Turkey Halts Israeli Trade: A Briefing

Simon J. Evenett, 5 May 2024

On 2 May 2024, Turkey suspended all imports from and exports to Israel. This briefing covers several trade-related aspects of the ban, taking account of the bilateral trade flows, possible disruption of transshipments through Turkey to Israel, and the risk of emulation by other nations.

That this ban was implemented in the first place is more telling than its likely commercial impact.

?The Government of Turkey’s frustration with its counterpart in Jerusalem has been mounting for some time, as a review of the press releases on the website of Turkey’s Ministry of Foreign Affairs makes clear.

Last year, Turkey took exception to what it saw as the forced removal of civilians from the Gaza Strip and attacks on hospitals. This year, curtailment of aid supplies to Gaza and Israeli reluctance to agree to a permanent ceasefire have again attracted Ankara’s ire.

Turkey has taken a number of economic measures against Israel since the events of 7 October 2023:

• On 10 October 2023, like many other airlines, state-owned Turkish Airlines suspended flights to Israel. In early April 2024, that suspension was extended until at least March 2025.
• On 9 April 2024, the Turkish Ministry of Trade banned the export of 54 product groups to Israel.
• On 2 May 2024, exports and imports between Turkey and Israel were suspended.

Trade and investment relations between Israel and Turkey are governed by their WTO memberships, a free trade agreement that came into force on 1 May 1997 and a 1996 bilateral investment treaty. Article 31 of their FTA covers “security exceptions” and contains language similar to the relevant WTO provisions (GATT Article XXI and GATS Article XIV).

Israel has criticised Turkey’s trade ban and lodged a complaint at the OECD, not at the WTO or under their bilateral FTA. In part, this is likely due to the wide latitude the limited GATT jurisprudence appears to leave to countries claiming national security rationales for restricting trade.

What follows is an assessment of this trade ban that focuses on:

• The extent of the Turkey-Israel trade relationship.
• Transshipment patterns through Turkey to Israel.
• Potential emulation by other trading partners of Israel.

Bilateral goods trade between Israel and Turkey fell sharply before the trade ban was imposed. In 2023, Turkey imported a total of $1.6 billion worth of goods from Israel, according to the Turkish Statistical Institute. In 2023, Turkey sourced more goods from 35 other nations.

Turkish bilateral imports from October to December 2023 were $322 million, down from $761 million in Q4 the year before. Turkish imports from Israel in the first quarter of 2024 were $429 million, down from $546 million in Q1 2023. In interpreting these import statistics it's important to note that the total value of all of Turkey’s imports in Q1 2024 was down 12.7% compared to Q1 2023.

Meanwhile, overall Turkish exports have been stable as the value of shipments to Israel have fallen. In Q4 2023 -- the period following the events of 7 October 2023 -- Turkish bilateral exports to Israel totalled $1.2 billion, down from $1.7 billion in Q4 2022. In Q1 2024, bilateral Turkish exports totalled $1.2 billion as compared to $1.5 billion in Q1 2023. In 2023, Israel was the 13th largest export market for Turkey. Turkish exports to Israel last year accounted for only 2.1% of its total goods exports.

The degree to which transshipment via third countries occurs will affect the impact of this bilateral trade ban. Reuters contacted a number of Turkish exporters who claimed to have been surprised by the ban and stated their intention to ship via third countries. A review of Q1 2024 Turkish export data shows no signs of surges in exports to Israel’s neighbours, suggesting that the Turkish private sector probably did not anticipate the recent ban.

Concerns that transshipments of oil through Turkey to Israel will be disrupted by the ban are probably overdone. Particular mention has been made of supplies of Azeri oil to Israel that pass through the Baku-Tbilisi-Ceyhan pipeline and are then shipped from the port of Ceyhan to Israel. In 2022, Azerbaijan exported over 2.2 million tons of crude petroleum worth nearly $1.7 billion to Israel, according to the State Statistical Committee of the Republic of Azerbaijan.

A 20 February 2024 news report citing Azeri data implies similar quantities of oil were exported to Israel last year. That report also states that oil shipments to Israel jumped in January 2024 to over half a million tons worth nearly $300 million.

To put such statistics in perspective, it’s helpful to note the following: In 2022, Israel imported $9.7 billion of crude petroleum, according to the 2023 edition of the WTO’s Trade Profiles publication. Thus, five-sixths of Israeli oil imports were sourced from nations other than Azerbaijan. (IMF figures suggest Israel imported $13.3 billion of crude petroleum in 2022 which, if correct, implies even smaller dependence on Azerbaijan.)

Second, according the International Monetary Fund’s Article IV Consultation Report on Israel for 2023, “Israel’s energy dependence [on foreign suppliers] is moderate, with local production covering more than half of domestic consumption.” According to the IMF, Israel is self-sufficient in natural gas and is developing renewable energy sources, which further diminishes likely harm done by ceasing oil transshipment.

Finally, it is worth noting that the official Turkish press release announcing the trade ban is light on details. No mention is made of banning transshipments. This matter needs monitoring.

Given the geographical distribution of Israel’s imports and exports, the risk to the Israeli economy is small -- even if other neighbouring countries follow suit.

Leaving aside Turkey, the Israeli Central Bureau of Statistics reports the total value of imports and exports to and from four nations in the region (Bahrain, Egypt, Jordan, the United Arab Emirates). These four nations bought $686 million of Israeli goods in 2023, up from $544 million in 2022. These amounts never exceeded 1.25% of annual Israeli goods exports. Israel imported nearly $2.4 billion worth of goods from these four nations in 2023, accounting for less than 2.75% of its total goods imports (the percentage was even lower in 2022.)

Comparing the entry for Israel in the WTO’s Trade Profile publication in 2022 with that in 2012, Western nations remain the dominant export destination and import source for goods for Israel.

Neither of the two significant changes in Israel’s trade since 2012 (the trebling of its services exports and greater sourcing from China) suggest that a regional trade blockage would significantly affect Israeli trade. For instance, it is unclear how the Turkish trade ban would frustrate digitally-delivered service exports from Israel. Tourism could, of course, be affected.

In sum, unless the Turkish trade ban spreads far beyond the Middle East, then its trade and economic impact is likely to be small—both for its own economy and for Israel’s.

However, this foreign policy-motivated trade ban may be significant for other reasons:

1. There is the important matter of the legality of this trade ban under international trade rules.
2. This ban adds to the fragility of the current trading regime and adds to the trade policy uncertainty that the private sector abhors.
3. The fact that governments feel compelled to put in place such trade bans and economic sanctions—whose effectiveness have long been doubted—in response to shifts in public opinion further underlines the contingent nature of trading relations.

At a time of increased geopolitical rivalry, when there are a growing number of inter- and intra-state conflicts, nationalistic sentiments are likely to hold greater sway.

Simon J. Evenett is the Founder of the? St. Gallen Endowment for Prosperity Through Trade and an economics professor. He is also Co-Chair of the World Economic Forum’s Council on Trade & Investment. Reactions can be sent to [email protected].