However, officials from both Turkey and the UAE have tried to downplay the significance of gold exports to Iran, saying that Iran is free to purchase gold in its trade with either country.
Zafer Ça?layan, the Turkish economy minister, told reporters in Istanbul on Tuesday that there is no need to dwell on issues like selling gold to Iran as part of payment for Turkish gas purchases from Iran. “We are doing [these sales] as part of exports [to Iran],” he said, stressing that Turkish gold is being sold to a country that has a demand for gold.
Ça?layan said Turkey exports some 20,000 kinds of goods and that there is no need to focus analysis on a single commodity.
On the other hand, the United Arab Emirates’ (UAE) top central banker has said the government does not impose any restrictions on the gold market in his country, allowing Iranians, among others, to freely conduct business transactions using gold as legal tender.
“Everybody can buy gold here. There are no restrictions on this [sale and purchase of gold]” Central Bank of the UAE Governor Sultan bin Nasser Al Suwaidi said in response to a question asked by Today’s Zaman concerning how he explains the surge in Turkish gold to the UAE in recent months.
The new sanctions aimed at reducing global trade with Iran in the energy, shipping and metals sectors may soon be considered by the US Senate as part of an annual defense policy bill, senators and aides said on Tuesday, according to a Reuters report.
As gold is considered a precious metal, the new US ban may limit Iran from conducting transactions using gold purchased from Turkey either directly or via Dubai’s re-export hub.
Suwaidi’s remarks came on Tuesday in Abu Dhabi while he was speaking to a group of foreign reporters at the Grand Millennium Al Wahda Hotel. The governor emphasized, however, that the central bank complies with the UN-imposed sanctions on Iran as well as the unilateral ones that were announced by the US and the EU.
“We abide by the UN sanctions regime 100 percent,” he said, noting that the central bank observes bilateral sanctions by the US and the EU to the extent it may otherwise adversely affect UAE institutions.
According to data from the Turkish Statistics Institute (TurkStat), in the first seven months of this year, Turkey’s gold exports to Iran skyrocketed to $6 billion, making up 75 percent of the total value of Turkey’s exports to this country in the given period. When the news attracted a lot of national and global media attention, Iran switched to front companies set up in the UAE to procure gold from Turkey. Only in the paperwork did the UAE replace Iran as a destination for Turkish gold exports, as many believe they were re-exported to Iran from Dubai. Trade figures for September indicated that precious stones and metals (mainly gold) were by far Turkey’s biggest exports for the month, at $1.6 billion in sales. For the second consecutive month, the UAE accounted for the highest amount of export sales that Turkey posted, at $1.4 billion. The UAE’s tally represented a 450 percent increase compared with the same month a year ago, and was fuelled by $1.14 billion in gold sales.
The UAE central bank governor confirmed on Tuesday that Iranian companies can freely buy and sell gold in his country though he declined to get into details of what the central bank is doing to oversee transactions that may circumvent the sanctions regime on Iran. Turkish Deputy Prime Minister and Finance Minister Ali Babacan had admitted last week that Iran is the main reason behind an increase in Turkey’s gold exports. Briefing the parliamentary Planning and Budget Commission about the work of his ministry on Thursday, Babacan said Turkey deposits the payment for the gas it purchases from Iran in a bank account created for the Iranian gas sellers. Because Iranians are not allowed to withdraw the money to take to their country, they buy gold from Turkey instead in order to bring it to Iran. The minister added that the situation is a result of the US sanctions on Iran.
Iran, stricken by US-led sanctions, is said to have asked Turkey to pay in gold in exchange for the oil and natural gas Turkey is buying from it.
Seikha Lubna al-Qasimi, the UAE’s minister of foreign trade, also said on Wednesday that her country is in full compliance with the UN sanctions. Asked by Today’s Zaman how much suspicious trade activity with regard to Iran was reported to the UN Security Council, al-Qasimi declined to give a number but said there are committees in the UAE that are monitoring trade deals with Iran.
