The Iranian foreign minister visits Turkey Saturday as the Turkish government continues to be mired in a deepening crisis involving a Turkish state bank that allegedly laundered money sent to Iran.
The allegation is putting Ankara and its state banks under increasing international scrutiny and is raising questions about Turkey's ability to obtain future international financing and investment.
Iranian foreign minister's Mohammad Javad Zarif's one-day visit is part of ongoing efforts to improve bilateral relations between the two countries.
But the visit comes at a potentially awkward time for Ankara, with one of its most prominent state banks at the center of a graft investigation involving Iran.
Suleyman Aslan, the CEO of Halkbank, was detained after a large amount of cash was found at his home, much of it stored in shoe boxes. Prosecutors claim it is part of a conspiracy to launder billions of dollars for Tehran to avoid international sanctions.
Analyst Atilla Yesilada of Global Source Partners said the investigation has cast a shadow over the Turkish finance industry.
“The accusations against Halkbank suggest that the Turkish banking system is not well defended or well monitored against money laundering and terror financing," he said. "I really need to see whether the loans to Turkey will be renewed."
Iranian-Turkish trade has markedly increased in recent years, despite ever-tightening international sanctions against Tehran for its controversial nuclear program.
Much of that trade has been energy imports. Ankara is the biggest customer of Iranian gas. But international sanctions have made such trade increasingly difficult.
Halkbank has been at the center of a “gas-for-gold” plan that allowed Tehran to buy gold with Turkish lira in exchange for Iranian natural gas and oil. Western sanctions over Iran's nuclear program prevented the country from getting paid in euros or dollars, so Halkbank used the gold to get around the restrictions.
Washington, which is in forefront of pursuing sanctions against Tehran, had voiced concern over Ankara’s trade dealings with Iran
But Asli Aydintasbas, a political columnist for the Turkish newspaper Milliyet, said the latest allegations may only cause limited adverse effects on Ankara’s relations with Washington.
“I don’t think this going to be that damaging if it just stays at this," he said. "Turkey had significantly curtailed gold trade with Iran and the Americans were willing to overlook whatever remains. And Washington itself is trying to mend fences with Iran.”
Although the diplomatic fall out may be limited, the financial consequences could be costly. Experts point out that there are severe penalties for any institution breaching the sanctions.
Inan Demir, chief economist for the Istanbul-based Finans Bank, said the controversy comes at a bad time for Turkey.
“There has been a lot of negative publicity around the Turkish banking system - and the state banks in particular - and even more specifically Halkbank," he said.
"At a time of tighter global liquidity conditions, this negative publicity could lead to further tightening of financing conditions," he said. "And over the next 12 months Turkey is looking to refinance $164 billion of external debt."
Turkey’s economic minister, Ali Babacan, has been dismissing the allegations against Halkbank, claiming it is part of a conspiracy against the bank and Turkey. He also defended Halkbank’s relations with Iran, describing it as natural and the envy of its competitors.
But analyst Yesilada said that a worrying uncertainty hangs over the country’s financial industry.
“Suddenly, there is this huge cloud of suspicion over Turkey in terms whether it is legitimate country to do business in,” he said.
Despite the government removing hundreds of senior police officers and prosecutors linked to the graft investigation, the probe continues.
Observers warn the prospect of further revelations would only add to feelings of uncertainty towards Turkey among international bankers and investors.