Turkey to keep buying Iran's gas despite sanctions

ISTANBUL, Dec 3 (Reuters) - Turkey will continue to buy natural gas from Iran despite the prospect of tighter U.S. sanctions, Turkish Prime Minister Tayyip Erdogan said, indicating the measures are not likely to have much impact on the countries' gold-for-gas trade.

The U.S. Senate resoundingly approved expanded sanctions on global trade with Iran's energy and shipping sectors on Friday its latest effort to ratchet up economic pressure on Tehran over its nuclear programme.

The new sanctions, which would be the third round in a year if passed into law, include measures aimed at stopping the flow of gold from Turkey to Iran in exchange for natural gas supplies. Washington says Tehran is enriching uranium to levels that could be used in nuclear weapons. Iran says the programme is for peaceful purposes.

Erdogan said Iranian gas imports were vitally important for Turkey, which depends heavily on imported energy and is struggling to diversify its suppliers, and that the government had told the relevant parties the trade would continue.

"We have always told officials that the issue is of strategic importance to us and we couldn't comply with the sanctions," Erdogan told a joint news conference with Russian President Vladimir Putin on Monday.

"We are at the same point now. We told them we would carry out the necessary swap because it's a strategic product and we will continue in that direction in the future," he said.

Turkey, which is likely to overtake Britain as Europe's third-biggest electricity consumer within a decade, produces the majority of its electricity from natural gas. It takes more than 90 percent of Iran's gas exports, while Turkmenistan takes around 10 percent.

LIRA AND GOLD

U.S. and European banking sanctions ban payments in U.S. dollars or euros, so Iran is paid in Turkish lira, which is of limited value for buying goods on international markets but ideal for buying gold in Turkey.

Turkish Deputy Prime Minister Ali Babacan said last month that the lira Iran received from Turkey for its gas was being converted into gold because sanctions meant that it could not transfer cash into Iran.

Turkey also imports Iranian oil but has been granted exemptions from sanctions in return for significant cuts in the level of its purchases.

The State Department had no comment on the gas for gold issue on Monday. Spokeswoman Victoria Nuland pointed out in a press conference last week that President Barack Obama issued an order over the summer that allows Washington to place sanctions on countries that provide precious metals to Iran. Nuland also said discussions with Turkey about sanctions are ongoing.

The Obama administration has not publicly commented on the latest sanction proposals.

The existing sanctions have already hurt Iran's economy, but it is uncertain whether the additional measures will stop or slow Iran's nuclear programme. (Additional reporting by Ece Toksabay and Timothy Gardner in Washington; Writing by Nick Tattersall; editing by Jane Baird and Marguerita Choy)