Türkiye's Halkbank has reached an agreement with the U.S. government to settle a yearslong case against the state-run lender over an alleged violation of sanctions on Iran, in a move analysts said could pave the way to solving other diplomatic disputes.

Under the terms of a deferred prosecution agreement with the Department of Justice, Halkbank "will not admit to any criminal offenses, nor will it pay any judicial or administrative fines," the bank said in a statement late on Monday.

The agreement, if approved by a judge, would relieve one of the main irritants between Türkiye and the U.S., as the NATO allies ‌experience their best ties in decades following Donald Trump's return to the U.S. presidency last year.

Halkbank stock surged as much as 9% on Tuesday. The Istanbul-listed shares had already closed 10% higher on Monday, the exchange's maximum permitted increase. The stock was up 4.5% at TL 49.88 ($1.13) at 8:05 a.m. GMT.

The case had lasted for nine years and had weighed on the bank's access to international funding.

Halkbank said the agreement would positively affect its operations and help expand its ability to secure funding from abroad.

U.S. prosecutors charged Halkbank in 2019 ⁠for allegedly helping Iran evade American economic sanctions.

Halkbank pleaded not guilty.

President Recep Tayyip Erdoğan repeatedly rejected the charges against the bank, insisting that Ankara did not violate the U.S. embargo on Iran. Erdoğan once called the case unlawful and "ugly."

Boon for Türkiye-U.S. ties

There had been signs that U.S. President Donald Trump was willing to end the long-running legal case, which was discussed in talks with Erdoğan at the White House in September.

Speaking to reporters a month later, Erdoğan said he had been assured by Trump that the complicated legal problem with Halkbank was "over."

"Following the submission of a compliance report," Halkbank and the U.S. attorney's office in New York will submit a joint letter to the court "requesting the dismissal of the case," the bank said in the statement.

"With the court's approval, the criminal case against our bank in the U.S. ... will be concluded," it added.

The bank said it had been informed by the U.S. Treasury's Office of Foreign Assets Control (OFAC), which is responsible for enforcing sanctions, "that it has closed the administrative proceedings against Halkbank without taking any further action."

No money will change hands, ​and the charges will likely be dismissed after the monitor reviews Halkbank's compliance, according to the agreement that requires the bank to refrain from transactions that could benefit Iran.

Deferred prosecution agreements let defendants avoid charges if they meet various conditions, typically over several months or a few years. The government dismisses cases after the defendants comply.

The U.S. government said on Monday the deal to resolve the case ​furthers its interest in curbing support for Iran, with which it is engaged in an expanding air war ​alongside Israel.

Foreign funding prospects improve

According to an assessment by Pusula Yatırım, the resolution of the case could improve the bank’s financial leverage if accompanied by potential capital injections.

Analysts said the development could lead to an increase in non-deposit foreign currency funding toward the sector average, noting that Halkbank’s share of such funding currently remains at about one-fifth of the banking sector’s average level, suggesting significant upside potential.

The brokerage said steps to diversify funding sources could be taken quickly, though the full benefits may become visible over the next two to three years.

Türkiye seeks F-35 jets

With the Halkbank charges settled, the sides could begin to make progress in resolving U.S. sanctions that currently block Ankara from purchasing U.S. F-35 fighter jets, a key demand from Türkiye.

"Trump and Erdoğan appear to be steadily clearing major ​disputes from the U.S.-Türkiye​ agenda," said Hakan Akbaş, ⁠managing director at consultancy Strategic Advisory Services, pointing to easing tensions over Syria and now the Halkbank case.

"It raises the question whether Washington might soon clear the way ​for Ankara to purchase F-35 fighter jets despite existing sanctions."

During Trump's first term, the U.S. imposed sanctions on Türkiye over its acquisition of Russian S-400 missile defense systems and excluded it from the F-35 fighter jet manufacturing and procurement program.

Ever since, Ankara has repeatedly called the move unfair and voiced hope that the sides could overcome the issue during Trump's second term.

Erdoğan raised the issue during the September meeting with Trump, who later said the U.S. was "very seriously" considering the sale of F-35s to Türkiye.

The sides have said they are ⁠seeking a ​workaround to lift the sanctions.