Turkey to keep buying natural gas from Iran

Lira weakens again

ANKARA, Aug 8, (RTRS): Turkey will continue to buy natural gas from Iran despite US sanctions, Turkey’s energy minister said on Wednesday, a day after President Donald Trump threatened that anyone trading with Iran will not do business with America.

However, Fatih Donmez said Turkey would continue to buy gas in line with its long-term supply deal with Tehran, and added that planned talks in Washington could produce a solution for the issue.

Turkey is dependent on imports for almost all of its energy needs and Iran is a key supplier of Ankara’s natural gas and oil purchases. While the Turkish refiner Tupras has already cut back on oil shipments from Tehran, a complete halt of energy imports would be near impossible.

“A delegation of ours is in the United States right now and negotiations are being held on a series of matters including the sanctions issue,” Donmez told broadcaster A Haber. “I think a good outcome will emerge from this dialogue.”

A Turkish delegation is visiting Washington this week to discuss growing friction between the NATO allies, according to reports on Tuesday, while Washington said the two countries remained at odds on its core demand that Ankara free American evangelical pastor Andrew Brunson.

Donmez said Turkey’s longterm supply contract with the Islamic Republic was valid until 2026 and Ankara was set to buy the 9.5 billion cubic meter of the contract amount. “We will be continuing this trade as we can’t possibly leave our citizens in dark,” he said.

Nearly 40 percent of Turkey’s electricity production is sourced with natural gas.

Barred

US President Donald Trump pulled out of a 2015 deal to curb Iran’s nuclear programme and said firms doing business with Tehran would be barred from the United States, as new US sanctions against Iran took effect on Tuesday.

The sanctions target Iran’s purchases of US dollars, metals trading, coal, industrial software and the auto sector and did not include Iran’s oil exports, but global oil prices rose on anticipation.

US sanctions on Iran’s energy sector are set to be re-imposed after a 180-day “wind-down period” ending on Nov 4.

“Anyone doing business with Iran will NOT be doing business with the United States,” Trump tweeted on Tuesday.

Donmez described the sanctions as “unilateral”.

“Even European Union (EU) is extremely annoyed by this. We are conducting legitimate trade here,” he said. “And this is important for us in terms of supply security as well.”

Meanwhile, Turkey’s lira weakened against the dollar on Wednesday, hit by concern about President Tayyip Erdogan’s grip on monetary policy and uncertainty about whether a meeting between Turkish and US officials could heal a wide diplomatic rift.

A Turkish delegation will meet with top officials from the US State Department on Wednesday, part of a visit to Washington this week to address friction caused by Ankara’s trial of an American evangelical pastor.

The delegation, headed by Turkish Deputy Foreign Minister Sedat Onal, will meet US officials led by Deputy US State Deputy Secretary John Sullivan, the State Department said. The delegation is also due to meet with officials from the US Treasury.

The row has heightened investor concern over Turkey, where investors are most worried by what they see as Erdogan’s influence over the central bank, which has not been as aggressive in raising interest rates as investors have hoped.

The president, a self-described “enemy of interest rates”, wants to see borrowing costs lowered to fuel credit, new construction and growth. The appointment of his son-in-law as finance minister has deepened the concern.

“The central bank is behind the curve; it remains behind the curve,” said Guillaume Tresca, senior emerging market strategist at Credit Agricole. “The lira keeps depreciating and we are seeing that the central bank is not ready to act.”

Gained

The lira stood at 5.2880 against the dollar at 1223 GMT, more than 1 percent weaker on the day. It had gained on Tuesday on reports the delegation would visit Washington .

The currency has fallen some 27 percent this year and plunged as much as 5.5 percent on Monday to 5.4250 per dollar, an alltime low and its biggest intraday drop in nearly a decade. That decline came after Washington said it was reviewing access to the US market for Turkey’s exports.

Relations between Turkey and the United States have been strained by differences over Syria and by the trial in Turkey of Andrew Brunson, the pastor, for supporting a group Ankara blames for a 2016 abortive putsch. Brunson denies the charge. The United States is also seeking the release from detention of three locally employed embassy staff.

Washington last week imposed sanctions on Erdogan’s justice minister and interior ministers, saying they played leading roles in organisations responsible for Brunson’s arrest. Erdogan has said Turkey would retaliate against the sanctions.

While the rift between the NATO allies has hammered the lira, dollar debt issues by Turkish banks continued to slip further, reflecting investor concern that the currency deterioration would erode capital buffers at banks.

On Wednesday, some Yapi Kredi and Halkbank paper hit record lows, while other Turkish banks, such as Akbank, were also sold off, according to Tradeweb data.

The cost of insuring exposure to Turkish bank debt rose on Wednesday, with five-year credit default swaps (CDS) for Yapi Kredi up 1 basis point (bp) from Tuesday’s close to 460 bps, according to IHS Markit, a record high.

Turkish stocks were up 1 percent. The BIST index of bluechip stocks is down around 40 percent in dollar terms this year, according to Thomson Reuters data — second only to Venezuela as the worst performer among some 30 emerging market stock indices.