Economists: Israel-Turkey Crisis Could be Expensive

While both countries benefit from the economic relations between them, Israel has more to lose in the crisis with Turkey, economists say.

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David Lev,

Israel news photo: Flash 90

Bank of Israel Chairman Stanley Fischer said Thursday that the crisis with Turkey, along with the expected geopolitical fallout from the Palestinian Authority's planned declaration of an Arab state in Judea and Samaria later this month, could constitute a “danger to the development of the Israeli economy in the near term.”

The economy was likely to take a hit if trade relations with Turkey continue to deteriorate, and the negative regional developments couldn't come at a worse time, said Fischer – considering the failure of the U.S. and Europe to move their economies forward. With that, Fischer said, he does not believe that a recession will return in full force, and that the U.S. and Europe will avoid the dreaded “double dip.”

Israel exported $1.3 billion worth of goods and services in 2010, making it Turkey's fourth largest trading partner. Total trade between the two countries amounted to about $3.1 billion in 2010 – an increase of 30% over 2009's trade levels, and during a year when many Israelis canceled their vacations in Turkey because of the fallout over the Gaza flotilla. And despite the political rhetoric, trade grew even more this year – amounting to $2.35 billion in just the first half of 2011.

However, said Fischer, Israel was the party with more to lose in the relationship. In 2010, Turkey exported a total of $113.93 billion, of which barely $2 billion went to Israel; this year, Turkey accounts for 6.7% of Israeli exports.

While it is not known yet how the Turkish government's suspension of trade with Israel will affect those numbers, many business people say that they have been able to work with their Turkish counterparts, even during tense times. No new defense or weapon contracts have been signed between Israel and Turkey since the 2010 flotilla, and Israeli officials say they have numerous customers that will be able to replace Turkey as a destination for Israeli drones and other in-demand hi-tech defense systems.

While private trade between Israel and Turkey – currently by far the largest component of trade between the two countries – is expected to suffer only mildly from the latest Turkish sanctions, Israeli consumers could end up paying a big price. Israeli exports to Turkey include chemicals, optical products, polished diamonds, and defense items, including tanks, plane parts, and drones.

Israel's imports from Turkey, meanwhile, consist largely of consumer products; most of the household electronics and appliances sold in Israel, for example, come from Turkey, as do many of the pots and pans, toys, clothing, paper goods and cartons, industrial food products, and other items. Many of the cars on Israel's roads were also assembled in Turkey, and car importers this week expressed worry at the possibility that they would have difficulty importing cars from the country, forcing them to find other, more expensive sources.

If Turkey were to decide to suspend trade relations altogether, they said, Israelis would very quickly feel it in the pocket, and while there would also be a cost to Turkey, Ankara is willing to pay that price, said Turkish Prime Minister Recep Tayyip Erdogan. “We will not let anyone trample on our national honor,” he was quoted as saying in a Turkish newspaper. “I don't care if it costs $15 million or $150 million. We intend to impose further sanctions on Israel.”