Trading in the Middle East

Trading in the Middle East

I was talking to a foreign diplomat in Ankara the other day about how establishing diplomatic ties between countries is simpler than building up economic ties. Exchanging ambassadors is a straight-forward procedure when compared to the complexity of thousands or more economic actors reaching out into the other country, finding people they can work with, and navigating the inevitably complex physical and bureaucratic procedures the trade involves.

Yet this is not always true in the Middle East, where the political and diplomatic side of things can be more complicated than the economic one. Take a look at Turkey’s ties with Saudi Arabia, and you’ll know what I mean.

Turkish-Saudi relations turned sour after the brutal murder of Jamal Khassoggi in October 2018 at the kingdom’s Istanbul Consulate. Looking at Turkish bilateral with Saudi Arabia, I can see that Turkish exports have declined 92.7 percent between January-March 2020 and January-March 2021. That is on top of the 25 percent decline from 2019 to 2020, by the way. There has been no commensurate decline in Turkish imports from Saudi Arabia, which has only increased by 42.8 percent between from the first quarter of 2020 to the first quarter of 2021.

Let me compare this to Turkey-Israel bilateral trade numbers. Note that diplomatic relations between these two countries also cannot be considered as being very good in recent years either. Our two countries infamously downgraded relations after the 2010 Mavi Marmara incident, and relations never recovered. Israel is now a crucial member of the anti-Turkish alliance in the eastern Mediterranean conflict.

Yet the economic web of relations between Turkey and Israel were not undone. Turkish exports to Israel have increased 16.7 percent between January-March 2020 to January-March 2021. This is on top of the 4.5 percent increase in Turkish exports to Israel from 2019 to 2020. Turkish imports from Israel have also risen 14.5 percent between the first quarter of 2020 to the first quarter of 2021. So, trade continues whether or not there are diplomatic problems between these two countries. Why? Because both Israel and Turkey are functioning market economies while Saudi Arabia is not. While diplomats and politicians trade words, Turkish and Israeli businesspeople continue to see each other and make deals. They know that their politicians are unlikely to see eye to eye anytime soon, but they don’t consider that to be very important.

In countries like Saudi Arabia and Iran, trade stops when the politicians and diplomats stop seeing each other. So, can we simply say that functioning market economies have more resilient economic ties when diplomatic relations go sour? Not so fast.

Just have a look at Turkey-UAE bilateral trade in those similar periods. Yes, you guessed it - Turkey-UAE relations are also in a bad state (there is a bit of a pattern here, but that is the topic of another column). The two countries clash over status in Libya, Djibouti and elsewhere. Yet Turkish exports to the UAE have increased 118.8 percent between January-March 2020 to January March 2021. It is as if Turkish goods that didn’t go to Saudi Arabia were diverted to the UAE. In all products where Saudi demand has declined, there is a commensurate increase in UAE demand. It appears that Turkish goods are pouring into the UAE, perhaps to be traded further into Saudi Arabia. “Water finds its way” as we say in Turkish.

Güven Sak, trading,