Multipolarity and Connectivity
Trade Adversaries: The Impact of the IDF Military Operation in the Gaza Strip on Economic Relations Between Israel and Turkey

If the situation does not improve in the short term, then measures of economic influence, in contrast to the verbal critical rhetoric that the President of Turkey most often used previously, could cause significant damage to bilateral relations, disrupting direct non-political contacts, which previously made it possible to continue interacting in times of crisis, writes Elizaveta Yakimova.

The IDF’s Operation Iron Swords in the Gaza Strip is exceptional in its scale and duration, as well as due to numerous associated consequences, including Turkey’s decision to suspend trade ties with Israel. A new round of disagreements between the two states risks aggravating the internal political situation in Israel and its position in the system of international economic relations. Additionally, it signals that the Israeli leadership has not sufficiently elaborated its regional strategy, despite the country’s desire to continue normalisation with its neighbours.

In early April of this year, the Turkish Ministry of Trade suspended 54 categories of goods from being exported to Israel, ranging from construction materials to aviation fuel. Ankara said the introduction of restrictions had been motivated by the “gross violations of international law” the IDF had committed during Operation Iron Swords, and declared a ceasefire as a condition for the lifting of sanctions. In the first days of May, citing the same reasons, Turkish authorities announced a complete cessation of export and import transactions with Israel.

In response to actions qualified as unfriendly, Israel Katz, head of the Israeli Foreign Ministry, accused Recep Tayyip Erdogan of non-compliance with international trade standards, and Finance Minister Bezalel Smotrich submitted to the Cabinet a proposal to cancel the free trade agreement and increase duties on imports from Turkey until the end of its current president’s term in office.

Despite the swift introduction of reciprocal steps, one gets the impression that Israel was in fact not ready for Ankara to use measures of economic influence. A similar conclusion follows from an assessment of the previous dynamics of interaction, where stable volumes of mutual trade were maintained even during periods of crisis. For example, in October 2010, against the backdrop of proceedings following the “Freedom Flotilla” incident that occurred in May of the same year, Turkey was among the countries that Israel approached to overcome the “tomato crisis” that erupted due to the loss of its own harvest. By 2011, there was a twofold increase in the volume of supplies of Turkish finished foods and tobacco products to Israel compared to 2007, although the same period in the political and diplomatic sphere was characterized by tensions in connection with the IDF’s Operation Cast Lead in the Gaza Strip and the aforementioned “Freedom Flotilla”. According to statistics for 2012, despite the still-unstable interstate relations and Ankara’s blocking of the participation of the Israeli delegation in the Chicago NATO summit, Turkish producers accounted for about half of Israel’s egg imports at the time.

Israel also overly relied on the Turkish leadership’s seemingly sustained interest in increasing mutual trade and coordinating gas export strategies, as was expressed at the time of the normalisation of relations between the two states in 2022. Apparently, the government of Benjamin Netanyahu proceeded from the expectation that Recep Tayyip Erdogan wouldn’t be quick to abandon the course, as Turkey was meeting its objectives of stabilizing its economy and maintaining ties with the EU. Until a certain point, this calculation remained valid. After a summit meeting on the side-lines of the UN General Assembly in September 2023, the parties announced plans to strengthen economic and energy cooperation. A few days before the October 7, 2023 Palestinian militant attack on southern Israel, it became known that the Turkish Energy Minister was scheduled to visit Israel in November of the same year to discuss gas exports to European consumers. However, the Israeli Cabinet did not take into account that Ankara prioritizes the diplomatic benefits of involvement in the Middle East peace process and the desire to avoid criticism for insufficient solidarity with the Palestinians. Moreover, this became evident by the end of October 2023, when Turkey curtailed negotiations on joint exploration of “blue fuel” and construction of a gas pipeline in the Eastern Mediterranean.

Finally, Israeli strategy clearly ignored recent domestic political transformations in Turkey. After the unsuccessful outcome of the municipal elections for the ruling Justice Party, the president began to experience increased pressure, including due to ongoing trade ties with Israel. At the same time, it is curious that the initiator of anti-Israeli measures in Turkey is called the New Welfare Party. In reality, in March of this year, accusations against the head of state of continuing trade with Israel and the involvement of representatives of his inner circle, were made by the Republican People’s Party, which the United States and the EU had supported during the last presidential campaign in Turkey.

Assessing the effect of the Turkish ban, it can be assumed that Israel will suffer its greatest losses in the construction industry, which had already been negatively affected by Operation Iron Swords due to its dependence on hiring Palestinians. In addition, prices for a number of food products and electronics supplied from Turkey are expected to rise. However, a 3-month delay by the Turkish Ministry of Trade for the completion of export contracts by local businesses has provided some time to mitigate the negative consequences. During this period, Israel expects to find new exporters and, with the participation of the Turkish business community, build alternative supply routes involving third countries; Slovenia is already involved. However, prices for such products will be higher for Israeli consumers due to additional logistics costs, exacerbating inflation.

Additional risks in the economic sphere for Israel are caused by the threat of Turkish practices being repeated by other states, primarily the Middle Eastern ones. The UAE has an interest in maintaining the confidentiality of smaller transactions while striving to refrain from implementing large projects, although the possibility of open and large-scale cooperation was considered one of the key elements of the Abraham Accords. Relations with Jordan are tense; there are strong public calls to sever ties with Israel.

The domestic political consequences could be no less serious for Benjamin Netanyahu’s government. First, for several terms, the current prime minister has promised to reduce the cost of living in the country, but the suspension of trade even with one partner clearly does not contribute to this aim. At the same time, his responsibility for failure to fulfil such obligations is increasing, given the secret preparations for early Knesset elections. Second, Ankara’s actions have revealed deep miscalculations in Israel’s economic policy in recent years. One of them is a bet on expanding imports rather than developing domestic production. Another is an attempt to reorient after the Covid-19 pandemic, if possible, from Asia to geographically close countries, in particular from China to Turkey, without taking into account the associated risks.

Third, Turkey’s actions prevent Benjamin Netanyahu from using his traditional political asset, developed international connections, to attract the electorate. The situation is such that the policies of the current Israeli cabinet are perceived as doing political and economic damage, and the normalisation of contacts with Ankara in 2022 is associated with Yair Lapid, leader of the parliamentary opposition.

In general, if the situation does not improve in the short term, then measures of economic influence, in contrast to the verbal critical rhetoric that the President of Turkey most often used previously, could cause significant damage to bilateral relations, disrupting direct non-political contacts, which previously made it possible to continue interacting in times of crisis. In addition, the Turkish example demonstrated that Israel, which is seeking to increase ties with the Islamic world, does not have a comprehensive strategy for such cooperation, due to a wide range of risks, including those arising from divergent positions on the Middle East peace process.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.