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The latest round of Western sanctions on Iran's oil and financial sector are impacting bilateral trade with Turkey, as oil purchases decline and further cuts are expected over the next six months.

Two months ago Turkey's sole oil refiner TUPRAS announced plans to slash oil imports from Iran by 20%. The latest data released by the energy market watchdog EMRA confirmed the drop. In June, Turkey imported roughly 110,000 barrels of Iranian oil per day, according to Iran's Fars News Agency. In 2011, the average per day oil imports from Iran was 180,000 barrels.

Iran is under increasing pressure from the EU and United States over concern it is building nuclear weapons, charges Iran denies. On July 1st, EU sanctions boycotting purchases of Iranian oil went into effect. The US has a long list of sanctions against Iran, but early this year implemented a fresh round targeting foreign financial institutions and companies doing business with Iran's oil sector.

US sanctions would have hit Turkish banks that clear oil payments to Iran's central bank. Last month, Turkey along with six other countries received a 180-day exemption from sanctions after TUPRAS announced it would cut oil imports.

Turkey still imports nearly 50% of its oil from Iran, but will be under pressure to reduce imports before the end of the year in order to avoid being impacted by sanctions. According to Energy Ministry sources who spoke to Reuters, the figure is expected to decline another 10% before the end of the year.

Hasan Koni, an international relations professor at Bahcesehir University in Istanbul, told SES Türkiye that a complete shutdown of oil imports from Iran is unlikely but the amount may continue to decline.

"Turkey is already trying to diversify its oil sources. New import deals will be in place to compensate for the shortfall of Iranian oil. However, Iran will continue to be a major supplier for Turkey," he said.

During the conflict in Libya last year, Turkish oil imports from the North African country ceased, but have since rebounded providing Turkey room to diversify away from Iran. Meanwhile, the Turkish Energy Ministry announced that talks with Saudi Arabia to explore possible oil purchase deals have already begun.

The Turkish government is also negotiating a housing-for-oil-agreement with Venezuela. According to the deal, Turkey's state owned low cost real estate producer TOKI would build housing projects in Venezuela in exchange for oil.

Turkey may still find it hard to cut deals as competitive as it has with Iran, and its already high energy bill could increase.

Erhan Aslanoglu, a professor of economics at Marmara University in Istanbul, said declining oil imports from Iran could increase the current account deficit by 5% to 10% more than year-end estimates.

"However, a rising energy bill will not put huge pressure on the economy. It will be negative for the outlook but it will not deteriorate the macro-economic balances of Turkey," Aslanoglu said.

Meanwhile, poor management of Iran's economy combined with Western sanctions has boosted Turkish gold exports to Iran. During the first five months of the year Turkey exported $3 billion in gold to Iran, an 800% increase, according to Turkey's state statistical agency Turkstat. In May, Iran was Turkey's largest export market at $1.6 billion, $1.4 billion of which was gold.

Gokhan Aksu, vice chairman of the Istanbul Gold Refinery, told SES Türkiye the scarcity of foreign currency in Iran has increased demand for gold and confidence in the local currency has fallen.

"Inflation in Iran is hovering around 20% and people may try to maintain their savings by buying gold," he said, adding that the Iranian central bank may also be hoarding gold in case of war.

Aksu also noted Turkey may be paying for its oil purchases from Iran with gold as the country is cut off from foreign exchange transactions due to the sanctions. However, last week Energy Minister Taner Yildiz dismissed these speculations during a press conference and said Turkey is making the payments either with Turkish Lira or with US dollars.