The United States is shocked – shocked – to discover that Turkey, a notional American ally, has done more to help Iran skirt sanctions than any other country. Turkey’s precious metals exports, almost all of which went directly or indirectly to Iran, quintupled this year to US$14.3 billion. Iran uses the precious metals to skirt restrictions on its access to the banking system.

The Wall Street Journal reported on November 30, “The Senate on Friday approved a measure that would tighten sanctions against Iran … the new legislation would ban the transfer of precious metals to Iran, including gold. The sanctions are expected to be approved by the House quickly. The Senate’s move comes after President Barack Obama quietly empowered the Treasury over the summer to sanction any foreign individual or firm that helps Tehran acquire US dollars or precious metals, according to US officials.”

Welcome to the post-American Middle East. Turkey is asking the North Atlantic Treaty Organization (NATO) to station Patriot missiles on the Syrian border to help rebels fight Iran’s principal ally in the region, Syrian President Basher al-Assad, while acting as Iran’s main financier. Turkish Prime Minister Recep Tayyip Erdogan is the geopolitical cognate of the Talented Mr Ripley, Patricia Highsmith’s fictional sociopath. How does he get away with it? Because every one of the countries that might call him to account worries that the region would be even worse off without him.

Turkish exports, with and without precious metals

Source: Bloomberg, author’s calculations

Turkey’s gold shipments to Iran are big enough to make a significant dent in the country’s enormous current account deficit. At an annual rate of $17 billion, Turkish gold exports amount to 2.2% of Turkish gross domestic product. Without them, the nominal improvement in the country’s bulging trade deficit (to “only” 7.5% of GDP as opposed to last year’s 10%) would disappear.

Turkish short-term external debt, total and owed by banks

Source: Central Bank of Turkey

How has Turkey managed to persuade the world that it is an economic success when its trade deficit is on a par with Greece before the collapse of the latter’s finances? Turkey’s total external debt is relatively low, for one thing, although it is rising at an alarming rate. Even more alarming is the way in which it is rising. The country’s short-term external debt has risen two-and-a-half times since the 2008 crisis, and two-thirds of its short-term debt is owed by banks. Anecdotal evidence suggests that most of the interbank money comes from Saudi Arabia and the other Gulf States.

Erdogan is on a short leash. If the Saudis decline to roll over Turkish bank obligations, the country will collapse within weeks.

Earlier this year, I thought these structural flaws would scare investors out of the Turkey stock market, as they did during 2011 (see Recall notice for the Turkish model, Asia Times Online, January 10, 2012). But I underestimated the world’s response to Turkey’s weakness. Money kept pouring into Turkey (along with Iranian hydrocarbons, probably at concessionary prices in return for gold), and the stock market boomed.

Turkish MSCI Index Fund (TUR)

Source: Bloomberg

The Saudis, who continue to paper over Turkey’s enormous current account deficit, have many small reasons to wish ill on Mr Erdogan. He is keeping their adversary Iran in business; he is promoting the Muslim Brotherhood in Syria as an alternative to the al-Assad regime (and the Saudis hate and fear the Muslim Brotherhood, with good reason); and Erdogan harbors neo-Ottoman ambitions that offend the Saudis, who consider themselves the moral leader of the Sunni world.

Nonetheless, the Saudis have one big reason to continue supporting Turkey. There are only three big Sunni armies in the world that can stand up to Iran. One belongs to a failed state, namely Pakistan; a second is controlled by the Muslim Brotherhood in Egypt; and the third, and most powerful is Turkey’s. Whatever side games Turkey might play with Iran, it does not want Iran to become a regional hegemon. That is why Saudi Arabia is paying protection to Erdogan.

Russia, which has enormous leverage over Turkey through its position as the country’s main energy supplier, finds itself on the opposite side from Ankara in Syria’s civil war. The Patriot missiles that Erdogan has requested from NATO are likely to shoot down aircraft that Russia is supplying to the Syrian regime.

Nonetheless, Russia has good reason to hope for Turkey’s stability. During the past three months, Russia claims to have killed over 300 Muslim terrorists in the Caucasus. Note that Russia has not announced the capture or imprisonment of any terrorists, only kills. Despite its suspicions of the Turkish regime, Russia continues to hope that Turkey will help stabilize its southern border. And with more than 10 million guest workers from Turkey or the Turkic republics now working in Russia, Moscow has a stake in Turkey stability.

The Obama administration continues to view Erdogan as America’s key ally in the region, despite Erdogan’s annoying support for Hamas. Despite minor differences, Obama and Erdogan agree on a fundamental point of strategy, namely that the Muslim Brotherhood represents the future of the Arab world.

Both are likely to be disappointed.

As I observed in this space on October 10, Syria’s crackup threatens to advance Kurdish hopes for independence by mobilizing the country’s 2 million Kurds (see The horizon collapses in the Middle East). Turkey hopes that a Sunni regime under the aegis of the Muslim Brotherhood will suppress the centrifugal forces that threaten to make the Kurds an independent actor. I do not think this will succeed for a number of reasons, foremost among which is that Saudi Arabia does not want it to succeed. The Muslim Brotherhood’s signal victory in Egypt, meanwhile, is turning bitter.

Whether or not Mohammed Morsi survives the backlash to his assumption of dictatorial powers last week, Egypt will remain unstable for the indefinite future. A Muslim Brotherhood dictatorship is likely to become something of a North Korea on the Nile.

I continue to believe that Turkey’s economic bubble will pop – eventually – but as long as the alternatives to the talented Mr Erdogan seem so much worse, his partners and adversaries will conspire to keep him in business.