News Analysis: Mideast tensions to negatively impact Turkish economy

Photo taken on Oct. 11, 2024 shows cargo containers at the Port of Mersin, Türkiye. Heightened tensions in the Middle East will hinder Türkiye’s efforts to get its ailing economy back on its feet amid prolonged uncertainty and raising concerns about potential shockwaves in global markets, analysts said. (Mustafa Kaya/Handout via Xinhua)
by Burak Akinci
ANKARA, Oct. 11 (Xinhua) — Heightened tensions in the Middle East will hinder Türkiye’s efforts to get its ailing economy back on its feet amid prolonged uncertainty and raising concerns about potential shockwaves in global markets, analysts said.
One year on, the ongoing Israeli-Palestinian conflict that has also engulfed Lebanon continues unabated, with no peace in sight.
Given its geographical proximity, political ties, and economic interdependence with countries in the Middle East, Türkiye, a regional power, is vulnerable to the ongoing crisis.
“The conflict in the region could disrupt energy supplies, leading to higher costs and inflation,” said Ali Oguz Dirioz, an associate professor of international relations at Ankara’s TOBB University of Economics and Technology, noting that the country is heavily dependent on imported oil and gas, primarily from countries in the Middle East.
Moreover, as Türkiye conducts significant trade with Middle Eastern countries, prolonged tensions could also disrupt trade routes, hurting exports and imports and affecting Turkish industries, Dirioz emphasized.
Over the past five years, Türkiye has been battling significant economic woes characterized by runaway inflation, a weakened national currency, and a significant current account deficit.
As of mid-2023, Türkiye abandoned an unconventional monetary policy of low interest rates and kickstarted a disinflation program that cooled down consumer price growth to below 50 percent from 85 percent two years earlier, and replenished the central bank’s reserves.
However, this favorable trend is facing geopolitical risks, said Mustafa Sonmez, an Istanbul-based independent economist.
“Geopolitical tensions often trigger financial market instability, leading to fluctuations in the Turkish lira,” which would lead to more inflation, higher borrowing costs, and as a result, a further blow to Turkish households struggling with a cost-of-living crisis unseen in decades, he told Xinhua.
Furthermore, ongoing tensions could erode investor confidence, particularly among foreign investors.
Geopolitical risk factors tend to cause capital outflows and higher risk premiums, which would raise Türkiye’s borrowing costs and reduce foreign direct investment that the country is trying hard to attract for its economy, the expert noted.
In Sonmez’s view, these risks could compound Türkiye’s existing economic challenges, potentially leading to a deeper economic slowdown.
Nevertheless, while the ongoing tensions primarily present economic risks for Türkiye, there are some potential opportunities for the country, according to Dirioz.
Tensions might push European nations to seek alternative energy routes that bypass conflict zones, thereby increasing demand for Turkish pipelines, while regional businesses might shift trade and investment to more stable countries amid instability, such as Türkiye, the analyst noted. ■

A cargo ship carrying containers docks at the Port of Mersin, Türkiye, on Oct. 11, 2024. Heightened tensions in the Middle East will hinder Türkiye’s efforts to get its ailing economy back on its feet amid prolonged uncertainty and raising concerns about potential shockwaves in global markets, analysts said. (Mustafa Kaya/Handout via Xinhua)

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