Oil, not Qatar crisis, damaging Turkey-Gulf economic ties

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When four Arab states launched an economic blockade against Qatar in June, threatening food and construction supplies to the gas-rich state, Turkey stepped in.

Ankara helped airlift food supplies to ward off serious shortages in its close ally, and then rushed ahead with plans to deploy troops at a military base in the isolated Gulf state at a time when many Qataris feared invasion.

The intervention prompted widespread anger among many Saudis and Emiratis — the leaders of the quartet that includes Egypt and Bahrain — who bitterly rejected an alleged return to “Ottoman expansionism” in the Gulf.

Ankara and Doha have in recent years cemented an alliance through support for so-called political Islam — used to describe the widespread transformation of societies according to Islamic rules — in the region, but their relations with Saudi Arabia, and especially the United Arab Emirates, have been affected as these two newly interventionist Gulf monarchies seek to undermine Islamist influence.

As the mood sours between Turkey and prominent Gulf economies the new status quo threatens what was a close regional partnership that blossomed after the turn of the millennium. Those years saw Turkey develop into one of the world’s most exciting emerging markets, while the six-member Gulf Cooperation Council entered an oil boom, with grandiose infrastructure projects and surplus revenues seeking overseas investment opportunities.

Despite fears to the contrary, however, the Qatar embargo has not had an immediate impact on Turkish-Gulf economic ties, analysts say.

“As far as one can tell . . . existing contracts are all being honoured and the two sides remain significant actors to each other’s economic interests,” says Hussein Ibish, senior resident scholar at the Gulf States Institute in Washington.

“Among other things, Turkey has important contracts in Saudi Arabia, at airports for example, that seem to be fully operative,” he added. “And there remains a good deal of Emirati investment in Turkey in a range of sectors. So, it doesn’t appear that the stand-off has had a major impact — at least not yet.”

As Riyadh looks to boost private participation in aviation, Turkey’s TAV Airports Holding, in partnership with Saudi Arabia’s Al Rajhi Holding, will develop and operate Saudi Arabian airports at Yanbu, Qassim and Hail. The contractor also has a 50 per cent stake in Medina airport.

Privatisation forms the cornerstone of the kingdom’s ambitious plans to diversify its oil-dependent economy, opening up more opportunities for Turkish companies as Saudi plans $200bn in sales of state enterprises.

Construction industry executives say Turkish groups might face some political risk in the UAE, especially in Abu Dhabi, where concerns about Ankara’s regional politics are strongest.

Politics aside, the sustained slump in oil prices is certainly dampening trade and investment flows.

GCC direct investment into Turkey, one of Ankara’s major sources of inflows, has dropped from $940m in 2012 to an estimated $446m in 2016.

Demand for Turkish real estate from the Gulf has also declined in recent years, says Idris Demirhan, chief executive of Dubai-based consultancy Orient World and Dubai chairman of the Independent Industrialists’ and Businessmen’s Association of Turkey.

“The market is not good now, because there is austerity in the Gulf region and people like to keep their cash,” he says. The second quarter of this year has seen a modest recovery, he adds, as some investors turn to land and commercial property as investments. “But it is not like before,” he said.

Saudi-Turkish trade increased steeply after the millennium to peak in 2012, when the value of bilateral traded reached $8bn. But the value of bilateral trade declined by 38 per cent by 2016, falling to $5bn, according to official statistics. UAE-Turkey trade also peaked in 2012 at $11.8bn, declining 23 per cent to $9.1bn in 2016.

The war in Syria, which closed down the land route between Turkey and the GCC, directly hit trade. More competitive European brands have also undercut some Turkish imports into the region, say traders.

But despite the Qatar crisis, tourism flows from the Gulf to Turkey were strong this summer, driven by the strong dollar-pegged currencies against the lira and cultural affinity.

The number of GCC travellers to Turkey increased by 26 per cent to 360,000 in the first six months of 2017 compared to the same period last year, according to official statistics.

The robust numbers suggest common ties could trump political differences. “We hope for a political settlement to any issues, as we have strong relations with the region through Dubai,” says Mr Demirhan. “Dubai is a very important platform to get contracts across the GCC.”

Mr Ibish says the most likely outcome to the Qatar stand-off is a grudging compromise, which would ease political differences between the quartet and Turkey.

But he warns that a prolonged crisis, with Turkey perceived to be an indispensable partner in facilitating Doha’s position, could cause relations to deteriorate.



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