Türkiye–Israel Trade Conflict: Economic Standoff amidst a Simmering Crisis

Summary

The escalating economic warfare and diplomatic rupture between Türkiye and Israel have thrust their bilateral relations into uncharted territory. The prospects for de-escalation and conflict resolution through diplomatic channels appears increasingly elusive, reflective of the complex interplay between trade, politics and regional instability in the West Asia region.

The deteriorating relations between Türkiye and Israel have precipitated an escalating economic standoff and diplomatic crisis, highlighting the complex interplay between trade, geopolitics and regional instability. Turkish President Recep Tayyip Erdogan announced that Türkiye suspended all trade with Israel from 2 May 2024, amounting to approximately US$ 9.5 billion.1 This decision was made in response to Israel’s ongoing military actions in the Gaza Strip, which Erdogan described as violations of international law and human rights.

Previously on 9 April 2024, export restrictions to Israel were imposed on 54 product groups. The restrictions covered various materials, including raw iron bars, aluminium, copper products, concrete, cement, iron steel, electrical and fibre optic cables, granite, construction materials, marble and jet fuel.2 These substantial economic sanctions have inevitably disrupted supply chains for infrastructure and housing projects in Israel, increased uncertainty and strained the bilateral relationship.

On 9 May 2024, Turkish Trade Minister Dr Omer Bolat stated that the trade embargo will continue until Israel stops its attacks on Gaza, ensures a permanent ceasefire and uninterrupted delivery of humanitarian aid.3 Bolat announced a three-month grace period for companies to fulfil their contractual obligations in a reprieve for businesses with pre-existing export deals with Israel.4 This temporary exemption appears to be a measure aimed at mitigating the immediate economic disruption caused by the trade embargo while still allowing Türkiye to exert economic pressure on Israel over the Palestinian issue.

It is important to consider that criticism of the trade relationship between Israel and Türkiye was a central theme in the New Welfare Party’s (YRP) campaign leading up to the 31 March 2024 nationwide local elections in Türkiye. President Erdogan’s ruling Justice and Development Party (AKP) experienced a significant defeat during these elections. Fatih Erbakan, the leader of the YRP, strongly condemned the government for maintaining trade ties with Israel. Despite being a minor Islamist party, the YRP gained parliamentary representation through an alliance with the AKP in the previous year’s general elections.

However, in the local elections, the YRP fielded its own candidates and unexpectedly won two provinces that had long been strongholds of the AKP.5 The YRP appears to occupy a more hardline Islamist stance compared to Erdogan’s AKP, especially when it comes to relations with Israel. Their condemnation of trade ties resonated enough with some voters to score victories in AKP strongholds. Hence, there is a strong possibility that such a domestic scenario would have compelled Erdogan to make stricter decisions against Israel.

Erdogan criticised Israeli Prime Minister Benjamin Netanyahu, arguing that Netanyahu’s actions have rendered any potential rapprochement between Türkiye and Israel infeasible. The Turkish President referenced a previous meeting with Netanyahu in New York on 19 September 2023 during the United Nations General Assembly (UNGA), which occurred before the escalation of the conflict on 7 October 2023. The leaders held substantive talks during the UNGA, agreeing to reciprocal visits to each other’s countries in the near future.

The meeting between Erdogan and Netanyahu addressed a range of political, economic and regional topics, including the Israeli–Palestinian issue. Energy cooperation, including natural gas exploration, production and trade, emerged as key areas of potential collaboration.6 This alignment of energy and economic interests underscored the pragmatic desire to foster economic cooperation despite persisting political differences.

Türkiye–Israel Bilateral Trade

The Free Trade Agreement (FTA) between Türkiye and Israel was signed on 14 March 1996 in Jerusalem and came into effect on 1 May 1997. This agreement not only eliminated tariffs and non-tariff barriers but also addressed various regulatory areas, including sanitary and phytosanitary measures, balance of payments, internal taxation, public procurement, state aids, anti-dumping, safeguard measures, intellectual property rights and rules of origin.7

For industrial products, the FTA resulted in the abolition of all customs duties and equivalent charges as of 1 January 2000. Regarding agricultural products, both Türkiye and Israel agreed to mutual tariff elimination or reduction, including tariff quotas for certain agricultural products from the other Party. Additionally, the list of agricultural products covered by the FTA was revised by both Parties in 20068 and 20079 , reflecting positive improvement in trade relations.

The bilateral trade statistics between Türkiye and Israel from 2013 to 2024 reveal significant trends and fluctuations in both exports and imports, reflecting the dynamic nature of their economic relationship. The trade figures in Table 1 provide insights into the evolving trade patterns and economic interdependence between the two nations.

