Turks and Israelis lose out over trade ban - analysis

Following Turkey's decision to halt trade with Israel, Turkish businesses are bracing for a financial hit, and Israeli businesses are looking for alternative sources for imported products. 

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Bulent Gultekin, a former governor of Turkey's central bank, told The Media Line that the ban would be disruptive for companies specializing in sectors that trade with Israel.

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"It's substantial business for them, and they are going to get hurt," he said.

Turkey's Trade Ministry announced the ban on Friday, stating the country would not resume trade with Israel until Israel allows "uninterrupted" aid to Gaza.

In the past, trade between the two countries has continued even during diplomatic crises. Turkish-flagged container ship Bernard A of Arkas Holding sails in the Bosphorus, on its way to the Black Sea, in Istanbul, Turkey July 24, 2018. (credit: REUTERS/MURAD SEZER)

According to the Observatory of Economic Complexity, Turkish trade with Israel reached $7 billion in 2022, up from $288 million in 1995. Agricultural products, such as cars, steel, clothing, and electronics, are among the main products exported from Turkey to Israel.

Export companies are looking for alternatives

Reuters reported on Friday that some export companies are looking for alternative ways to get their products to Israel. One chocolate company told Reuters that the ban would result in "a big material loss."

Gultekin, a finance professor at the University of Pennsylvania's Wharton School of Business who travels to Turkey often, said that the low price tag on Turkish exports was part of their appeal for Israel. Transporting items from Turkey to Israel is less expensive than transporting items from more distant countries like China.  

After Bloomberg first reported the decision on Thursday, citing unnamed Turkish sources, Israeli Foreign Minister Israel Katz posted on the X social media platform, accusing Turkey of "breaking agreements by blocking ports for Israeli imports and exports."

Decades ago, Turkey and Israel signed a free trade agreement that went into effect in 1997, eliminating tariff and non-tariff barriers. 

Yigal Maor, a lecturer of shipping and port economics at the University of Haifa, told The Media Line that the Israeli government plans to file complaints with international financial organizations like the World Trade Organization over the ban.

"[It] seems that a lot of procedures and international agreements were broken with this instruction," he said.

Besides increasing prices for consumers now, Maor said, Turkey's decision to halt trade with Israel will damage Israeli companies' long-term trust in the Turkish market, with effects lasting beyond the end of the current war with Gaza.

Before the war in Gaza, Turkey, and Israel were going through a rapprochement centered around economic relations. Ankara was especially interested in developing ties in the energy sector.

Turkish President Recep Tayyip Erdoğan's criticisms of Israel intensified as the war between Hamas and Israel dragged on. Yet trade continued despite massive anti-Israel protests in Turkey.

Part of the reason for Erdogan's ban is that last month's nationwide local elections shifted the power balance in Turkey's government. The hard-line Islamist New Welfare Party received more than 6% of the vote, resulting in fewer votes for Erdoğan's Justice and Development Party and massive gains for the secular opposition. 

The New Welfare Party had allied with Erdoğan's party in presidential and parliamentary elections last year, but in the local elections, it turned against him, criticizing Turkey's continued trade with Israel. 

"It was very difficult for Erdoğan, so he was put on the spot by this splinter political Islamist party," Gultekin explained.

The hit to Turkish exporters comes after several years of economic hardship in the country, including a currency free fall and a massive rise in the cost of consumer goods. The official inflation rate in Turkey hit 68.5% in March.

Nevertheless, the struggling economy was boosted last week when the S&P credit ratings agency increased Turkey's credit rating from B to B+.

Gultekin said that the new rating was likely due to a change in government personnel, with new officials steering the economy toward more orthodox policies, including increasing interest rates to combat inflation.

"There is an improvement. … But there is still a long way to go to feel comfortable," Gultekin said.