Iran-Turkey: Potentials and risks

Mustafa Sönmez - mustafasnmz@hotmail.com

AFP photo

When Iran Foreign Minister Mohammad Javad Zarif, on the deal between Iran and the five permanent members of the U.N. Security Council, the U.S., China, Russia, the U.K., France plus Germany, known as “P5+1,” was saying, “We are reaching an agreement that is not perfect for everybody but it is what we could accomplish and it is an important achievement for all of us,” he was telling the truth. 

This agreement is regarded as one of the most important breaking points since the “fall of the wall.”
During the embargo Iran was impoverished, its oil exports halved, its economy shrank by one-fifth and it was excluded from the international world. Now, it is hoping to undo these losses. 

What will happen? 

Following the “Revolution” Iran had in 1979, it went on to build a new regime, isolating itself from the world’s capitalism to a great extent. However, how long could this giant country whose population has reached 80 million today have stayed isolated from the world? 

The country remained under many domestic and international pressures. At the end, after much staggering and after exposing its people to extreme difficulties, it had to make contact with the outer world step by step.

The nuclear armament it resorted to in the name of defense - it must have understood - was no way out and finally a deal was made, relieving the whole world. 

Now, people are wondering what kind of an Iran will join the world’s capitalism. Politically, nobody is expecting an immediate “democratization.” It is apparent that an authoritarian regime at least as much as Vladimir Putin’s Russia will want to continue its reign.  

Changes expected in Iran in the short term are more economic. Iran was isolated from the central countries of the west and the periphery countries because it was under an embargo. It had to settle with indirect relations through the United Arab Emirates, its business was done in roundabout ways and it suffered because of these relations. 

Iran’s “capital” relations, which are expected to leap domestically and internationally, will create changes in domestic dynamics. With foreign capital inflow and with the accelerated capital accumulation domestically, there could be significant class and social changes in Iran. 

Turkey-Iran 

Iran getting closer to the U.S. and the EU in the diplomatic field prompted concerns in Saudi Arabia and Sunni Gulf countries. But the country that was worried the most was Israel. Prime Minister Benjamin Netanyahu defined the deal as a “stunning historical mistake.” 

Turkish Prime Minister Ahmet Davutoğlu only said Turkey welcomed the lifting of the embargoes against Iran. However, deep concerns, fears and worries are developing. 

Even though it looks as if Turkey’s business world is happy about the possibility of Iran joining global capitalism, the real situation may be different both economically and diplomatically. Iran, as it is, even when it was besieged by embargoes, when indicators are compared, has much more potential in several fields, overtaking Turkey in the region.  

Along with a huge domestic market and urban population, Iran has the fourth biggest oil and second biggest natural gas reserves in the world. They do not have problems such as a budget deficit or current account deficit. 

Global companies and banks ready for foreign direct investment are in line to invest in Iran. In Middle Eastern markets, primarily in Iraq, Iran may shove aside Turkey in terms of several products. 

Everybody agrees that following the nuclear deal with Iran, the oil production of the country will recover.

Iran’s oil production fell with the sanctions imposed in 2011 from 3.8 million barrels daily to today’s 2.8 million barrels daily. Analysts say previous production levels can be reached in only one year’s time.  

Whetting appetite 

Asian manufacturers which have been doing business with Iran for a long time are also happy that the embargo will be lifted. 

Asian auto exporters and construction companies see a huge potential in Iran. Separately, top-level politicians from European countries are visiting Tehran nowadays. How this development would affect Turkey is another matter. The winner of this strengthening of Iran’s ties with global trade and economy will be Asian manufacturers, for instance Asian car producers. 

Construction

The other sector is construction. According to the Korea International Trade Union estimates, Iran’s construction market, which was $88.7 billion in 2013, will reach $154.4 billion in 2016. 

South Korea is preparing to increase its sales to Iran in steel, petrochemical products, machinery and electronic appliances. The two biggest trade partners of Iran last year were China and the United Arab Emirates, followed by India, South Korea and Japan. 

Potentials for Turkey 

Hopes are high in Turkey in several sectors, including banking, after the nuclear deal. Turkey’s most important natural gas supplier is Iran. Around $10 billion worth of imports are from Iran annually. However, our exports are around $4 billion annually. The embargoes that lasted for years have blocked possible foreign trade opportunities between the two neighboring countries. 

With the new era approaching, several sectors are preparing to send delegations. Iranian investors are also visiting to do research. There are estimates that the Iranian economy will grow rapidly, with its GNP growth reaching 8 percent in 18 months. Cooperation is expected in the energy, chemical, food and automotive sectors. It will be the banking sector that will benefit first from these developments. 

Foreign Economic Relations Board (DEİK) Turkey-Iran Business Council head Rıza Eser said, “Long before the embargo, we had good relations with Iran. We are ready. I hope we have the best share. Our investments in Iran as Turkish entrepreneurs are continuing. Our trade is increasing. Hotels and mass housing projects are focused; there are investments in chemical, iron and steel and food. Iranians do not forget our support during the embargo. I hope they keep their promises.” 

Turkish Exporters’ Assembly (TİM) Supervisory Board member Bülent Aymen said it was a positive development for logistics. “Because of geopolitical reasons, there was a significant shrinkage in the exportation of Turkey to regional countries. We expect the exportation to Iran to increase 35 percent next year. The increase in exports will motivate logistics. Problems will be solved. The logistic sector has the capacity to take this opportunity. We will use our full capacity,” he said.

Regional power 

According to many observers, Iran has proved that it can be a true regional power with its existing energy assets and with all of its other capabilities. We will see from now on that Iran will have its say in developments in the Caucuses, in Central Asia and in the Middle East. 

After this deal, Iran is expected to be a more active and more accepted actor in the international arena. 
With Iran taking its place on the table, the cards will be reshuffled and a new game will begin with new roles distributed.