Diageo could close its operations in Turkey if it is forced to pay up in a tax row with the country's government, just-drinks understands.

The UK drinks giant is in the middle of a two-year dispute with Turkey over the level of duty levied on spirits imports. Diageo refused to comment on whether it could quit the Turkish market but confirmed the row with the Turkish government, which has lasted two-and-a-half years.

"It is important to stress that this is an imported spirits industry issue," the company said. "The dispute is in between the Turkish Customs and major global spirit companies as well as some Turkish companies importing other international brands to Turkey."

The company reacted after a leaked private letter from British Prime Minister Tony Blair to his Turkish counterpart Recep Tayyip Erdogan.

In the letter, Blair claimed spirits importers in Turkey are facing fines of around US$500m and said companies "will have no choice but to close down their operations in Turkey" if the fines were levied.

Diageo insisted it has met all international trade regulations and said bodies including the European Commission and the World Customs Organisation supported the importers "from a technical perspective".

The company added: "Diageo Turkey intends to continue to pursue its rights through the litigation process and to exhaust all avenues of appeal available to it in this dispute."

Diageo imports Johnnie Walker Scotch whisky, Smirnoff vodka and Baileys cream liqueur into Turkey.