US Senate looks into gold trade
According to Reuter’s report on Tuesday, the sanctions legislation, which has not yet been unveiled, comes during a crowded period on the calendar as the Senate races to deal with deficit reduction, the defense bill and other pressing issues by the end of the year. The package would build on current US sanctions, passed almost a year ago, that have slashed Iran’s oil revenues. The goal is to pressure Tehran to stop efforts to enrich uranium to levels that could be used in weapons.
Democratic Senator Robert Menendez and Republican Senator Mark Kirk have crafted new sanctions that would punish foreign banks that handle transactions for a broad range of industries, including shipping, ports, shipbuilding and more types of energy. “Our significant effort right now is in pursuing areas of the economy that can lead to proliferation — energy, shipping, to mention a few,” Menendez said in a brief hallway interview. US persons and companies have long been barred from doing business with Iranian entities. These new sanctions apply to foreign banks, threatening to ban them from the US financial system unless they cut their dealings with Iran.
Senator Carl Levin, the Democratic chairman of the Armed Services Committee, said he was reviewing a draft version of the sanctions and was amenable to the measures being added to the defense bill. “It’s fine with me,” Levin said. “Going in, I favor strengthening the sanctions against Iran any way we can.” The package seeks to ban financial transactions with any person or organization blacklisted for their association with the Iranian government as well as sales of metallurgical coal and precious metals, a congressional aide said, speaking on condition of anonymity. The sanctions would end “Turkey’s game of gold for natural gas,” a senior Senate aide said, referring to reports that Turkey has been paying for natural gas from Iran with gold to circumvent the sanctions.
UAE and Turkey agree on IMF reforms
Suwaidi also noted that world financial institutions like the International Monetary Fund (IMF) and the World Bank need to be overhauled to give a bigger voice to developing economies. “We believe that IMF reforms should be carried out to give a fair share to developing countries. The voice of developing countries, not just the advanced economies, should be higher in the IMF,” he said.
With new changes adopted in December 2010 at a meeting of the Board of Governors, the highest decision-making body of the IMF, both Turkey and the UAE increased their quota in the IMF with a boost in their voting powers. Turkey, a G-20 member of rich and emerging economies, is an enthusiastic IMF member that wishes to see these changes become reality as it will give a greater voice to Turkey in the management of the fund as well as a chance to contribute to shaping global financial policies. Turkey, Europe’s fastest-growing economy, already received a boost in 2008 when the IMF revised quotas for 54 of its member countries, including Turkey, whose quota was increased from SDR 1.2 billion in IMF special currency to SDR 1.45 billion. Since the quota largely determines a member’s voting power in IMF decisions, Turkey’s voting power was also increased from 0.55 percent to 0.61 percent. The UAE’s voting power received a boost as well with an increase from 0.29 percent to 0.33 percent.
But the real lift came two years later when the IMF approved a package of far-reaching reforms for IMF quotas and governance rules during the 14th General Review of Quotas. Accordingly, Turkey’s voting power increased to 0.98 percent, making Turkey the second most-powerful IMF country in its group, which covers the Middle East and Malta. Turkey ranks fourth among countries that have had the largest increase in their quotas since the 2008 reform. In the 2010 reform package, the UAE’s contribution to the IMF reached 0.49 from 0.32 percent, while its voting power increased from 0.33 percent to 0.49 percent.
UAE has solid banking system
The governor of the central bank also confirmed that the banking system in the UAE is in good shape and has well-capitalized financial institutions. He said the Basel 3 criteria are being implemented and will be finalized by 2019.
He disclosed that as of October, the banks’ assets in the country reached $476 billion, while deposits stood at $316 billion and lending at $296 billion. The governor admitted that the UAE needs to enact laws to stimulate new instruments in the financial market and the banking sector with special emphasis given to consumer protection. Suwaidi said that as long as the world economy continues to grow, he does not see much cause for concern. “But if the world economy slows down, everybody should be concerned because we are very much integrated into the world economy,” he explained.