How Turkey's trade suspension could derail Israeli importers

Turkey's decision to suspend all trade relations with Israel due to its military offensive in Gaza could pose a setback for Israeli importers who had grown increasingly reliant on the Turkish market in the post-Covid era. Turkey has confirmed it will stop all trade with Israel until the country allows humanitarian aid to flow uninterrupted into Gaza.

“Export and import transactions related to Israel have been stopped, covering all products … Turkey will strictly and decisively implement these new measures until the Israeli government allows an uninterrupted and sufficient flow of humanitarian aid to Gaza,” Turkey's trade ministry said in a statement late on Thursday.

In response, Israel's Foreign Minister, Israel Katz, has instructed the ministry's director general to look for trade alternatives and focus on local production.

The National looks at the Israel-Turkey trade stand-off and its wider implications.
Why are Turkish imports important for Israel?

Due to its close geographical proximity, competitive production costs and quality products, Turkey has emerged as a preferred exporter to Israel in the past couple of years.

In addition to basic produce and goods such as eggs, vegetables and textiles, Turkey is a leading exporter of high-value products such as electronics, iron, plastic and steel to Israel.

In 2022, iron and steel topped the list of Turkish exports to Israel, and were together worth $1.19 billion, according to data compiled by Trading Economics. In second place were vehicles ($562.98 million), followed by plastic ($516.24 million) and electronic equipment ($384.59 million).

Why is Turkey a better option than China?
Following the Covid-19 pandemic, Israeli businesses started looking for alternative trade options beyond China, making Turkish facilities increasingly appealing.

Gaash Worldwide, an Israeli logistics and supply chain firm, said in March last year that the main advantage of the Turkish market over China is that products produced in Turkish factories are of “better quality”.

In its analysis posted on its website, it said that while Chinese factories can make products at a very high level, Turkish factories produce better quality and longer-lasting products.

The proximity also helps traders to reduce transportation costs and shipping times.

Exporters look for alternative routes
Following the suspension of bilateral trade between the countries, Turkish and other foreign exporters with confirmed orders are exploring alternative routes to deliver their goods to Israel.

“We have confirmed orders from Turkey as well as Israel,” Anuj Gulati, general manager of an Amsterdam-based food packaging and spices company, told The National.

“Currently our shipments are at Turkish customs and we are not very clear about the situation … we might have to look for alternative routes through Egypt or Lebanon to supply our products to Israel.”

Mr Gulati said the trade suspension will have serious implications for goods intended for the Palestinian territories.

“The trade suspension will potentially lead to a blockade on goods destined for the Palestinian territories, as they also have to undergo Israeli customs clearance,” said Mr Gulati, who ships his products to Palestine through Turkey-Israel route.

Reuters spoke to the head of a Turkish chocolate and confectionery exporter that produces some products specifically for the Israeli market, with packaging entirely in Hebrew.

“It is a big material loss for us,” he said. “There are companies in Israel from which we have receivables and to whom we owe money. What will happen to these receivables when trade stops?”

What trade value is at stake?
Bilateral trade between Turkey and Israel stood at more than $6.8 billion last year, according to Turkish Statistical Institute data. More than 75 per cent of this was Turkish exports.

While largest export from Turkey to Israel was iron and steel last year, the primary import was refined oil products.

Formed in 1993 to promote trade ties between the two countries, the Turkey-Israel Business Council includes companies selling goods and services ranging from digital payment technologies to metal packaging.

In a statement on X on Friday, the Istanbul-based business council said it supported the Turkish government's decision to stop exports and imports of all products.

The two nations have had a free-trade agreement in place since 1997.

Despite exchanges of bitter rhetoric since the Gaza war broke out on October 7 and the halting of flights between Istanbul and Tel Aviv, the two nations have remained economic partners.

What prompted the blanket trade ban?
The latest actions came on the close heels of Turkey expressing its intentions to join South Africa's case against Israel at the UN's highest court, accusing Israel of genocide in Gaza.

Last month, Turkey announced it was restricting some exports to Israel amid strained relations between the two countries. It said it was imposing restrictions on a list of goods because of Israel's refusal to allow Turkey to take part in aid drop operations over Gaza.

The list provided by the ministry includes 54 items, among them construction materials such as marble, cement, steel and aluminium products.

Will the move derail co-operative initiatives?
In August 2022, Turkey and Israel announced the restoration of diplomatic ties and the return of ambassadors to each other’s countries after years of tension.

Both countries had also agreed to explore co-operation avenues.

However, last year’s Hamas-led attack on Israel on October 7, which was followed by Israel’s massive offensive against Gaza, has led to the current hostilities.

Turkish President Recep Tayyip Erdogan has also been a vocal critic of Israeli Prime Minister Benjamin Netanyahu and the Israeli government's policies towards Palestinians.

He accused Israel of being a “terrorist state” and voiced his support for Hamas.

In the past few months, Mr Erdogan has come under pressure domestically with protesters calling for him to cut off relations with Israel due to the Gaza war, in which more than 34,500 Palestinians have been killed since October.

Pro-Palestine demonstrations have also grown in Turkey in recent weeks.

Why analysts see it as the Turkish President's attempt to appease voters?
After local elections in March in which Mr Erdogan lost votes to more conservative Islamist parties, Turkey’s leader has been under increasing pressure from the public to take more forceful action against Israel.

Experts said the trade dispute is “all about Mr Erdogan and his interests”.

“First and foremost, what are his domestic political needs? How does he recover from his stinging defeat in the local elections?

“Stoking tensions with Israel is great politics for him right now … he no doubt feels it is one of his best cards for re-mobilising many supporters who are otherwise getting very weary of his president-for-life schtick,” John Hannah, former White House national security adviser and senior fellow at the Jewish Institute for National Security of America, told The National.

For Erdogan, short-term political calculations have always trumped sound economic management, said Mr Hannah adding that eventually Israel will find other suppliers to replace most of what it imports from Turkey.