Turkish Prime Minister Recep Tayyip Erdogan is mending fences with his Middle Eastern neighbors in an attempt to salvage a decade’s worth of economic policy. Turkish exports to the Middle East grew eightfold after Erdogan came to power in 2003, reaching $38.6 billion in 2012. During his first 10 years in office, Erdogan courted the governments of oil-rich Gulf states to promote Turkish products, win construction deals for Turkish contractors, and lure investment.
The Arab Spring in 2011 and the election of the Muslim Brotherhood to run Egypt’s government in 2012 soured the relationship between Turkey and its Middle Eastern trading partners. Erdogan, who is moderately Islamic, enthusiastically endorsed the new regime and its leader Mohammed Mursi. He offered aid to the government, including a $1 billion loan.
With the exception of Qatar, Mursi’s biggest financial backer, Arab monarchs in the region were appalled at the rise of the Egyptian leader. The Muslim Brotherhood has chapters throughout the Gulf region: Rulers of several Gulf states have said the Brotherhood wants to topple their regimes, even though leaders of the Islamic political organization deny this. Last July, when the Egyptian army deposed Mursi and the Muslim Brotherhood government, the oil states were quick to pledge up to $15 billion to stabilize Egypt under military rule.
Trade relations with Egypt and the Gulf states deteriorated quickly in August after Erdogan lashed out at the Arab monarchs, accusing them of “endorsing the dictators.” Shortly after Erdogan’s accusation, Abu Dhabi National Energy (TAQA:UH), known as Taqa, halted construction in August on a $12 billion power project in Turkey. Egypt’s new military rulers recalled their envoys from Ankara, and 43 Turkish investors in Egypt had their business licenses or visas revoked, forcing them to cut ties with the country.
Exports to Egypt, one of Turkey’s largest markets in the region, fell more than 40 percent from July to December from the same period the previous year, according to the Egyptian central bank. Saudi Arabia pulled out of talks to buy Turkish TAI Anka military drones, which would have been the first overseas sale of the aircraft, Cumhuriyet, a Turkish newspaper, reported on March 18. “Turkey is now left with almost no allies in the Middle East, from Tunisia to Libya to Egypt and the Levant,” says Soner Cagaptay, director of the Turkish Research Program at the Washington Institute for Near East Policy.
While the European Union is still Turkey’s biggest market, the Middle East bought almost a quarter of Turkey’s exports until the diplomatic quarreling broke out. The Gulf “is more important to Turkey than the other way around,” says Ghanem Nuseibeh, founder of Cornerstone Global Associates, which advises clients on risk in the region. “The longer the political tensions remain, the greater the risk will be for business relations.” Starting in April, Erdogan deployed Turkey’s president, Abdullah Gul, and its finance minister, Mehmet Simsek, as envoys of economic reconciliation within the Gulf region. Simsek has been especially busy, visiting Dubai and Kuwait and appearing at a real estate and energy conference for Arab investors in Istanbul.
An unexpected byproduct of what Cagaptay calls Turkey’s “deep sense of alienation” is a push by Erdogan to restore ties with Israel. One reason for the rapprochement is to secure access to natural gas the Israelis discovered offshore, says Cagaptay. Turkey severed relations with Israel after a deadly Israeli raid in 2010 on a Turkish ship that was approaching Gaza with aid for Palestinians. Erdogan said in April that the two nations are close to “a normalization process.”
“The longer the political tensions remain, the greater the risk will be for business relations.”—Ghanem Nuseibeh
Among Turkish business executives there’s a growing realization of the costs of falling out with the Gulf states and “a willingness on the part of Turkey to fix this in order to attract more foreign direct investment,” says Naz Masraff of political risk consultancy Eurasia Group. It won’t be easy to mend ties, she says, because “the countries continue to hold diverging political views” about the intentions and legitimacy of the Muslim Brotherhood.
Egypt has done little to reach out to Turkey: Cairo has no ambassador in Ankara, while Erdogan says he will not deal with a military-backed regime. Abdel-Fattah al-Seesi, the Egyptian army chief who led the takeover and will probably be president of the country, said in an interview with Sky News Arabia on May 12 that Turkey had started the dispute and Egypt refuses to allow any country to interfere in its domestic affairs. “Turkey’s suffered too in the past from military coups,” Turkey’s Simsek says. “If we condemn military coups abroad, it’s not about the Muslim Brotherhood, it’s our natural reflex.”