Turkiye’s bilateral trade with Iran, 2023/24 Situation and Prospects

Bilateral trade is growing as mutual East-West connectivity unites sovereign development plans

By Farzad Ramezani Bonesh

Turkiye and Iran have about 534 kilometers of common border and a long history of relations. In the past few centuries, historical, geographical, cultural, political, and economic factors have played a role in their bilateral relations. Trade relations between the land of Anatolia and Persia have been continuous, and even crises have not stopped bilateral commerce.  

Turkiye has had peaceful relations with Iran since its establishment in 1923. The “Friendship Treaty” in 1926 was an important step in the relations between the two countries.

After 1979, relations between the two countries faded, but they became closer when current Turkish President Recep Erdogan came to power. Since 2002, the relationship between the two countries has been accompanied by ups and downs as well as cooperation and competition.

Over the past decade, despite different foreign policy priorities and sometimes conflicting interests, trade and economic relations have continued, with the economy being a key element in the age of competition. Both countries have succeeded in reducing multiple tensions. This is a platform for the multi-dimensional expansion of business.

The level of trade between Iran and Turkiye reached US$22 billion in 2012. But the US sanctions against Iran in late 2018, Covid, Turkiye’s decision to reduce the import of crude oil and energy from Iran, and so on caused the volume of bilateral trade between Turkiye and Iran to decrease to less than US$10 billion between 2019-22.

In bilateral cooperation mechanisms, in addition to the Turkey-Iran Business Council, which was established in 2001, the Joint Economic Commission (JEC) is also important. the 28th JEC meeting between Turkey and Iran was held in September 2021.

Turkiye-Iran business cooperation

Energy

Iran has the largest proven oil and gas reserves in the world. Turkiye considers Iran as a strategic source for supplying crude oil and natural gas, energy security and contributing to its role as a regional energy hub. Iran also considers Turkiye as an economic gateway to European energy markets and is likely to participate in future gas centers and gas supply projects to Europe in Turkiye.

For Tehran, Turkiye is still the largest importer of natural gas and an important importer of crude oil, and despite the decline in Iran’s share of Turkish gas imports, the current gas contract expires in 2026. Last year, the two countries emphasized the development of cooperation in energy fields. Iran has announced its readiness to provide sustainable energy to Turkiye through gas exports, and in this context, it has been agreed  that negotiations to extend Iran’s gas export contract to Turkiye for the next 25 years and increase the amount of gas exports will be on the agenda.

However, despite Tehran’s caution regarding geo-economic projects in the Caspian, and Ankara’s plans to create energy transit routes and turn Turkiye into a major gas center, Tehran and Ankara are still develop multiple energy cooperation formulas such as Turkmenistan-Iran-Turkey, and swaps for energy and gas.

Turkiye does not have oil reserves, and in the oil sectors, despite sanctions, there is still potential for oil and condensate and petrochemical cooperation between Iran and Turkiye.

Iran previously suggested that energy and electricity cooperation can be strengthened in the framework of ECO and the regional energy market.  Also, Iran and Turkiye are supposed to resume electricity exchange after six years. The necessary infrastructure has been provided and in the near future, the flow of electricity between the two countries will begin. Investing in “green” and new energy projects in Iran is also under consideration.

Bilateral Investment

The Preferential Trade Agreement (TTA) between Turkiye and Iran was implemented in January 2015 to develop and encourage economic and trade relations, reduce some tariffs, and eliminate non-tariff barriers and tariff barriers. However, for the greater effectiveness of this agreement, further negotiations and development of the preferential trade agreement between the two countries are underway.

Agreements on avoiding double taxation on income and wealth tax and preventing tax evasion, and agreements on mutual promotion and protection of investment also help the trade.

Following Recep Tayyip Erdoğan’s visit to Tehran in 2022, Iran and Turkey signed eight cooperation documents and memorandums of understanding, including the “Comprehensive long-term cooperation between Turkey and Iran”, supporting small businesses and building science parks, cooperation in the environment sector, development of cooperation in the fields of energy, and facilitation of banking and investment transactions.

Now, with more serious attention from Ankara and Tehran to the roadmap of long-term cooperation between the two countries, bilateral cooperation and interaction in banking and investment have received more attention.

An estimated 89 Turkish companies with Turkish capital are operational in Iran, although there are no accurate and official statistics. However, many Iranian citizens have invested in Turkiye’s real estate sector. Companies based in the UAE, have also established Turkish operations.   

In addition, many Iranian immigrants and the Iranian diaspora have invested in marketing and wholesale and retail trade, commercial and industrial sectors, depositing in banks and buying shares.

According to some estimates, during the last 8 years, Iranians have established more than 6,600 companies in Turkey and bought close to 37,000 properties in the country. Iranian invested businesses registered in Turkiye reached 1,300 in 2022.