Table 1. Türkiye–Israel Bilateral Trade Statistics

Turkish exports to Israel show a general upward trend over the observed period. From 2013 to 2022, exports grew from US$ 2.81 billion to US$ 7.03 billion, representing a significant increase of about 150 per cent. This growth was particularly pronounced between 2020 and 2022, with exports rising from US$ 4.70 billion to US$ 7.03 billion, a 49.5 per cent increase in just two years. However, there was a notable decline in 2023, with exports dropping to US$ 5.42 billion, a 22.9 per cent decrease from the previous year. The partial data till May 2024 suggests a potential continuation of this downward trend.

While the overall trend shows growth in bilateral trade, Turkish imports from Israel are more volatile than exports. The highest import value was recorded in 2014 at US$ 3.06 billion, followed by a general decline until 2020, reaching a low of US$ 1.50 billion. There was a recovery in 2021 and 2022, with imports reaching US$ 2.45 billion in 2022. Similar to exports, imports also decreased in 2023 to US$ 1.64 billion.

The overall trade volume between Türkiye and Israel reached its peak in 2022 at US$ 9.48 billion, more than doubling from the US$ 5.51 billion recorded in 2013. The years 2021 and 2022 stand out as particularly strong for bilateral trade, with volumes exceeding US$ 8 billion. However, 2023 and the early data for 2024 indicate a downturn, with the trade volume dropping to US$ 7.06 billion in 2023, a 25.5 per cent drop from the previous year and significantly to US$ 2.11 billion by May 2024. This sharp decline could be attributed to geopolitical tensions emanating from the attack by Hamas on Israel on 7 October 2023 and the Turkish response, including a trade ban opposing subsequent actions being taken by Israel for several months, which is still going on.

Moreover, it can also be observed that the trade imbalance remains throughout the period from 2013 to 2024, as Turkish exports to Israel consistently exceeded imports from Israel, indicating a trade surplus for Türkiye. This imbalance grew more pronounced over time, particularly from 2020 onwards. Despite maintaining a trade surplus, Türkiye has cut off trade with Israel, which suggests that the former will have to bear a higher economic cost from this trade suspension. Hence, it seems domestic political pressure from opposition parties has likely influenced Erdogan’s tougher stance against Israel.

Impact on Israeli Economy

The shutdown of trade between Türkiye and Israel from May 2024 has affected prices and the supply of kosher food in Israel. This measure, one of the most extensive actions taken by any country to protest Israel’s military actions against Hamas in Gaza, is likely to remain in place until a permanent ceasefire is established. This trade shutdown has disrupted a major economic relationship and affected daily life in both countries.10

Several Turkish export companies initially explored the possibility of circumventing the trade restrictions by routing their goods through third-party countries. However, subsequent reports from exporters and importers in both Türkiye and Israel indicate that these attempts have thus far proven unsuccessful.11 As the world’s seventh-largest food producer, Türkiye has been a primary supplier of staples such as pasta and chocolate to Israel. The countries’ close proximity—approximately 400 miles by sea between Mersin, Türkiye’s largest southern port, and Tel Aviv—has made Türkiye a convenient source of food and construction material for Israel.12

Shmuel Abramzon, the chief economist at Israel’s Finance Ministry, downplayed the potential for significant or persistent economic disruption due to Türkiye’s actions. He emphasised that while Türkiye is a notable trade partner for Israel, the Israeli economy does not rely exclusively, or even remotely, on Türkiye for its imports.13 Abramzon’s assessment suggests that while some alternative sourcing options may introduce higher costs for Israeli businesses, the overall economic implications are expected to be manageable.

The decision by Türkiye to suspend all trade with Israel has prompted a scramble by Israeli importers to secure alternative sources for a wide array of goods, ranging from cement and food to automobiles. While this disruption may lead to short-term shortages and supply chain challenges, economists assert that the impact on Israel’s robust US$ 500 billion economy is likely to be limited.14

Israeli Response

In an assertive move to counter Turkish President Erdogan’s decision to halt exports to Israel, Israeli Finance Minister Bezalel Smotrich announced a proposal on 16 May 2024. The proposed plan, which would be submitted for cabinet approval, entails the abrogation of the existing free trade agreement between Israel and Türkiye. It also seeks to impose a substantial 100 per cent tariff on other imports originating from Türkiye.15 This retaliatory measure appears to be a calculated response from the Israeli government, aimed at exerting economic pressure on Türkiye. The move highlights the escalating tensions between the two nations and indicates the willingness of Israeli authorities to employ trade-related measures as a means of asserting their stance in this diplomatic impasse.

