Iran nuke deal’s impact on Turkey’s embattled exports

Iran nuke deal’s impact on Turkey’s embattled exports

Iran’s nuclear deal with world powers will have a significant effect on world trade for sure. Many countries have already started to develop commercial and economic plans about the country with the population of 75 million, around 60 percent of whom are under the age of 30. 

Many articles have been written about the potential ramifications of this historic deal across the world. Here, I will try to elaborate on what the deal will bring to neighboring Turkey’s trade markets, which have been embattled for a couple of years due to several factors. 

You can ask a question about why I do not include economic ties into the column. I haven’t because Turkish companies may be lagging behind in taking a share in the Iranian market with the exclusion of some examples. Let me discuss that issue in another column. 

According to a fresh report of the Bank of America Merrill Lynch, Turkey is best positioned to enjoy the potential upside in Iranian trade volumes along with the United Arab Emirates. As the report has shown, imports from Turkey represent approximately 4 percent of total Iranian imports, placing Turkey firmly within the top five trading partners. These imports have included for the most part manufactured goods and machinery. Counter to that, Turkish exports to Iran represented 2.5 percent of total Turkish exports in 2014. Excluding gold, Turkish exports to Iran jumped to $3.8 billion in 2014, from $2.5 billion in 2013.

The report has predicted the trade volume between the two countries will rise in the coming years. 

These predictions are good for Turkey’s trade market, but it is questionable whether the expected positive yields from the Iranian market will be enough for Turkey to overcome its recent and quite obvious problems. 
Turkey’s exports decreased over 8 percent in the first half of the year to $73.26 billion from the same period of 2014, according to data from the Turkish Exporters’ Assembly (TİM). 

The dramatic rise in the U.S. dollar against other currencies has had a huge negative effect over the country’s exports. Under normal conditions, the loss of the Turkish Lira’s value against the dollar would be expected to be good for Turkey’s exports, but it is not. As Turkey mainly makes its imports on a dollar and exports on a euro basis (to its largest market, the European Union), the plummeting value of the euro against the dollar has hit Turkey’s exports. Turkey’s manufacturing activities are mainly based on imported raw materials and semi-products, which are bought on the more expensive dollar, but are sold on the cheaper euro abroad. 

The projected euro-dollar parity is not much better than it is now when Turkey’s export markets’ fragilities are considered. The parity, which was over 1.3 in July 2014, is now down to 1.1 and continues to decrease.

The dollar rose to a three-month high against a basket of currencies last week after the Fed’s announcements signaling this trend and it is expected to strengthen again in the coming weeks as traders anticipate the Fed will raise interest rates by year-end.

The uncertainties in the EU economy have constituted another problem for Turkey, which makes around 43 percent of its exports to the bloc. According to the TİM data, the highest level of exports was made to Germany, Britain, Iraq, Italy and France in June, but the exports to these countries regressed by 8 percent on average.

The turmoil in the Middle East is another major factor affecting Turkey’s trade negatively. The route blockages across Iraq and the civil unrest in Syria have deadlocked Turkey’s commercial access to the Middle East and North Africa (MENA) region, which is the second largest export market for the country after the EU. 

The opening of the Iranian market in a much more transparent way will of course make a contribution to the rise Turkey’s export market, but more is needed to overcome the existing problems in the sector.