Turkey and Israel: Unravelling a Complex Partnership

The relationship between Turkey and Israel has long been marked by a mix of cooperation and tension. While the two countries have shared interests in trade and regional security, their relations have often been strained by political differences, particularly over the Palestinian issue. Recently, these tensions escalated when Turkey officially asked to join the South Africa’s genocide case against Israel before the International Court of Justice (ICJ), a move that could significantly impact their already fragile trade relations.

Historically, Turkey and Israel enjoyed a close partnership following the establishment of the State of Israel in 1948. During the early years, the two countries cooperated extensively in military and intelligence sharing. This alliance began to fray as Turkey’s foreign policy increasingly aligned with the broader Muslim world, particularly concerning the Palestinian issue. The rise of the Justice and Development Party under Recep Tayyip Erdogan in the early 2000s further deepened this shift, as Erdogan’s government adopted a more assertive stance on Palestinian rights and distanced itself from Israel.

One of the most significant moments in the deterioration of Turkey-Israel relations was the 2010 Gaza flotilla raid. This event, in which Israeli forces boarded a Turkish ship attempting to break the blockade of Gaza, resulted in the deaths of nine Turkish activists and led to a severe diplomatic crisis. This incident led to a near-total diplomatic breakdown, severely impacting their economic ties.

Despite these political tensions, trade between Turkey and Israel remained relatively robust for years, driven by mutual economic interests, including key sectors such as textiles, chemicals, and electronics. According to a study by the INSS, the trade volume between the two countries peaked at $8 billion in 2022, making Israel one of Turkey’s key trading partners in the region. However, recent developments have put this economic relationship on shaky ground.

Turkey’s decision to join the ICJ genocide lawsuit against Israel marks a significant escalation in their diplomatic conflict. The lawsuit, initiated by South Africa, accuses Israel of committing genocide against Palestinians. Al Jazeera has remarked that by joining this case, Turkey aligns itself more closely with anti-Israel forces on the international stage, a move that is likely to have far-reaching legal and diplomatic consequences. Some analysts suggest that this move could be the “final straw” in a relationship that is already “on life support”.

According to Reuters, the economic fallout from this diplomatic escalation could be severe. From October 7, 2023 to March this year, the total Turkey-Israel trade volume fell by nearly 33 percent, according to information compiled by the Anadolu news agency from Turkish ministerial sources. Turkish exports to Israel fell 30 percent, while its imports decreased by 43.4 percent. Some experts warn that Turkish actions may lead to a significant reduction in trade volume, potentially falling below $3 billion, which would be a sharp decline from previous years. The Israeli government’s response to Turkey’s legal actions has also been pointed, with calls for NATO to consider expelling Turkey from the alliance.

“In light of Turkish President Erdogan’s threats to invade Israel and his dangerous rhetoric, Foreign Minister Israel Katz instructed diplomats … to urgently engage with all NATO members, calling for the condemnation of Turkey and demanding its expulsion from the regional alliance,” the Israeli foreign ministry said on July 29 according to media reports.

The energy sector, which has been a focal point of cooperation between Turkey and Israel, is particularly vulnerable. The discovery of significant gas reserves in the Eastern Mediterranean had raised hopes for collaborative projects, including potential pipelines that could supply European markets. However, as relations between Turkey and Israel sour, the future of these projects becomes uncertain. According to the Dayan Center, an Israeli think tank, any disruption in energy cooperation could have wide-reaching implications, not only for Turkey and Israel, but for the broader region’s energy security, by affecting both the availability and price of energy resources.

Turkey’s support for Hamas adds another layer of complexity to the situation. Turkey has long provided political and financial support to Hamas, which Israel and several Western countries designate as a terrorist organisation. This support is part of Turkey’s broader strategy to position itself as a champion of Palestinian rights, but it significantly strains its relationship with Israel. The MEMRI reports that Turkey’s financial assistance to Hamas has exceeded $300 million.

From a strategic standpoint, Turkey’s support for Hamas serves to bolster its influence in the Middle East, particularly among Arab populations sympathetic to the Palestinian cause. Domestically, the relationship with Hamas bolsters the ruling AKP’s support among conservative and Islamist segments of the Turkish population. The Turkish government, led by President Erdogan, has often used its support for Palestine to strengthen its political base at home.

This relationship also makes Turkey a mediator in the Israeli-Palestinian conflict, providing Ankara with diplomatic leverage in international forums. This can be particularly useful in negotiations or when seeking to assert its position on broader geopolitical issues. Additionally, by aligning with Hamas, Turkey can counterbalance the influence of regional rivals like Egypt and Saudi Arabia, who have different approaches to dealing with the Palestinian issue and relations with Israel.

However, this alliance also carries significant risks, including the possibility of economic sanctions and increased diplomatic isolation. Moreover, Turkey’s ties with Hamas could further alienate it from Israel and other regional powers, potentially leading to a more volatile security environment.

Looking ahead, the future of Turkey-Israel relations appears fraught with uncertainty. In the short term, it is unlikely that the two countries will reconcile their differences. Recent Turkish actions suggest a deliberate pivot away from Israel, which could lead to further diplomatic and economic isolation. According to Brookings, this trajectory poses significant risks for regional stability, with potential knock-on effects for businesses operating in the Middle East.

The best-case scenario for the future would involve a de-escalation of tensions, where both Turkey and Israel find ways to compartmentalise their political differences in favour of preserving economic ties. This could involve renewed diplomatic efforts or third-party mediation, potentially stabilising the business environment. However, given the current trajectory, the worst-case scenario—an all-out diplomatic rupture—cannot be ruled out. Such a development would likely lead to the suspension of trade and cooperation agreements, increased military tensions, and further instability in the region.

The escalating tensions between Turkey and Israel present a complex landscape for businesses operating in the region. Companies that have traditionally relied on strong trade relations between the two nations may find themselves in increasingly precarious positions. The significant decline in trade volume, as noted in recent reports, indicates that businesses in sectors such as textiles, chemicals, and electronics may face reduced demand and disrupted supply chains. This decline could result in financial losses, layoffs, and a potential shift of business operations to more stable markets.

In the energy sector, the uncertainty surrounding cooperative projects between Turkey and Israel, particularly in the Eastern Mediterranean, could have severe consequences. Companies involved in the development of natural gas reserves and related infrastructure projects may experience delays, increased costs, or even cancellations, as diplomatic relations continue to deteriorate. The potential loss of these projects could not only impact the energy companies directly involved but also have broader implications for regional energy security, affecting energy prices and availability.

Moreover, businesses operating in Turkey may need to contend with the broader economic consequences of the country’s foreign policy decisions. Turkey’s alignment with Hamas and its involvement in the ICJ case against Israel could lead to increased scrutiny from international markets and potential sanctions. Such developments could exacerbate Turkey’s existing economic challenges, including inflation and currency volatility, further complicating the business environment.

For multinational corporations, the rising tensions present a significant geopolitical risk. Companies with operations in both Turkey and Israel may be forced to navigate complex legal and regulatory challenges, balancing their interests in each country while avoiding actions that could be perceived as taking sides in the conflict. The uncertainty may prompt some businesses to reconsider their investment strategies in the region, potentially leading to a slowdown in foreign direct investment.

The deteriorating relationship between Turkey and Israel poses substantial risks for businesses in the region. While there may still be opportunities for those able to navigate the complexities of the situation, the current trajectory suggests that the business environment is likely to become increasingly challenging. Companies will need to carefully assess their exposure to the region and consider strategies to mitigate the potential impact of ongoing diplomatic and economic disruptions.