Iran Gets Creative Over Energy Payments from Turkey and Pakistan

Yves here. Although this post is nominally about how Iran is currently working around America’s and the EU’s sanctions, it points out that for the US to tighten the noose further would likely undermine some of America’s other geopolitical aims.

The other part that struck me is that it really does look like Iran is having to go through major hoops to get around the sanctions. In the bad old days of my youth, I doubt it would have been as difficult. You had powerful, shady intermediaries like Marc Rich and Adnan Khashoggi who would arrange barter trades for a very large haircut. But then again, Marc Rich & Co’s successor firm Glencore was giving Iran a helping hand until EU sanctions were about to kick in.

By John Daly, non-resident scholar at Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies and chief analyst for OilPrice. Cross posted from OilPrice

First begun in 1979 following the seizure of the U.S. embassy in Tehran, Iran is now subject to three differing sets of sanctions – the U.S., the European Union and the United Nations. Implemented over fears of covert nuclear weapons development hidden in Iran’s civilian nuclear energy program, the tightening sanctions have forced both Iran and its energy importers to get creative about financing.

Iran currently provides 44 percent of Turkey’s oil imports and Turkey is Iran’s biggest natural gas customer. The sanctions legislation has hit hard Turkey’s abilities to pay for its Iranian natural gas imports, so Tehran and Ankara came up with a circuitous plan to allow Turkey to pay in gold bullion.

Because U.S. sanctions prevent Turkey from paying in dollars or Euros, Turkey has been paying Iran for its imports in Turkish Liras. Iranians then use those liras, held in Halkbank accounts, to buy gold in Turkey, and couriers carry the bullion to Dubai, where it can be sold for foreign currency or shipped to Iran. According to Turkish Statistics Institute (TÜ?K) data, in February Turkey exported almost $120 million in gold to Iran and in March Turkish gold exports to Iran soared to almost $381 million.

Or rather, did, because on 1 July tough new U.S. sanctions targeting gold transactions came into effect. Two months ago Treasury Undersecretary for Terrorism and Financial Intelligence David Cohen told a Congressional hearing “We have been clear that that July 1st date is a real date and that after July 1st, any sale of gold to Iran is something that we will pursue vigorously,” but how this will impact U.S.-Turkish relations remains to be seen, given Turkey’s value to the Obama administration as a partner on a host of issues.

Another strategic U.S. ally has also developed an interesting means to sidestep U.S. sanctions. A barter deal between Iran and Pakistan, with Islamabad supplying 100,000 tons of wheat against its outstanding bill for electricity imports was first proposed in mid-February but was delayed by preparations for Pakistan’s 11 May election. Commerce Ministry spokesman Mohammad Ashraf said following the election, “The wheat is being given to Iran against the outstanding payment of $53 million for electricity supplied to Pakistani border areas from the Iranian grid. The interim cabinet has approved the decision and exports will be initiated as early as possible.” The grain is to come from government stocks. In earlier negotiations, in August 2012 Pakistan agreed a price of $300 per ton.

Pakistan is battling chronic electricity shortages, which is inflaming public anger and stifling industrial output, as power outages can last eight to 10 hours a day in cities, with much more frequent cuts in rural areas. “Pakistan is an energy-starved country facing severe power cuts that are badly hampering industrial output,” Ashraf said. “Connecting far-flung areas to Pakistan’s grid is a costly affair.” Electricity from Iran costs Pakistan around $3 million a month and is supplied to towns near the Iranian border, including the Arabian Sea port of Gwadar. Pakistan now owes Iran $53 million for the electricity imports but its cash-strapped state and private power companies have no means to pay, as the companies’ infrastructures are outdated and the utilities are inefficient.

Pakistan’s electricity is generated, transmitted, distributed, and sold by two vertically integrated public sector utilities, Water and Power Development Authority, responsible for all of Pakistan except Karachi, and the Karachi Electric Supply Corp, along with roughly 20 independent power producers. None have developed substantive solutions to the country’s ongoing power crisis.

Western sanctions do not as yet target food shipments to Iran, but the fiscal measures have frozen Iranian companies out of much of the global banking system, hindering payments for imports, on which Iran relies for much of its food.

Iran has an additional reason to be interested in Pakistani wheat – Uganda-99 wheat rust, a virulent stem rust race first detected in Uganda in 1999. Ug-99 can kill wheat plants and small grain cereals, but more usually reduces foliage, root growth, and grain yields. Windborne, in 2006 Ug99 had spread from Uganda northwards into Sudan and blew across the Red Sea into Yemen and by 2007 it had reached Iran following regional winds.

According to the International Maize and Wheat Improvement Center, “In Iran, very early reports of yellow rust infections occurred in January 2013 in the south-west of Iran (South Khuzestan). Yellow rust developed rapidly and spread on Cultivars Chamran and Veery/Nacazori, causing epidemics in farmers fields. Over 100,000 ha are reported to have been sprayed with fungicide in the southwest and west of Iran. Incidence of Yellow rust on susceptible wheat cultivars in other parts of Iran has also been reported from west (Ilam and Kermanshah), Caspian Region (Gorgan), south-east (Kerman and Jiroft), south of Fars province (Mamasani) and north west (Ardabil.)”

