the PKK. These developments create a dilemma for Turkey in which it may have to choose sides between either Iran or the United States.