Turkey’s Iran dilemma and the moneyed AKP elite: Does money matter?

By Adnan Riza Güzel

Turkish Foreign Minister Ahmet Davutoglu’s foreign policy, known as “zero problems with neighbors”, long considered a success, has turned out to be a failure since the early days of Arab Spring. Turkey’s hesitancy to approve  the NATO intervention in Libya may be a well known example of this turning point in the “zero problems” policy’s perceived success. Turkey’s only recently improved relations with Iran is only the latest casualty. Factions within both the ruling rightist-liberal Islamist élite and opposition militarist-conservative Kemalist élite either define Iran as Turkey’s arch-enemy or closest ally. The expanding polarization and confusion among the Turkish political élite on the country’s relations with Iran entered into a new phase with the Syrian uprising.

Since 2002, Turkey has been ruled by the rightist, anti-militarist, and liberal Islamist Justice and Development Party (AKP) whose strongest opponent is the Kemalist Republican People’s Party (CHP), founded by Kemal Atatürk, a role model for Iran’s modernising monarch Reza Shah. In 2009 Turkey’s initial dissent over the sanctions against Iran raised questions about Turkey’s stance toward the West, its participation in North Atlantic Treaty Organization (NATO), and the European Union (EU). For decades Turks had defined themselves as a strong ally of the US and Europe and an enemy of Islamist regime in Tehran. Departure from the Western alliance and restoration of good relations with Iran has been highly criticized by both Kemalists and Western politicians who are apprehensive about the Islamic Republic’s nuclear programme. The recent resurrection of Turkish-Iranian animosity, in part as a result of the Syrian uprising, has a crucial economic background as economic and trade issues played an important role in the “improved ties” phase of Turkish-Iranian relations under the AKP between 2002 and 2011. The entangled trade relations of the AKP élite with the embargoed Iranian economy and hunger for energy for the growing Turkish economy is a very influential component in the foreign policy of Turkey in the Middle East.

Despite the global recession which continues to leave millions jobless and economies on the brink of collapse, the Turkish economy had its heyday of growth a year ago and has now slightly slowed but is still growing with a huge trade deficit, a deficit which grew geometrically from 2002 to 2011. The biggest component of the current deficit is energy imports from oil rich countries in the Black Sea, Caucasus and the Middle East. Iran has been one of Turkey’s biggest trade partners, with Turco-Iranian bilateral trade volume rising to $10.7 billion in 2010 from $1 billion in 2000. This expansion has been spurred by Western economic sanctions against Iran, as much of the resulting trade diversion has been captured by Turkish firms. Even India makes payments for its oil purchases from Iran through Halk-bank, a well known state enterprise. As sanctions have driven the Iranian regime to the wall, Turkey has remained as one of Iran’s only trade partners with a presence on the ground in the besieged country. Relations with the Turkish business élite has been one of the only ways for Iran to purchase required goods for internal demand and currencies for international trade.

From Turkey’s perspective, it depends on Caucasian and Iranian gas supplies, but because of Iran’s alliance with Syria, Turko-Iranian ties have deteriorated affecting this energy relationship. Davutoglu and Erdogan’s public denunciation of Syrian brutality towards protesters and Turco-Saudi support to Syrian refugees and protesters have undermined the improved relations between Turkey and Iran. In the meantime, Iran has stopped supplying gas to Turkey. Under the AKP prime minister Recep Tayyip Erdogan the Turkish economy was able to overthrow its reliance on cheap gas and oil coming from Iran. At the time of the 1996 Energy Treaty – which began to operate in 2001 – Turkey had encountered an energy crisis because of the Russian Gazprom’s price augmentation. Turkey sought another gas supplier to diversify its sources, and both Iranian gas through pipelines and Libyan supplies via LNG tankers from the Mediterranean were perfect remedies against Putin’s gas monopoly. Thus, Iran’s recent price increases became a major element in worsening relations. This increase is largely due to the Iranian internal market’s need for natural gas, but the timing of Iran’s gas blockade appears to be meaningful, coinciding with Turkey’s interference in armament shipments running from Tabriz and Isfahan to Damascus. Another factor may be that Turkey’s former supplier Russia has become cheaper with Iran’s recent hikes in gas prices. Finally, another reason behind Turkey’s shifting stance may be the creation of a new alliance with major energy suppliers in the Gulf like Saudi Arabia who are are also rivals of Iran regionally. The complex energy diplomacy is only one side of Turko-Iranian eco-politics.

The second major element shaping current Turco-Iranian relations seem to be linked to the AKP’s centrist pro-Iran élite. Since its rise to power in 2002, the AKP has boosted the income of its élite through the state led construction business. Contracts are given to close friends of regime, particularly through the Housing Development Administration (TOKI) which is a state enterprise for housing. One should not forget that the AKP’s economic success began with auto-route and highway construction, reminiscent of  central European statist economies’ success in the 1930s. The construction business and its subsectors have a very influential place in Turkish economy, and in order to trigger the economic boom for the country and its own élite the AKP wisely employed this construction remedy through state-led highway projects, targeted long term interest rate cuts for housing, and promotion of proto-mortgage loans. Having satisfied the national market, businessmen started to expand investments to neighboring countries, and Iran appeared as an attractive location.

Yet another group within the AKP élite has benefited even more from improved relations with Iran by using the demand for specific goods created by sanctions in the Islamic Republic to their advantage. These rent seeking AKP-linked business actors adore the pre-Syria status quo. There is an expanding group of businessmen who have built their wealth on these sanctions by selling goods, currency, banking services and much more to Iran at above market prices. The rents earned by these business transactions now force the AKP to pursue good relations with Iran. Interestingly, the same group of businessmen use Turkey’s diplomacy with the West to push for more sanctions against Iran. This two-faced attitude of the business and political élite have created an impasse in Turkey’s relations with Iran. The AKP’s quandary not only exasperates Turkey’s major neighbor but also its NATO allies. Yet these relations are complicated, as the factions within the ruling AKP, including the pro-Iran movements, anti-Iranian Islamist movements, and liberals, have clashing interests. The AKP’s diplomatic strategy of “zero problem” is having one if its most difficult periods with the emergence of Syrian question. Once upon a time, Syria, Iran , and Turkey were playing the three musketeers, and talked about a common currency and even a “Middle Eastern Schengen.” Now Turkey is playing the same game with Saudi Arabia and Arab Gulf states by distancing itself from Iran and Syria.

Adnan Riza Güzel received a B.A. in History from Koc University in Istanbul. He is an M.A. candidate in International History and Politics at the Graduate Institute, Geneva. He currently works as a correspondent for a newspaper in Turkey. 

The views of the author are his own and do not necessarily represent the views of IranPolitik.