Iranian Purchases of Turkish Gold May Help It to Foil Sanctions

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Article Summary
Turkish sales of gold to Iran have skyrocketed, statistics show. Experts disagree on whether the gold is being used to evade trade sanctions or bolster the Iranian economy, but the Milliyet reports that middlemen are definitely winners.  

The astonishing rise in gold trade between Turkey and Iran of late has been interpreted by some as Turkey paying with gold for the oil it buys from Iran. Others surmised that Iran was preparing for war by stocking up on gold.

But according to the narrative of those who control Istanbul’s lucrative gold market, where the volume of trade exceeds tens of millions of dollars a day, the reality is different. According to one of them who rules the market, it is all about arbitrage, that is, the profit made from differences in parities.

Same source says the word in the market is that the leading name in this trade is an Iranian of Azeri origin, Reza Zarrab, married to a top Turkish singer, Ebru Gundes.

Royal Maritime and Industrial Machinery Industry Corporation set up in Istanbul added “gold” to its name and announced in the Commercial Register Journal of Oct. 27, 2011.  The new name of the company was thereafter Royal Maritime Industrial Machinery and Precious Ores Industry Corporation. Reza Zarrab already had a jewelry company in Istanbul.

$6 billion worth of gold exports

According to official Turkish Statistical Institution data, between January 2012 and July 2012, Turkey exported $8.8 billion worth of gold and precious stones. In the same period of 2011 the total was $1.8 billion. That is a $7 billion upsurge in gold and precious stones exports. Turkey’s overall exports to Iran in the first seven months of this year was $8 billion, while it was only $2 billion in the same period of 2011. It is believed that gold is the main source of this bewildering increase. According to current prices, one ton of gold sells for $54 million. It's $6 billion for 110 tons of gold.

Thus, in July 2012 Iran became Turkey’s biggest trading partner, with a 295% increase. Gold and precious stones exports with a 371% increase became the number one trade item. Imports of gold and precious stones to Turkey in the meanwhile increased by 98% and became the third most-imported commodity.

Privileged businessmen profit from parity differences

A key player in the gold market gave a simplified, step-by-step explanation of how Iran-Turkey gold trade works:

*In Iran, there are businessmen granted privileges by the state. The state provides foreign currencies at lower rates to these names involved in foreign trade.

*All transactions are made not in dollars, which dominate other international markets, but in euros. This is to evade tight US surveillance of transactions made in dollars. Iran is under embargo. US and European (parties) doing business with it are subject heavy fines.

*Privileged businessman converts his tomans (Iranian currency) to euros at the rate of 2,150 toman to a euro. Others in the market have to pay 2,250 tomans for a euro.

*The privileged businessman than brings his substantial amount of euros to Turkey and buys gold.

*Then, he physically exports the gold he has bought to Iran and sells it there at the higher rate. His profit is the difference in parities.

*The gold bought through companies registered in Turkey is not taken only to Iran but also sold in United Arab Emirates. It is all about arbitrage, that is, the profit made from differences in parities.

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