Moreover, Smotrich condemned Erdogan’s announcement on halting imports from Israel, characterising it as “a declaration of an economic boycott and a serious violation of international trade agreements to which Türkiye has committed”.16 Smotrich emphasised that Israel’s proposed retaliatory measures would be temporary and contingent upon Erdogan’s tenure as President. Notably, Smotrich stated that these actions would only persist for the duration of Erdogan’s presidency, as the Turkish leader had previously declared his intention not to seek re-election when his term concludes in 2028.

Smotrich suggested that if “the citizens of Türkiye elect a leader who is sane and not a hater of Israel” after Erdogan’s departure, restoration of trade relations between the two nations could be feasible. The proposed measures appear to be a calculated attempt to exert economic pressure on Türkiye in response to Erdogan’s actions while also signalling a willingness to re-establish ties under different political circumstances.

Smotrich’s statement also outlined a multi-pronged strategy in response to Erdogan’s decision to halt imports from Israel. The statement indicated that the finance, economy and foreign ministries would collaborate to bolster Israel’s domestic manufacturing capabilities. Concurrently, these ministries would also endeavour to diversify Israel’s import sources, thereby reducing the country’s dependency on Türkiye.17 This multi-pronged approach draws attention to Israel’s determination to mitigate the potential economic ramifications of Erdogan’s policies by fostering self-sufficiency and exploring alternative trade partnerships.

It appears that Israel is willing to employ a range of economic tools to counter what it perceives as hostile policies from the Turkish government under Erdogan’s leadership. Simultaneously, the statement also signals a pragmatic approach, leaving the door open for rapprochement should the political landscape in Türkiye shift in a more favourable direction for bilateral relations.

Israel’s Predicament

On 9 July 2024, a draft resolution on the import embargo was distributed to various Israeli ministers and officials of the PMO, Foreign, Economy and Finance ministries for discussion and a final decision remains awaited. If approved, Israel’s ban will apply solely to imports from Türkiye and not to products made in Türkiye coming from a third country. The draft mentions that:

Turkey’s unilateral actions could set a precedent for other countries and harm Israel’s national security, especially at a time when the State of Israel is at war. Furthermore, the violation could damage Israel’s economy because of the integration between the Israeli and Palestinian markets.18

Some of the officials in the inter-ministerial team are of the view that imposing an embargo on imports from Türkiye may be regarded as a violation of World Trade Organization (WTO) rules, considering Israel does not have sufficient grounds for it. It is also being argued that Israel could not challenge Türkiye’s boycott at the WTO because import bans related to wartime actions are permitted under the organisation’s rules. Therefore, the predicament for Israel is that violation of WTO rules might lead to sanctions, which may further result in other countries stopping imports from Israel.19

Multiple views are emerging from the stakeholders in Israel on the proposal to ban imports from Türkiye. For instance, Gilit Rubinstein, head of the Federation of Israeli Chambers of Commerce, expressed concerns about such government decisions impacting living costs in Israel.20 A federation survey showed Israeli importers facing 10–30 per cent price increase. Rubinstein noted that market restrictions reduce supply, driving up prices and emphasised that developing new markets requires time which the government is not providing.

Shachar Turjeman, president of the Association of Chambers of Commerce, stated that “we must not be drawn into a trade war that begins in Turkey and has an unknown end” and hence urged that the government should “focus on measures that will prevent the acceleration of the cost of living and not fuel it”.21 He also requested the finance ministry to give precedence to public interest as compared to national honour while taking decision that may affect the cost of living.

However, the proposed plan received backing from the Manufacturers’ Association in Israel. The association characterised Smotrich’s multi-pronged strategy, which includes abrogating the free trade agreement with Türkiye, imposing a 100 per cent tariff on Turkish imports, bolstering domestic manufacturing capabilities and diversifying import sources, as “an appropriate response”.22

The Manufacturers’ Association’s endorsement accentuates the sentiment that allowing Erdogan’s actions to transpire without a proportionate countermeasure could potentially inflict economic harm on Israel. By lending support to the proposed measures, the association appears to align itself with the government’s stance that a robust response is warranted to safeguard Israel’s economic interests in the face of what is perceived as an economic boycott initiated by Türkiye.

Moreover, Roey Fisher, the head of Israel’s Foreign Trade Administration, has articulated the potential perils of over-relying on trade partners whose policies and actions can precipitously disrupt established commercial ties. His remarks, “I don’t think the economy should rely on a country that says one day ‘we want to trade with you’ and on another day ‘we don’t want to trade with you,’”23 is a cautionary reminder of the importance of diversifying economic partnerships and fostering a trade environment that is resilient to the evolving problems.

