Economy / Chaharsuq: Iran and Turkey in the 'Post-JCPOA' Era

The visit of Ahmet Davutoğlu, the Prime Minister of Turkey, to Iran, which began on the evening of Friday, March 14, is not only politically sensitive but also aims at achieving significant economic goals. The developments in Iran 'post-JCPOA', which has emerged from years of isolation and is hosting large Asian and European delegations, are naturally under the scrutiny of Turkish economic circles that have held a prominent position in their eastern neighbor's market for years. Any step taken towards normalizing Iran's position in the international economic community will also affect its relations with its neighbors, including Turkey. Since the beginning of the third millennium, trade relations between the two countries have experienced many ups and downs. Between 2003 and 2012, Iran's exports to Turkey increased from $1.8 billion to nearly $12 billion. During the same period, Turkey's exports to Iran increased more than eighteen-fold, from $533 million to nearly $10 billion. Thus, in 2012, the volume of trade between the two countries reached nearly $22 billion. If we consider Iran and Turkey's relations in 2012 without regard to the composition of trade between the two countries, Iran had the upper hand with a $2 billion surplus over its western neighbor; however, a closer examination shows that 70% of Iran's exports to Turkey consisted of gas, and the remaining 30% mainly comprised traditional goods such as pistachios, minerals, and metals. In contrast, Turkey's exports to Iran were predominantly manufactured goods, ranging from machinery and electrical and electronic devices to textiles, clothing, spare parts, and food products. In other words, Iran has played the role of a developing country in relation to a developed country, effectively exchanging raw materials for manufactured goods. The increase in insecurity in Turkey, including in areas near the Iranian borders, and incidents involving Iranian nationals in Turkey have also impacted trade relations between the two countries. Furthermore, Turkey has compensated for Iran's $2 billion trade surplus, largely thanks to gas exports, by attracting a large number of Iranian tourists. According to official Turkish statistics, in 2012, over one million Iranian tourists visited Turkey, while only 260,000 Turkish tourists traveled to Iran. However, since 2012, trade between Iran and Turkey has significantly declined. The volume of trade between the two countries fell to about $15 billion in 2014 and even dropped below $10 billion in 2015. The decline in trade relations over the past four years primarily stems from four major factors: 1) The crippling sanctions against Iran and the shrinking of its economy have naturally affected trade relations with Turkey. With a decrease in Iran's foreign exchange revenues from oil exports, Iran's import capabilities were hit, and Turkey was not spared from this blow. 2) Turkey's economic difficulties have also impacted its trade relations with its eastern neighbor. In fact, Turkey's economic growth rate, which reached levels comparable to China in 2010 and 2011, fluctuating between 8% and 10%, fell to 2% in 2012 and did not exceed 3% to 4% the following year. 3) The increase in insecurity in Turkey, including in areas near the Iranian borders, and incidents involving Iranian nationals in Turkey have also impacted trade relations between the two countries. 4) Finally, one must consider the increasing tensions that have put Tehran and Ankara at odds over Middle Eastern events, especially Syria. In the crisis between Iran and Saudi Arabia, Ankara is much closer to Riyadh's positions than to Iran's. There is no doubt that economic relations between Iran and Turkey cannot remain unaffected by these tensions. Despite all these obstacles, both Iranian and Turkish economic circles and senior political officials from both countries reiterate that if the existing capacities in their relations are utilized as they should be, their trade volume could easily reach $30 billion a year. There was hope that with the implementation of the 'Preferential Trade Agreement between Iran and Turkey' starting January 1, 2015, the volume of trade between the two countries would rapidly increase. Based on this agreement, 140 items of Iran's export goods, including agricultural products, fisheries, and foodstuffs, and 125 items of Turkey's export goods, including industrial products, are covered under tariff reductions. This agreement has faced severe criticism from some economic circles in Tehran, who argue that by reducing the customs tariffs on Turkish industrial products entering the Iranian market, Iranian producers of similar goods become increasingly defenseless and lose ground to their competitors. Here, it is not the time to delve into the arguments of the opponents of the 'Preferential Trade Agreement between Iran and Turkey'. We only emphasize that despite the implementation of this agreement, trade relations between the two countries remain at a level significantly lower than four years ago and are far from the targeted goal of achieving $30 billion in annual trade. Iran and Turkey are two countries that can foster economic dynamism and a desire for progress and prosperity in the region, replacing the current deadly trends. Will Turkey lose its positions in this market as Tehran emerges from isolation and new players enter the Iranian economic arena in the 'post-JCPOA' environment? It would be hasty and superficial to conclude that rebuilding bridges between Iran and the international economic community will necessarily harm Turkey's interests. If Iran develops a dynamic and prosperous economy, its neighbors, especially Turkey, will also benefit from this prosperity. The notion that progress in one or several countries in the Middle East necessarily comes at the expense of others is entirely incorrect and only exists in the minds of those who do not understand the nature of economic relations between nations and are unaware of the dynamism resulting from regional and global convergences. Today, the development of countries transcends national borders and takes on regional dimensions. If we look at East Asia, we see that almost all the countries in the region have been significantly influenced by the dynamism of their neighbors. Japan initiated Asia's economic 'miracle', but within a few decades, other countries in the region followed suit, from Korea and Singapore to China, Indonesia, and Vietnam. One of the roots of the tragedy in the Middle East is the absence of such regional locomotives, and even if a locomotive is found, it quickly falters in the face of ethnic, nationalistic, and religious animosities. Iran and Turkey are two countries that can foster economic dynamism and a desire for progress and prosperity in the region, replacing the current deadly trends. They were the first Muslim countries to delineate borders between themselves in 1639 with the Treaty of Zuhab, and in the 20th century, they underwent more or less similar transformations in the realm of political and economic modernization. The 'post-JCPOA' environment will inevitably transform relations between Iran and Turkey, but there is no reason to believe that this transformation will necessarily lead to a deeper rift between them. If Tehran and Ankara cannot overcome the internal forces that beat the drum of tension through expanded cooperation, including in the economic sphere, it is unclear what powers will contain the explosion of hatred and bloodshed in the Middle East.