Türkiye-Iran Relations: The Current Status and Expectations

Türkiye-Iran Relations: The Current Status and Expectations
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Regional interests of Türkiye and Iran collide in different regions, including the Middle East (Iraq, Syria), South Caucasus (Armenia, Azerbaijan, Georgia), and Central Asia (Afghanistan). In recent history, we can distinguish two important milestones regarding the changing regional security architecture, which has had a direct impact on bilateral relations between Iran and Türkiye. The first was the civil war in Syria, where Iran gained momentum to strengthen its geopolitical position using its proxies and other forces. The second milestone was the Second Karabakh War which changed regional order completely in the South Caucasus region leading to the crucial reinforcement of Türkiye's regional position politically, militarily, and economically. Iran shuffled to accept and adsorb the results of the Second Karabakh War and the new realities in the region, including the stronger regional presence of Türkiye. Türkiye and Azerbaijan proposed the "3+3" Regional Consultation Platform for the development of multi-faceted cooperation in the Caucasus to mitigate the political tension with Iran. But Iran has deep-seated prejudices against Türkiye and Azerbaijan partly related to the new transportation routes in the region.

Regional Transportation Order

Certain factors, including the Second Karabakh War, the Russia-Ukraine War, and supply chain disruptions after the pandemic, increased the importance of the Middle Corridor between different edges of Eurasia from China to Europe, bypassing Russia. After the Second Karabakh War, an idea about the Zangezur Regional Transportation Corridor emerged that led to a harsh reaction and concerns in Iran. Zangezur Regional Transportation Corridor has the potential to strengthen the trade, logistics, and political ties between Türkiye, Azerbaijan, and Central Asian countries. Iran anticipates that with the opening of the Zangezur Corridor, its connection to the Black Sea will be cut due to its geographic disconnection with Armenia (“border changes” rhetoric). Iran propagates the argument that these new regional transport initiatives aim to isolate it, limit its access to the Black Sea and Russia, and decrease its influence in the Caucasus. Iran does not intend to lose out its bargaining power to be a transit on the Belt and Road Initiative initiated by China. 

But unlike Iran’s official propaganda, there are new regional transportation opportunities for Iran. Azerbaijan and Iran signed a transit agreement in March 2022 that includes railway, highway, and energy supply lines connecting the East Zangezur economic region and the Nakhchivan through Iran. Also, the first Islamabad-Tehran-Istanbul (ITI) train carrying goods from Pakistan to Türkiye via Iran reached Istanbul in 2022, paving the way for the new transport route that promotes regional trade and economic connections.

Trade Relations

The political leaders of the two states set the target for the bilateral trade volume to attain - 30 billion dollars annually. In 2021, the trade volume between Iran and Türkiye reached 5.6 billion dollars. In the January-October period of 2022, the foreign trade volume between Türkiye and Iran was 5.3 billion dollars (2.8 billion USD imports from Iran and 2.5 billion exports to Iran). Türkiye has a Preferential Trade Agreement (PTA) with Iran that entered into force in January 2015 for the reduction of tariffs and elimination of non-tariff barriers. But Iran’s protectionist behaviour in foreign trade to protect the domestic market created problems in the trade of many products within the scope of the PTA. Iran banned the import of almost two-thirds of the products covered by the PTA (e.g., textiles, furniture, health, food, and cosmetic products). Turkish side expects that the Iranian counterparts should make essential decisions to liberalize bilateral trade for compliance with the trade agreement and to revive the PTA to increase the foreign trade volume between the two countries. Negotiations have been going on for more than seven years to add new products to the PTA. Extension or enlargement of the scope of the PTA as the basic infrastructure of Türkiye-Iran trade relations is one of the priorities, especially for Türkiye. Also, the external sanctions imposed on the Iranian economy must be lifted as one of the crucial preconditions to increase trade turnover between Türkiye and Iran. Currently, Türkiye imports natural gas from Iran but cannot buy crude oil and oil products due to the sanctions that led to material losses for both countries.

Energy Issues

Türkiye aims to become the regional energy hub in natural gas, oil, and electricity transit to the European common market. Türkiye’s regional energy hub position was strengthened by the recent regional geopolitical situation and the country’s own oil-gas discoveries. Türkiye’s gas reserves in the Black Sea reached a total of 710 billion cubic meters with the revaluation studies and the new discoveries. Domestic gas production will decrease Türkiye’s energy dependence on Russia and Iran. Also, new domestically-produced gas volumes will offset some portion of domestic gas consumption, increasing the country’s transit and export capacities. Türkiye aims to be a transit country for the natural gas and oil resources of Turkmenistan, Azerbaijan, Kazakhstan, Iraq, Iran, and Israel targeting the EU’s energy market. Transporting Turkmenistan's natural gas to world markets through Türkiye was discussed during the Türkiye -Azerbaijan-Turkmenistan Trilateral Summit in December 2022. But there are competing transit routes for Turkmen gas: (a) via Caspian Sea-Azerbaijan-Georgia, (b) via Russia, and (c) via Iran. Iran wishes to act as a transit country for the “journey” of Turkmen gas to Europe via Türkiye. The existing swap deal with Turkmenistan could reinforce Iran’s transit potential. Iran is also one of the critical gas exporters to Türkiye directly and the gas trade has a “permanent place” in the bilateral agenda. In 2021, 16% of Türkiye's gas imports were met through the pipeline from Iran (9.4 billion cubic meters). Türkiye wishes to secure the gas flows from Iran amid the regional energy crises in the winter season of 2022/2023. But spikes in Iran's domestic gas and electricity consumption could also put gas exports to Türkiye at risk in 2023.

Bilateral Agenda in 2023

In addition to the energy trade, there are highly critical equidistant issues at the top of the agenda of the two states in bilateral meetings. These are regional security issues, counterterrorism measures, Türkiye’s security concerns in the Northern regions of Syria and Iraq, and unregulated migration from/via Iran to Türkiye. The current polemic topics of the official agenda will continue to play an important role in bilateral complex affairs in 2023 as well. Presumably, Iran will continue to face challenges to recalibrate its foreign policy to new security realities in the South Caucasus in 2023. 

Active business of trade and investment companies may drive up trade volume and investment flows in the two countries in 2023. Real estate investments of Iranians in Türkiye will continue to grow in 2023 as a direct repercussion of the migration flows in Iran. The establishment of joint industrial companies by the two countries was one of the issues that the Presidents agreed on during the Seventh Meeting of the Türkiye-Iran High-Level Cooperation Council in July 2022. A deal was reached between the Small and Medium Enterprises Development Organization of Türkiye (KOSGEB) and its Iranian counterpart, Iran Small Industries and Industrial Parks Organization (ISIPO) to promote cooperation in the field of SMEs that are the engine of the economies. Bilateral economic cooperation mechanisms such as Joint Economic Commission and Türkiye-Iran Business Council will continue to (re)form institutional ground for bilateral economic affairs in 2023. However, the course of nuclear negotiations in 2023 will directly affect Türkiye-Iran political and economic relations.