Four Potential Effects Of The Iran Nuclear Deal On Turkey

- The nuclear deal with Iran is likely to re-energize the tired Turkish economy, but Ankara will only be able harness its potential long-term benefits if it can switch to a more flexible foreign policy. A coalition may be the only hope. Here is the reason in four points.

1. Trade volume set to increase

Iran is 10th on the list of countries where Turkey exports the most. Considering that almost all the countries ranked higher have economic troubles nowadays, the Iranian market has become a strategic target for Turkey, which aims to exceed $500 billion-worth of exports in 2023.

As all U.S. and European Union nuclear-related sanctions will be suspended after experts have verified that Iran is hewing to its commitments, Turkey seeks to increase the volume of its trade with Tehran to $30 billion by the end of 2016, which is double the amount at the end of 2014.

Made-in-Turkey white goods, textile products, electronics, medicine, cosmetics, plastics, forestry products and furniture, which all have customs tariff benefits due to a preferential trade agreement between Ankara and Iran that came into force this year, are likely to spearhead this rise.

Meanwhile, Iran’s privatization projects amount to $130 billion. Most of the cake is likely to be shared between Western countries, Russia and China; but Turkish firms, too, are getting ready to have a slice with assertive contenders like its energy giant, TÜPRAŞ.

As the Turkish economy slows down, the untouched opportunities of Iran await, which will push Tehran higher in Ankara’s priority list for its foreign policy.

2. Energy deals to reshuffle cards

Iran is Turkey’s second top gas provider after Russia, exporting around 10 billion cubic meters of gas (bcm) across the border annually, while also providing 30 percent of Ankara’s oil demand. When sanctions are removed, it will bring about two major impacts for Turkey:

A) A decrease in energy prices will benefit Turkey’s economy and current account deficit.

B) By buying more of its energy from Iran, Turkey will be better connected to Tehran’s soon-to-be-developed oil and gas fields, which have remained underdeveloped and underexploited so far.

For Turkey’s future policy, these new dynamics will be another reason to push Iran higher in the priority list. Turkey will be able to diversify its energy imports significantly, to the detriment of Russia. The change may also put an end to the honeymoon period between Ankara and Iraqi Kurds, who had replaced Iran as Turkey’s oil importer after international sanctions toughened from 2006 onwards.

Moreover, Turkey’s Trans Anatolian Natural Gas Pipeline (TANAP) project, expected to be complete in 2018, will initially carry 16 bcm of gas per year. According to a July 10 report by global credit ratings organization Fitch, Iran may export its gas to Europe via TANAP.

3. End of shady business

In the past few years, Turkey had been slammed by the West for not cracking down on Iranian sanction-dodgers. In fact, after the massive Dec. 13, 2013 corruption investigations in Turkey, it was revealed that one single Iranian individual, named Reza Zarrab, managed to affect the whole country’s balance of trade with suspicious trade activities.

Bans and restrictions on Iranian Central Bank and state companies controlled by the Revolutionary Guard will be removed when the sanctions are suspended. It will mean that the shady mechanisms that Iranians once devised to bypass the sanctions will be rendered obsolete.

Similarly, Turkey’s state-owned banks will face less Iran-linked pressure. Halkbank, which had been under scrutiny over its suspicious gold trade with Iran, and Ziraat, whose New York branch came under an “enforcement action” by the U.S. Federal Reserve last year, will be relieved.

Although “going legit” sounds like a positive development for Turkey, it will also mean that Ankara would lose some of its pivotal instruments in its relations with Iran. A more transparent environment will mean that Turkey will have to cope with a stronger competition to keep enjoying Iranian riches.

4. Increasing need for flexibility

With the Iran case, the West has shown that it can cripple a large economy in a few years of time, if it does not follow the house rules. However the deal also gave the message that a country can bend the rules and get some privileges for nuclear enrichment if it can bargain well. As such, the whole process may discourage regional countries from producing a nuclear weapon, while encouraging others to take a risk to get those privileges.

In whatever way regional countries react, it is likely that the deal will negatively affect the strategic posture of Russia, Saudi Arabia and Israel. With Iran’s progress toward a moderate group away from a radical one, Turkey will find itself in a yet another fierce competition. And competing among moderates is always easier.

As Egypt, which recently invited Turkey and Qatar to the opening of the new Suez Canal, Ankara will either learn to be flexible and reconciliatory in foreign policy or join the losers of the region. And, as the Syrian war continues with the U.S. and Iran cooperating even before the agreement, a wakeup call in Ankara is more needed than before.

The mixed reactions in Ankara for the nuclear deal, including bitter references to Tehran’s “sectarianism” in Syria, show that Turkey will have trouble harnessing the potential benefits of the Iranian nuclear deal. A new page with a coherent, flexible foreign policy may be possible if a coalition government with new ideas and dynamics can be formed before it is too late.