By Leila Piran
Since Iranian President Hassan Rouhani took office in August 2013, he has pursued a foreign policy based on fostering amiable diplomatic and economic ties with Iran’s neighbors and resolving the country’s nuclear issue with Iran’s P5+1 negotiating partners.
One of the key tenets of Iran’s foreign policy has been the expansion of economic ties with Turkey. In 2014, diplomatic representatives and presidents of both countries held several successful meetings that culminated in bilateral signing of a preferential trade agreement. The agreement went into effect on Jan. 1, 2015. According to the terms of the agreement, Iran would export food, nuts, and agricultural products to Turkey. In return, Turkey would export industrial products to Iran. In addition, both countries removed tariffs on the flow of goods within their borders. The agreement has stirred controversy and heated debates in Iran’s private sector, the parliament, and its security establishment. A closer look at the underlying political and security factors shaping the current state of Turkish-Iranian trade reveals differences beyond bilateral ties that are impacted by regional developments.
In May 2014, the shuttle diplomacy between Tehran and Ankara seemed promising in the sense that it was embraced by the private sectors of both countries that saw the agreement as an opportunity toward brokering a preferential trade arrangement. As part of the agreement, Iran committed to lower trade barriers including tariffs.
The Turkish trade delegation expressed interest in boosting bilateral trade volume to the desired $30 billion annual mark and suggested that reaching the goal depended on Iran’s willingness to remove all trade barriers. In exchange, Turkey offered to invest in Iran’s energy sector, namely that of oil and gas, if Iran agreed to lower the price of gas destined for Turkish markets, which proved controversial. Turkey has an ongoing dispute at the International Court of Arbitration over Iranian gas prices. Nevertheless, the Turks still want to invest in Iran’s lucrative oil and gas fields, especially after the Iranian government expelled Chinese contractors from Iranian gas projects due to China’s failure to complete projects in timely manner.
The Iranian private sector, spearheaded by the Tehran Chamber of Commerce, followed the government’s mandate to boost trade volume with Turkey, but the Chamber faced widespread criticism by many manufacturers and heads of industrial guilds, who called the agreement “unfair” and “damaging.” In their view, Turkey would benefit from the agreement at the cost of Iranian manufacturers. According to the terms of the agreement, Iran would export food, nuts, and agricultural products to Turkey. In return, Turkey would export industrial products to Iran, an unequal exchange of trade that has left Iranian manufactures frustrated since they cannot compete fairly with their Turkish counterparts.
As a response to the agreement, Hamid Reza Fouladgar, the head of Special Committee For Protection of Manufacturers in the Iranian parliament, scheduled a special session of parliament with officials from the ministry of economy during which it was decided that specific terms of the agreement should be reexamined. Furthermore, Fouladgar asserted that the minister of economy would submit a revised list of goods and service to the parliament for further investigation since the annulment of the preferential agreement between Iran and Turkey was not an option at the time. He remarked that Iran’s lack of membership in the World Trade Organization had forced Iran to forge bilateral trade agreements with its neighbors and foreign trade partners. Still he urged domestic manufacturers to boost the quality of their products in order to compete successfully with their Turkish counterparts.
Meanwhile, the textile manufacturers conveyed their disagreement with the removal of tariffs on trade and the general terms of preferential trade agreement that, in their view, had titled the scale to the benefit of their Turkish counterparts. In response, Mojtaba Khosrow-Taj, the deputy minister of industry, stated that the biggest trade obstacle that textile manufactures faced was smuggling of cheap textiles from India and Pakistan. Khosrow-Taj further asserted that Iranian textile manufacturing has only 50 percent of the customer base domestically. While he praised the top quality and efficiency of Turkish textile producers, he urged Iranian textile manufacturers to make clothes to win back domestic costumers by convincing them not to buy foreign-made textile and fabrics. In his view, Iranian textile manufacturers are capable of competing and succeeding regionally and globally regardless of the preferential trade agreement with Turkey. He added that the preferential trade agreement was also on the previous government’s agenda, which was inherited by Rouhani’s government.
Instead, Iran has deepened its economic cooperation with Iraq, particularly after the rise of the Islamic State in Iraq and Syria and what Iraqi and Iranian officials believe to be tacit Turkish support for ISIS.
When the price of oil decreased in the global markets, Iran and Iraq decided to strengthen their economic ties due to mutually shared vulnerabilities. Iraqi officials claimed that the ISIS terrorists in Mosul sold oil to Turkish merchants below the fair market price, a move that violated the legal terms of trade between Iraq and Turkey. In response to Iraqi claims, Taner Yildiz, the Turkish energy minister, denied this claim, stating that Turkey only buys oil from 13 countries legally, and ISIS is not included in the buyers’ list. Therefore, Iraq turned away from doing business with Turkish contractors and businessmen, opening its trade routes and markets to Iran.
On Feb. 21, 2015, Iran’s Tejarat Farda reported that an Iranian trade delegation travelled to Iraq to assess the potential for robust diplomatic and economic links within the framework of the third Iran-Iraq mutual summit. The three-day summit resulted in an extensive cooperation agreement in the following areas: trade, geology and mines, air pollution, livestock health, trade exhibits and tourism. Both countries agreed to resolve all outstanding hurdles that had stood in the way of increasing bilateral trade from $12 billion to $20 billion, a goal that could be achieved with the departure of Turkish firms from the Iraqi market. Meanwhile, the Iraqi government, backed by the security forces, banned the sale of products manufactured by sponsors of terrorism, which the government of Nouri Al Maliki had identified as Turkey, Qatar, and Saudi Arabia. Later an investigation revealed that oil smuggling from Iraq to Turkey via the Iraqi Kurdistan had taken place. As a result, many Turkish businesses and technical experts left Iraq.
The loss of faith by the Iraqi leadership in Turkish businesses because of what Iraqis believed to be Ankara’s support for ISIS has ended Turkey’s domination of the Iraqi market, opening the door for Iranian businesses that seem anxious and ready to invest in various markets and sectors in Iraq including but not limited to Basra’s 1,500 construction projects. Iran, with dismal economic conditions that have been worsened by sanctions, is in no position to compete with Turkey, a regional economic hub. Entering the Iraqi market could mark for Iran not only an economic victory, but also a foreign policy one.
Leila Piran holds a Ph.D. in World Politics with a focus on the Middle East from the Catholic University of America. She is a policy fellow at the School of International and Public Policy at George Mason University. Previously, Leila taught at George Washington University and served as a research fellow on Turkey at the Rethink Institute. In her research and writing, she focuses on Iran and Turkey. In 2013, Palgrave Macmillan published her book titled, Institutional Change in Turkey: The Impact of EU Reforms on Human Rights and Policing. Leila has published articles in Al Monitor, Lobelog and Muftah.
