Eurasia Press & News
In a surprising turn of events, the Turkish economy has delivered a significant blow to its Israeli counterpart, sending shockwaves through the region and global markets. The escalating tensions between the two nations fueled by political and diplomatic disputes have now manifested in the economic realm with far-reaching consequences.
Deteriorating Diplomatic Relations
The deterioration of diplomatic relations between Turkiye and Israel can be traced back to several key events. The 2010 Gaza flotilla raid, in which Israeli forces killed nine Turkish activists, was a major turning point that strained ties between the two countries. Despite a brief period of reconciliation in 2016, tensions resurfaced in 2018 following the U.S. decision to relocate its embassy to Jerusalem, a move that Turkiye strongly opposed.
The recent escalation of violence in the occupied Palestinian territories, particularly in Gaza, has further exacerbated the situation. Turkiye, a staunch supporter of the Palestinian cause, has been vocal in its condemnation of Israeli actions, leading to a diplomatic standoff between the two nations.
Economic Retaliation
In response to the ongoing tensions, Turkiye has taken a series of economic measures aimed at punishing Israel. Last January, Turkiye excluded Israel from targeted export destinations while lifting support for companies exporting to Israel. The strongest decisions came in April when Turkiye restricted the export of 54 goods to Israel and required the immediate cessation of its aggression against the Gaza Strip to lift the restrictions. The ban included the export of aircraft fuel, iron for construction, flat steel, marble, ceramic, etc. These measures were designed to exert economic pressure on Israel and force a change in its policies.
According to the trade balance figures between the two countries, Turkiye exported products to Israel worth more than $5.4 billion, with Israel ranking 13 in the list of countries that import the most Turkish products in 2023, forming 2.1 per cent of total Turkish exports. Ankara’s most important exports to Israel were steel, vehicles, plastic, electrical appliances and machinery while fuel dominated imports at a cost of $634 million last year.
These numbers reflect the difficulty Turkiye had in making this decision, as many Turkish companies that had export contracts and produced those orders will be harmed. Turkish officials expressed this by stressing that certain economic loss was a small price for the humanitarian gains. Erdogan also stressed that Turkiye is willing to pay the price for this decision at the global level.
However, it is certain that the critical condition of the Turkish economy is one of the main reasons that delayed this decision from being made earlier, especially in light of the worsening inflation crisis, which almost reached 70 per cent at the end of last April, and the continued decline in the exchange rate of the lira, which the Turkish Central Bank expects to slide to 40 liras per dollar by the end of this year, compared to only 32.5 liras currently.
The Turkish administration was relying heavily on the increase in exports to pay part of the foreign obligations that caused the lira to decline over the past three years, but with the decision to suspend trade with Israel, and according to the Turkiye Exporters Assembly, the government will have to reduce export targets for the end of the year to $260 billion instead of $267 billion, unless trade with Israel resumes within two months.
Although the losses of the Turkish economy may also extend to legal compensation that companies are forced to pay if Israeli companies resort to international courts, it is certain that Israel’s losses will be large as a result of the Turkish decision, especially since important Israeli sectors depend on commercial imports in very large percentages. At the forefront is the construction sector, which imports approximately 70 per cent of its steel and cement needs from Turkiye and is the sector that suffers the most after the unlawful war on the Gaza Strip.
The Turkish decisions will also cause more suffering to the entire Israeli economy considering the difficulty of compensating for these imports in the short term. If an agreement is reached with new companies from other countries, import costs will certainly rise compared to the Turkish product, which enjoys a lower shipping cost as a result of geographical proximity, in addition to its global competitive advantages. This was confirmed by the American investment bank, JP Morgan, which said that the halt may marginally raise price pressures for goods in Israel in the short term.
Also, among the Israeli losses, according to the New York Times, is the fact that Turkiye’s announced suspension of all forms of trade with Israel may only be the latest in a series that makes Israel’s isolation greater than it was over the past few months. It also noted that this decision may encourage other countries to take similar steps. This was confirmed by Erdogan by saying that he believes this will be an example for other countries that are dissatisfied with the current situation.
The impact of these economic measures has been significant, with Israeli businesses feeling the strain of reduced trade and investment from Turkiye. The agricultural, tourism, and manufacturing sectors in Israel have been particularly hard hit, with many companies facing financial difficulties and job losses.
Diplomatic Pressure
In addition to the economic measures, Turkiye has also been exerting diplomatic pressure on Israel. The Turkish government has been actively lobbying other countries to join its boycott of Israel, and has been successful in persuading several nations, including Malaysia and Indonesia, to impose their own sanctions on Israeli goods.
The diplomatic pressure has also extended to the international arena, with Turkiye using its influence in organizations such as the Organization of Islamic Cooperation (OIC) and the United Nations to condemn Israeli actions and rally support for the Palestinian cause.
Impact on the Israeli Economy
The combined impact of the tariffs, withdrawal of investments, and diplomatic pressure has been devastating for the Israeli economy. The country’s GDP growth rate has slowed significantly with many economists predicting a recession in the coming months.
The unemployment rate has also risen sharply, with many Israelis losing their jobs in the agricultural, tourism, and manufacturing sectors. The government has been forced to allocate significant resources to support affected businesses and workers further straining the country’s budget.
The Turkish decision to suspend trade with Israel, despite the potential economic losses for its own economy, demonstrates the importance Turkiye places on the Palestinian cause. By leveraging its economic influence, Turkiye has sent a strong message to Israel and the international community that it will not tolerate the continued occupation and oppression of the Palestinian people.