As the trade impasse between Türkiye and Israel persists, trade officials indicate that several countries, including Greece and Italy, have expressed willingness to step in and fill the vacuum caused by Türkiye’s absence in the Israeli import market. Reportedly, deals facilitating increased trade flows from these alternative sources are nearing completion. However, a more significant challenge lies in finding suitable alternative export destinations for over US$ 1.5 billion worth of Israeli exports that have been displaced due to the cessation of trade with Türkiye.24 These exports, primarily comprising fuel, chemicals and semiconductors, represent a substantial portion of Israel’s trade portfolio that has been disrupted by the simmering tensions with Türkiye.

Conclusion

Türkiye’s suspension of trade with Israel has led to supply chain disruptions and forced both nations to seek alternative trade partners. The Turkish decision, influenced by domestic pressures and opposition to Israel’s actions in Gaza, has prompted Israel to consider retaliatory measures, including the potential abrogation of their free trade agreement. However, Israel is facing a predicament in formulating its response. While there is pressure to retaliate, concerns about potential violations of WTO rules and the impact on domestic living costs have created a complex decision-making environment.

The present situation remains fluid and time will tell what actions both countries will take in the coming months. However, it can be observed that the current situation has made prospects for de-escalation and conflict resolution through diplomatic channels increasingly challenging. As both countries explore ways to reduce mutual economic dependence, this trade dispute could lead to a lasting realignment of regional trade patterns. The economic standoff exemplifies how trade has become a tool of foreign policy between Türkiye and Israel and how geopolitical tensions can rapidly strain economic cooperation strengthened over many years.

Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.

• 1. Emre Basaran, “Türkiye Halts Trade with Israel Amounting to $9.5B, Says President Erdogan”, Anadolu Agency, 3 May 2024.
• 2. Ezgi Akin and Rina Bassist, “Turkey Restricts Exports of 54 Products to Israel Until Gaza Cease-fire”, Al-Monitor, 9 April 2024.
• 3. Ece Toksabay and Burcu Karakas, “Turkey Says It is Not Easing Israel Export Ban”, Reuters, 9 May 2024.
• 4. Ibid.
• 5. Ezgi Akin, “Turkey to Take ‘Series of Measures’ Against Israel after Gaza Aid Drop Denied”, Al-Monitor, 8 April 2024.
• 6. Humeyra Pamuk, “UN General Assembly: Erdogan, Netanyahu Meet for First Time as Relations Thaw”, Reuters, 20 September 2023.
• 7. “Free Trade Agreement- Israel”, Ministry of Trade, Republic of Turkiye.
• 8. “Decision on Further Improvement on Preferential Regime in Agricultural Product”, Ministry of Trade, Republic of Turkiye, 20 September 2006.
• 9. “Agriculture Preferred Regime in Products Improving Verdict on Joint Committee”, Ministry of Trade, Republic of Turkiye, 12 May 2007.
• 10. David I. Klein, “Turkey’s Sudden Ban on Trade with Israel is Already Affecting Jews in Both Countries”, Jewish Telegraphic Agency, 14 May 2024.
• 11. Steven Scheer, “Israeli-Turkish Trade on Life Support as Relations Hit Bottom”, Reuters, 28 May 2024.
• 12. David I. Klein, “Turkey’s Sudden Ban on Trade with Israel is Already Affecting Jews in Both Countries”, no. 10.
• 13. Steven Scheer, “Israeli-Turkish Trade on Life Support as Relations Hit Bottom”, no. 11.
• 14. Ibid.
• 15. “Smotrich Says He’ll Abolish Free Trade Deal with Turkey, Impose 100% Tariff on Imports”, The Times of Israel, 18 May 2024.
• 16. Ibid.
• 17. Ibid.
• 18. “Reports: Prime Minister’s Office Advancing Embargo on Turkish Imports”, The Times of Israel, 10 July 2024.
• 19. Ibid.
• 20. Ibid.
• 21. Ragip Soylu, “Smotrich Talks Tough but Israel is in No Hurry to Sanction Turkey”, Middle East Eye, 19 June 2024.
• 22. Steven Scheer, “Israel to Abolish Free Trade Deal with Turkey in Retaliation”, Reuters, 17 May 2024.
• 23. Steven Scheer, “Israeli-Turkish Trade on Life Support as Relations Hit Bottom”, no. 11.
• 24. Ibid.