Central bank says Israel’s open economy offset Turkish trade ban

Turkey’s trade ban has had minimal impact on Israel’s economy and prices, the central bank says in a report, citing the flexibility of country’s open economy.

Turkey severed trade with Israel last year over its war in Gaza with Hamas and has remained an outspoken critic of Israel’s policies.

Prior to the war, which was triggered by Hamas’s attack on Israel on Oct. 7, 2023, which killed some 1,200 people and saw another 251 taken hostage, Turkish exports to Israel totaled $5.3 billion in 2023, 6.3% of Israel’s total imports, the Bank of Israel notes.

But Turkey was an important source of imports in construction products such as cement as well as iron and steel. Some 824,000 Israelis visited Turkey in 2022, the bank says citing official Turkish statistics.

Israeli exports to Turkey were $1.5 billion in 2023, 2.5% of Israel’s total exports.

“The Turkish embargo’s impact on imports and prices of imports to Israel was limited,” the Bank of Israel says in its analysis. “This illustrates the importance of functioning markets and liberal trade policies in creating economic security, as well as the difficulty of individual countries to use trade restrictions on tradable goods as a political tool.”

It added that Israel found substitutes for Turkish products that were halted, and that alternate sources of cement came without higher prices even though most cement exports came from Turkey before the ban, underscoring “the limited impact of the embargo.”

“Economic openness and the diversification of import sources — rather than isolation and domestic production — provided a solution to trade restrictions on tradable goods with a well-functioning international market,” the central bank said.