The Adverse Effects of the Trade Sanctions between Turkey and Iran

ECONOMYOPINION 04.02.2021
Murat Aslan Deputy Director / Coordinator of Economy

The US’s new foreign policy towards Iran is not clear yet, but Turkish entrepreneurs have not been “the winners” of the US’s withdrawal from the JCPOA.

The trade volumes between Iran and Turkey have been substantially reduced after the onset of the US sanctions. The volume of trade between these two countries reached to a lowest level in 2020. According to data released by the Turkish Statistical Institute (TSI), shown on Graph-1 below, the trade volume between Turkey and Iran was about 3,4 billion US$ which is the lowest number registered during the last seven years.

 

Graph-1: Turkish-Iran Trade Volume from 2013 to 2020 (Billion US$)

Source: Turkish Statistical Institute

 

In 2020, the value of Turkish exports to Iran was registered about 2,2 billion US$. Relative to the previous year, the number reflects about %18 reduction. When the analysis is extended the export number before the onset of the US sanctions (i.e. for the year 2017), the value of exports in 2020 represents a %42 reduction. For the last seven years, the value of the export reached to highest number of 5,462 billion US$ in 2016. The value of export in 2020 constitutes only %41 of the export number in 2016.

As the graph clearly shows, Turkish exports have displayed a substantial negative trend since 2017. To put it differently, after the US’s withdrawal from the JCPOA and subsequent implementation of sanctions on Iran, the Turkish exports to Iran declined significantly. If we take 2017 export number as a benchmark, the total loss stemming from the lower exports volume for Turkey from 2018 to 2020 is worth about 3,5 billion US$. Moreover, although it is not given here, due to the sanctions and economic problems in Iran, Turkey has also lost a substantial amount of tourism income.

 

Graph-2: Export-Import between Turkey and Iran from 2013 to 2020 (Billion US$)

Source: Turkish Statistical Institute

 

Finally, the Turkish import from Iran has also markedly declined during the last three years. Before the sanctions, Iran is the most important crude-oil supplier for the Turkish refineries. However, along with other Iranian costumers, the Turkish refineries stopped purchasing Iranian oil after the sanctions became effective. As shown on Graph-3, Turkish import from Iran was about 7,6 billion US$ in 2017 and declined to about 1,2 billion US$ in 2020. Due to lower transportation costs and reasonable discounts offered by Iran, the Turkish refineries also faced some losses when they had to look for alternative sources other than Iran.

In sum, Trump’s withdrawal from the nuclear deal (JCPOA) and subsequent sanctions have had adverse economic consequences for Turkey. The manifestations of these adverse effects operate via both direct and indirect channels. The indirect or secondary effects are not covered here, but the direct effects measured by the trade-loss and also the reduction in tourism income for Turkey is not trivial. Our estimation based only on trade-reduction reveal a cost more than 3,5 billion US$. The US’s foreign policy direction on Iran by the new US administration is not clear yet, but Turkish entrepreneurs have not been “the winners” of the US’s withdrawal from the JCPOA so far.

Iran, Turkey, Trade, Oil, JCPOA, Sanctions

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