What Are Consequences of Turkish-Israeli Trade Halt?

Turkish Ministry of Commerce announced that all of trade ties with the Israeli regime have been suspended since Thursday and all imports from and exports to the occupied territories have been halted.

The ministry said in a statement: "Turkey will strictly and decisively implement these new measures until the government of Israel allows the uninterrupted and sufficient flow of humanitarian aid to Gaza."

This is not Turkey's first economic punishment against the Israeli regime, and last month, Ankara also banned the export of 54 items, including aircraft fuel, construction iron, flat steel, marble, ceramics, and other export items to the occupied territories. Also, in the same period, Turkish Airlines, Turkey's leading airline, canceled online booking of its flights to the occupied territories until March 2025.

While Turkey has experienced a tough economic situation in recent years and its effects on the domestic political situation have been clearly evident in the decline in the popularity of the ruling Justice and Development Party (AKP), the abrupt severance of business relations with the Israeli regime came as a surprise to all, opening a new chapter in the Turkish-Israeli relations.

Also, the influence of this new approach is considerable in putting pressures on the Arab countries to practically and genuinely support the Palestinian cause. A look at the economic relations of the two sides over the past decades can better demonstrate the significance and impacts of this Turkish move to press the Israelis and to determine the future of ties between the two sides.

Free trade agreement

The unilateral cutting off ties with the Israeli regime was not a matter the Israeli officials could simply move past. It enraged them and in the first reaction, the Israeli Foreign Minister Israel Gantz accused Ankara of violating the agreements.

In his X account, Gantz posted: "The dictator behaves like this and ignores the interests of Turkish people and Turkish businessmen and ignores international trade agreements."

Gantz said he gave instructions to the foreign ministry to find alternatives to Turkey with a focus on domestic production and imports from other countries.

The volume of trade relations between the two sides in 2023 is reported to be around $7 billion, of which $5.42 billion is the share of Turkish exports to the occupied territories and $1.5 billion is the value of the export of Israeli products to Turkey. This figure was around $9.5 billion in 2022, which shows a noticeable decrease.

On the other hand, data from the Turkish Exporters Association indicate that Turkey's exports to the Israeli regime decreased by 21.6 percent in the first quarter of 2024, two months after the start of the war in Gaza.

This decrease compared to the same season last year was about 28 percent. Also, in the same quarter, the share of exports to the occupied territories reached 2.06 percent of total exports, which was 2.69 percent in the same period of 2023.

Turkey and the Israeli regime have a free trade agreement that dates back to the mid-1990s. This free trade agreement has been in effect since 1997.

According to this agreement, industrial material trade between the two sides from January 2000 was free from customs tariffs.

Data from the Turkish Exporters Association show that between 2011 and 2020, Turkey exported steel, automobile industry products, chemicals, cement, glass, ceramics, construction materials, furniture and paper, ready-made clothes, electricity and electronics to the Israeli markets. 

The same data also indicates that Israel imported nearly $3.7million of cars and other types of vehicles from Turkey.

Energy has been another top area of trade partnership of them from 2011 to 2020. Israel imported $2.737 billion crude oil from Turkey. Jewelries also have an important share in the Turkish exported materials to the occupied territories.

Uneven losses

Certainly, after this Turkish move, the enormity of trade ties and partnership between the two sides makes economic consequences for the businesses and businesspeople of the two sides inevitable.

On the Turkish side that has a positive trade balance with Israel, as well as the West Bank and Gaza, Ankara will lose a market worth $6 billion.

Mustafa Gultepe, the head of Turkish Exporters Association, said that some Turkish companies export 70-80 percent of their products to the Israeli markets, and if this ban lasts long, they will face major problems. 

"The government should protect them and cover their damages....It is not an easy task to cover the loss of $5 to $6 billion that may happen due to halt of exports to Israel. If trade problem is not resolved within a month or two, the end-of-year trade target should be reduced from $267 billion to $260 billion," Gultepe said. 

Although these concerns are normal for Turkish businessmen and investors in the short term, the Turkish government is already trying via promotion of its punitive move both to boost its soft power in the Muslim world and to reverse the economic damage caused by this ban through encouraging Muslim countries to buy Turkish products. 

But on the other side, severed trade ties with Turkey will bring nothing to the Israelis but economic damage and major problems amidst war. 

According to a report by Yedioth Ahronoth published on Friday, halted trade with Turkey can inflict a serious damage on the Israeli trade and industry. 

According to this report, the imports of raw material and final products from Turkey annually is $5 billion. 

The news website adds that it is expected that tens of Israeli companies are expected to lose up to $1.5 billion due to halted exports to Turkey. 

Turkey is currently one of the largest trade partners of the Israeli regime, and according to the report of the Times of Israel, the ban imposed by Turkey on the Israeli construction industry is expected to have serious negative effects at a time this sector has been severely affected by war on Gaza. 

According to this Israeli news outlet, Israel imports about 70 percent of its construction materials and about one-third of its cement from Turkey for local construction. Israeli market is also one of the key destinations of Turkish steel. 

Shai Posner, deputy director general of Israel Builders Association, told the Times of Israel that "Turkey is not the only producer of construction materials, but it is the cheapest because of geopolitical proximity." 

Turkey's action will force importers to seek alternative suppliers from other countries, which will lead to "additional costs and higher prices for consumers and businesses" and make construction more expensive, according to Posner. 

Higher consumer costs have been one of the economic consequences of the start of the war in Gaza in the past months. The ban on the commercial ships from and to the Israeli regime in the Red Sea and the Bab-el-Mandeb Strait by Yemen's Ansarullah, as well as the repeated attacks by resistance groups on the regime's ports, has greatly increased the costs and time of transporting goods from the world markets to the occupied territories, fueling inflation.

End of economic honeymoon 

In setting the relationship between the two sides, keeping the economic ties away from waves of political tensions has been an inseparable part of bilateral policies. 

This approach has produced a result: Even severe political crises and hostile relations did not stymie the growing and prosperous business of both sides over the past years.

However, the recent Turkish decisions, despite economic woes and the government's need to find new markets to support the producers, demonstrated that the constant equation of separation of economy from politics is not as fixed as before in Ankara-Tel Aviv relations and political tensions unavoidably impact economic ties. Actually, the anti-Israeli economic sanctions show that there is nothing but hostility between the two sides and the short terms of de-escalation are not very much influential in major changes, especially that Ankara said it plans to join the international campaign against Israel genocide case in the International Criminal Court.