During the first six months of 2023, this trend continued. Another 417 Iranian companies were established in Turkiye, while Iranians bought an additional 2,655 properties.

Iran is rich in minerals such as zinc, copper, iron, uranium, lead, chromium, manganese, coal, sulfur, and gold. The mining sector in Iran is developing. Therefore, Turkish companies can help Iran in mining, housing construction, railway, sewage and road construction, petrochemical, tourism, infrastructure, and transportation sectors.

In addition to the expansion of border crossings, the sixth economic cooperation meeting of the border provinces of Turkiye and Iran was recently held. With the implementation of border trade, the trade and transportation sectors in the areas near the border will be revived and boost employment.  Iran announced that a joint free trade zone will be established with Turkiye, with the prepared memorandum to be signed in the coming months.

Developing banking relationships, doing business with their respective currencies, and adopting appropriate policies can also provide a platform for the development of annual business to US$30 billion.

In addition, Iran and Turkiye are close to signing a comprehensive commercial cooperation document, facilitate customs cooperation, and implement a long-term cooperation program to promote commercial, economic, banking, cultural, and security relations.

Iran and Turkiye still have different potentials for further cooperation in the form of regional and international institutions and organizations. Cooperation between the two countries in the Trade and Development Bank of the Economic Cooperation Organization (ETDB) by the three founding members of the Economic Cooperation Organization (ECO) Iran, Pakistan, and Turkey, and providing financial resources for projects and programs in the member countries is for the benefit of multilateral exchanges.

In Iran, 80% of food needs are produced inside the country. Considering the agricultural and food potentials of the two countries, there are many possibilities for multilateral and bilateral cooperation between the two countries in the fields of food security, agriculture, and animal husbandry.

Transit and tourism

Geographical factors provide a basis for business. Turkiye needs Iran for transit to the Asian region, and Iran needs Turkiye for a better relationship with Europe. Also, in addition to multilateral cooperation models and the signing of a transit agreement between Turkiye-Iran-Qatar, and the UAE-Iran-Turkiye corridor, through Iran, more attention to the transport commission between the two countries is beneficial in strengthening trade.

Turkish and Iranian citizens do not need a visa to travel to each other countries, meaning Iran is one of Turkiye’s major sources of tourism, with 2.33 million Iranians visiting Turkiye in 2022.  They also have important potential for health tourism and can cooperate in this field.

Bilateral Trade Volumes

The trade exchange between Iran and Turkiye in the first eight months of 2023 has decreased by 19% compared to the same period of the previous year and has reached US$3.49 billion. From January to August 2023, Turkey exported more than US$1.946 billion of goods to Iran and imported more than US$1.544 billion of goods from Iran.

However, some sources in Iran consider the trade between Iran and Turkey to be far higher, with a real figure closer to US$12.7 billion in the last Iranian fiscal year ending on March 19. The difference lies in the grey economy where trade exists but unofficially, mainly to hide from US sanctions.

If correct, these figures show that Turkiye is the third largest customer of Iran’s exports, while Iranian exports to Turkiye rose by 23% year on year to reach US$7.5 billion.

Turkiye’s main exports to Iran are nuclear reactors, steam boilers, synthetic and artificial fibers, electrical machines, and devices, sunflower seed oil, safflower oil, road tractors, semi-trailers, and livestock corn.  The main exports of Iran to Turkiye are natural gas, aluminum, plastic and chemical fertilizers, minerals, and products of chemical industries and related industries.

The Turkiye-Iran Vision

There are obstacles to overcome between these two countries and the US sanctions against Iran hit their bilateral trade. Turkiye has opposed these and has continued to trade with Iran in a relative manner. Iran and Turkiye also need to update the border trade agreement between the two countries, develop and modernize the border markets, solve their commercial problems, establish an arbitration center, reduce bureaucracy and solve banking problems in order to achieve a trade balance target of US$30 billion.

However, Turkish-Iranian relations have been accompanied by periods of cooperation and controlled competition. The economy has been the main pillar during the competition.

From the point of view of many in Iran, the private sector can fulfil Iran’s US$15 billion capacity in trade with Turkiye. In addition to this, the improvement of business methods, scientific cooperation, technology, healthcare and agriculture, new energies and hydrocarbons, the ability to export each other’s goods to third countries, technical and engineering services, re-exports, and joint production can be among other very good areas of future cooperation between Iran and Turkiye

Without a fundamental transformation of energy geopolitics, energy trade will be on the agenda of Ankara and Tehran. It will also be the top subject of the next meeting of the Supreme Council of Turkiye and Iran. In addition, trade between the two countries remains complementary and can be expanded. Variables such as Iran’s strategies to overcome sanctions, pristine capacity for international investors, economic relations between the two countries based on using their respective currencies rather than the US dollar, and the development of political relations into a “strategic partnership” can help to greatly expand trade.

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