U.S. President Donald Trump, shakes hands with Recep Tayyip Erdogan, Turkey’s president, in Washington, D.C., U.S. (Photographer: Michael Reynolds/Pool via Bloomberg)

Iran Vaults Up Erdogan’s Trump Agenda

(Bloomberg) -- The Trump administration’s sanctions on Iran are the latest irritant in relations between Turkey and the U.S. even as the two NATO allies move past their worst diplomatic crisis in decades.

Although Turkey is one of eight countries to receive temporary waivers allowing them to continue buying Iranian crude exempt from new U.S. penalties, the Middle East’s biggest economy still finds itself being squeezed.

Under conditions set down by the U.S., the exemption only applies to a quarter of Turkey’s oil imports from the Islamic Republic, meaning it will need to cut its purchases of Iranian crude to about 3 million tons, compared with the 11.5 million tons it bought last year, Energy Minister Fatih Donmez said Friday. Turkish refiner Tupras Turkiye Petrol Rafinerileri AS is already seeking alternatives to Iranian imports, according to Donmez.

“The U.S. sanctions on Iran indirectly impact the Turkish people,” Donmez told broadcaster NTV in Ankara.

The growing rift over Iran is a complication after Turkey’s ties with the U.S. have been badly strained by wrangles over security and economic issues in recent years. With the economy already damaged by the fallout from the disputes, Turkish officials now fear that U.S. sanctions on Iran are creating a new pressure point.

It’s not clear if Turkish President Recep Tayyip Erdogan will get a chance to make his case directly to his U.S. counterpart Donald Trump on Sunday, when they will be among world leaders gathering in Paris for the centenary commemorations of the end of World War I. Trump and Erdogan last met briefly at the United Nations General Assembly in September, shaking hands backstage but not engaging on key tensions between their countries.

Since then, however, Turkey released American pastor Andrew Brunson, who was held for almost two years on suspicion of playing a role in a failed 2016 coup against Erdogan, with his case becoming a key barrier in bilateral relations. Last week, the U.S. Treasury Department lifted sanctions on two Turkish officials targeted in retaliation for the pastor’s detention.

Erdogan has also said talks with the U.S. over its concerns regarding Turkish state-lender Halkbank are on a “positive path.” Turkey is struggling to secure the release of its citizen Mehmet Hakan Atilla, Halkbank’s former head of international banking, who was convicted in a New York court earlier this year of participating in a scheme to help Iran evade U.S. financial sanctions.

The differences over Iran may be harder to resolve. Turkey has long opposed the U.S. curbs, with Erdogan saying Nov. 6 that “we think such sanctions are aimed at tipping the balance in the world” and violate international law and diplomacy.

Erdogan isn’t alone in his criticism of Trump’s decision to back out of the Iran nuclear agreement reached in 2015. Other parties to the deal, including Russia and the European Union, have pledged to save the pact and consider it crucial for international security.

Despite the waivers received by countries that also include India and China, the Trump administration says the eight nations need to show that they are working to get imports to zero. The concessions are expected to last 180 days, though they can be extended.

Shares in Tupras slumped after Donmez said Turkey’s largest refiner will be able to buy only around a quarter of the Iranian crude oil it used to purchase before the U.S. imposed sanctions. Recent statements created an expectation among some investors that the company would get a full exemption, according to Toygun Onaran, the head of equity research at Oyak Securities in Istanbul.

Iran accounted for more than a quarter of Turkey’s daily average imports of around 830,000 barrels last year, according to data from the market regulator. But as of August, it made up less than 20 percent of Turkey’s purchases.

Iran Vaults Up Erdogan’s Trump Agenda

Turkey’s relationship with the U.S. has been souring since it refused to allow U.S. troops to invade neighboring Iraq through its soil in 2003.

Besides Iran, other challenges now include Turkey’s plans to buy a missile-defense system from Russia, as well as the U.S. alliance with a militia in Syria that Turkey considers a foe. Another contentious issue is U.S. reluctance to extradite Fethullah Gulen, the Turkish cleric living in exile in Pennsylvania whom Erdogan accuses of masterminding the failed coup attempt.

For now, the oil waiver is providing enough relief to Turkey’s economy, and the authorities in Ankara expect new proposals from the U.S. in the next six months, according to Erdogan’s spokesman Ibrahim Kalin.

“Our priority is our own national interests,” Kalin told Haberturk television this week. “We’re not going to give up our national interests because the U.S. sanctions a country for this or that reason.”

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