So, will Washington, which needs Turkish and Pakistani assistance in coping with crises from Syria to Afghanistan, lower the boom on their creative approaches to resolve their energy shortages? Will sanctions be relaxed, or tightened to include food?

In air-conditioned Washington during Ramadan, anything is possible.

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  1. tulsatime

    The US pattern of behavior has not changed a bit since the ’50s, not that we might expect a world ruler to learn anything new. The blowback to all our interference will be astounding whenever and whereever it comes. And it really puts the lie to that old saw of they hate us for our freedoms. But it just shows the great game goes on and on and on.

    1. psychohistorian

      The great game goes on and on and on until it doesn’t.

      I think we might get to see the end of one game and the start of another soon….. with either some major rule changes or extended controlled global genocide under the auspices of austerity.

  2. profoundlogic

    Trading gold for other valuable resources…hmmmm. Certainly looks like discernible value to me.

    But I thought Bernocchio said that gold was not money? The drawdown of Comex inventories seems to suggest a lot of people have more faith in the metal than the do in Ben’s prowess with the printer.

    1. washunate

      I don’t think COMEX shows anything meaningful. It’s just numbers on a piece of paper.

      I also don’t think Bernanke is particularly bad in his mumblings. He’s fundamentally right – gold isn’t money. Rather, gold is an asset. It’s like bismuth or baseball cards or beanie babies or Blockbuster stock.

      “Trading gold for other valuable resources…hmmmm.”

      But I do agree with the general point. When you lock people out of your banking system, guess what, they try and figure out ways of trading outside of your banking system. This seems so elementary that it raises questions about the real motives behind US policy, from the drug war to sanctions.

  3. Pakistani

    There is a saying in Pakistan, It is better to be enemy of the US then be a friend.

    US has a habit of stabbing its friends in the back remember Pakistan 1981, Saddam Hussain’s Iraq, Muammar al-Gaddafi Libya are just a few examples of deep friendships with the US.

    Now look at supposedly enemies of US and you are smart enough to put 1+1 together.

    1. Jim Haygood

      Let us not forget Gen. Manuel Noriega, a good buddy of the U.S. until he started pocketing too much of the CIA’s illicit drug revenue for himself.

      That, of course, required a U.S. invasion to depose Noriega for ‘drug trafficking’ and ‘money laundering,’ the very services which had made him such a valuable ally.

      This scenario repeats ad infinitum. The U.S. used to be on friendly terms with a current bête noire, the Taliban, and some say even with Osama bin Laden himself.

      Whatever happened to honor among thieves, comrades?

    2. from Mexico

      When the United States says “friends,” what it means are leaders who will impose neoliberalism, which devastates the livelihoods of a country’s rank and file.

      Leaders then get caught between the demands of US/NATO and the demands of their own people. Just take a look at the current situation in Turkey.

      The US then insists that the leaders crank up the violence and brutality to keep the helots in line. This may work for a while, but sooner or later the position of the leaders becomes untenable, and the whole thing blows up in the US’s face.

      There are only a handful of things I agree with Morris Berman about, but this is one of them, that the US is on the sinking scale and rapidly losing power and influence in the world.

    3. real

      to pakistani,from indian
      you are absolutely correct…but then your leaders (many of them from erstwhile ruling dynasties from india) never cared for people(not that ours are different)…
      expect india to be foe of US in next 3 decades

  4. diptherio

    We know Israel has illegal nuclear weapons and yet, somehow, no sanctions for them. How can this possibly be? It’s almost as though this isn’t about the (possible) nukes at all…
    [snark off]

    1. Tangurena

      Israel, like Pakistan and India, never signed the Nuclear NonProliferation treaty. Iran signed it and so far, all credible evidence shows that Iran is abiding by the NPT. The folks claiming Iran is violating it are the same crazies that claimed Saddam Hussein had WMD on every street corner, and we all know how that turned out.

  5. ambrit

    The main subject is the predictable bullying tactics of the American power structure. So far, so good. What caught my eye was the secondary subject, food resource stresses. Uganda-99 wheat rust? How come no one has highlighted this in the MSM? Could they, the ubiquitous ‘they,’ be afraid the people might start looking seriously at the enhanced risks of GMO crops? We are well into “Herr Doktor Professor von Frankenstein” territory here. When will the ‘Creation’ turn on its’ makers?

  6. washunate

    Iranian sanctions are what I think of when someone argues that free trade or market-based economics or capitalism are the main problem we face today.

    The problem is not the movement of people, ideas, currencies, goods, services, and so forth across arbitrary local, regional, and national lines on maps. Rather, the problem is when leaders try to prevent trade rather than regulating it.

    The unintended consequences are horrific, from the drug war to sanctions, from short-term human suffering to the long-term undermining of US leadership and respect for the rule of law. It is almost as if US leaders want Russia and China to develop an international trading system that bypasses the West.

  7. Seymour Stokes

    U.S. officials have sought to prevent Turkish gold exports from providing a financial lifeline to Tehran, which has been largely frozen out of the global banking system by Western sanctions over its nuclear programme.

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