Iran - Turkey: Old Partners, New Challenges 

Professor of Economics
Iran - Turkey: Old Partners, New Challenges 
Iran - Turkey: Old Partners, New Challenges 

Iran and Turkey economic partnership has a long and eventful history. It has been fruitful for both, and sometimes historic events and macro trends have favored one over the other. Like any other partnership of similar length and extent it has not been without its own issues and challenges. Recently ground transportation between two countries has come front and center again. In the last incident Turkey has increased the tariffs on Iranian drivers and trucks based on the fuel price differentials. Iran retaliated by increasing the fee Turkish drivers have to pay. Turkey retaliated again to increase its tariffs more. Iranian side did not pursue a retaliatory path, out of its appreciation for mutual interests. However Ankara must consider how ill fates its policy has been.

As it stands Turkish trucks must pay 50 euros per 100 Km of road travel in Iran; 25 euros for fuel subsidies and 25 euros for road tolls. Turkey is charging Iranian trucks 50 euros per 100 Km for fuel subsidies. Turkey has always complained that Iranian drivers have an unfair advantage in the market. Iran subsidizes fuel products thus Iranian ground transportation companies and trucks have a much lower operational cost when it comes to offering their services. Even Turkish businessmen have chosen Iranian drivers often because of the price difference.         

Turkish government’s argument seemingly is one that advocates free market and competitiveness. It charges Iranian drivers a tariff to compensate for the unfair fuel subsidies Iranian government pays them. By doing so it helps Turkish drivers and transportation companies to be on par with their Iranian competitors. It hopes to increase Turkey’s share in ground transportation of commodities to Iran and to decrease Iran’s share in this industry. In doing so, it approaches its trade with Iran on the wrong foot, since it ignores almost everything else.

Transportation cost is only one dimension of Iran and Turkey trade. For the past decade as different sanctions have isolated Iran’s economy, Turkey has steadily gained a prominence in Iran’s foreign trade which borders a monopoly these days. It might be true that Iranian drivers receive subsidized fuel; however that is the only advantage they have. Iranian transportation industry does not have access to the latest technology. The parts and technical support for Iranian drivers are nonexistent. Severing banking ties with Iranian banking system means Iranian drivers are left to their own means facing different challenges on the road. Iranian ground transportation industry is facing an inflated risk, which is an issue for its Turkish counterpart.

Turkish drivers enjoy the latest technology, are supported by manufacturers’ supply chains of parts and technical services. They have access to an internationally connected banking industry offering them a variety of financial products and guarantees. When they are on the road they are not alone. To compensate for fuel subsidies so aggressively while Iranian drivers are facing such huge risks is to disfranchise them completely. Turkish government might be able to claim its policy is one of competitiveness, in reality it is implementing tariffs to bar foreign competition and to create yet another monopoly.

Iran has been a loyal customer and a safe market for Turkey for more than three decades. As sanctions created a monopoly for Turkish businesses in Iran many of them have turned these opportunities into lasting partnerships. Even when sanctions are gone, Iran and Turkey will continue their unique commercial partnership. To hurt this partnership and to create a distasteful impression now is not a wise policy.

An observer must take into account that while Iranian drivers benefit from somehow subsidized fuel they are facing a much larger risk premium. To compensate for this risk premium they have to offer their services to all customers at low prices to survive. To punish them now at the expense of a long established bilateral relationship is not fair and it would fail to produce the results Ankara expects.

The traffic at Bazargan should have reminded Ankara that there is much more at stake here, and it is not time to play games that are not appropriate for old partners. It is not time to compromise one’s existing comparative advantage because of an illusionary comparative advantage.

This last episode was not one of competitiveness and its damage might prove lasting.