With diplomatic crisis, Turkey-Israel trade ties may be in trouble – Turkey

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Relations between Israel and Turkey haven’t been warm in recent years, but they certainly improved after Israel agreed to provide $20 million in compensation to the victims of Israel’s Mavi Marmara raid.

Now that appears to be at risk as the two sides engage in a staccato duel of recalled and expelled envoys and insults. The war may not end with words but rather endanger economic ties.

Until the Mavi Marmara incident in 2010, Turkey-Israel ties encompassed a close defense relationship as well as trade and tourism. The defense links, which included joint air force exercises and big contracts such as a $1 billion project by Israel to upgrade 170 Turkish tanks, evaporated in an instant.

But the trade and business ties remained apart from the political tension and even grew stronger in the years that followed. As much as Turkish President Recep Tayyip Erdogan raged at Israel, he let business go on as usual for fear of the damage it would do to his country.

Who has gotten the most over the years from the relationship isn’t easy to quantify. If an Israeli buys a low-priced shirt made in Turkey who benefits the most? The seller who earns a profit or the buyer who gets a low-cost shirt? That is the magic of the market economy: When it works it works to everyone’s’ benefit. That’s why the politicians left it alone even as they traded insults and accusations.

For logistical reasons, foreign trade is usually conducted with a country’s nearest neighbors. But Israel does virtually no business with its Arab neighbors, so Turkey has always held out big promises, albeit promises that have never been fulfilled.

In any event, economic ties between the two countries began to warm without any direct connection to the agreement they came to in 2016 over the Mavi Marmara affair. Instead, it was due to the Israeli government’s efforts to lower the cost of living and to the Syrian civil war.

The cost-of-living drive included creating more competition in the aviation sector to lower airfares. That led to a surge of air travel to Turkey by Israelis, not to stay there but to use Istanbul for connecting flights to their final destinations.

In 2012, before Open Skies went into effect, 686,000 people traveled to Turkey from Israel on 4,706 flights; last year nearly 2 million did on 12,400 flights. Both sides have benefited from this. Israelis get much cheaper airfares and Turkish airlines and airports benefit from the business.

Turks don’t travel to Israel in big numbers, but the Syrian civil war suddenly made it an important transit point for Turkish agricultural and other exports to Jordan, since they could no longer ship their goods by truck through war-torn Syria.

Nowadays Turkish freighters arrive in Haifa Port with trailer trucks and drivers onboard. The trucks and their Turkish drivers travel through Israel to the Sheikh Hussein Bridge and on to Jordan. About 30-40 trucks do the route every week, a relatively small number that could be a lot bigger if Turkish companies decided to service the giant Saudi market via the same route.

David Behrisch, managing partner at Tiran Shipping, an Israeli shipping agency, says that so far the ups and downs of Israeli-Turkish diplomatic relations have had no effect on the convoys.

“I haven’t felt any tension, even after the Mavi Marmara. I don’t think I’ll feel it now either, I spoke with the Israeli consulate in Istanbul and they told me that it’s business as usual and it will stay that way,” he said.

Israeli-Turkish trade came to $4.3 billion in 2017, with a significant surplus for Turkey. Israeli exports to Turkey amounted to $1.4 billion while imports from Turkey were $2.9 billion. Israeli exports to Turkey are mainly chemicals and refined oil and its imports mainly cars, metals, machinery and textiles.

The real opportunity for boosting trade is natural gas. Turkey needs it and Israel has big reserves. Turkey is dangerously reliant on imported Russian gas and Israel wants to use its energy resources to enhance its standing in the region.

The two sides have held talks for many years, but nothing has resulted. As one source put it, “There are always talks underway with Turkey. I assume that if they were to get strong support from both governments, they would advance.”

One reason Israel isn’t giving full-throated support is that it would prefer to export its gas to Europe through Cyprus and Greece, which is a more politically reliable option than Turkey, said Prof. Eyal Zisser of Tel Aviv University. No one will invest the $2 billion required to construct a pipeline to deliver the gas to Turkey from Israel’s Leviathan field without guarantees of long-term contracts.

Zisser says Erdogan has always been careful to contain his anger when it comes to the Turkish economy and knows how to distinguish between politics and business. “He knows the limits, but in the dynamic of the Middle East it’s hard to know where he will take his next step,” he says.





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