Kivanc Dundar in Istanbul -

President Recep Tayyip Erdogan will pay an official visit to Iran on April 6 and April 7 in an effort to smooth the countries’ strained bilateral relations. Now, following the breakthrough in the international talks on Iran’s nuclear programme on April 2, Turkey has a big opportunity to benefit from better relations through increased trade and investment.

Erdogan, a pragmatic politician, will probably only focus on economic issues, and will not talk about regional politics during his trip to Tehran. Turkey’s main export market, Europe, has not fully recovered from its deep economic crisis and Turkey’s $800bn economy needs to maintain good relations with its oil-producing neighbour.

Erdogan, however, has recently made a swipe at Iran over Yemen and Tehran’s regional ambitions. Iran and the terrorist groups it supports must withdraw from Yemen, said Erdogan on March 27, claiming that Tehran was trying to dominate the region, antagonising Ankara, Saudi Arabia and the Gulf states.

Turkey’s disagreement with Iran is not limited to Yemen; Ankara actively supports the Syrian opposition, while Iran is Syrian President Bashar al-Assad’s closest ally in the region.

Following Erdogan’s comments, the Iranian foreign ministry summoned Turkey’s charge d'affaires in Tehran, asking for an explanation. Iranian lawmaker Mansour Haghighatpour said “anyone who speaks against Iran cannot be our guest”. “Erdogan has delusions of being a pasha and thinks he can resurrect the Ottoman Empire,” Haghighatpour was quoted by Reuters as saying.

Whilst neither country wants relations to sharply worsen, the crisis sweeping the Middle East means maintaining delicate relations will be trickier than ever, Fadi Hakura, Turkey expert from the London-based Chatham House, told Reuters.

"This would be a huge financial disincentive for Turkey joining a great anti-Iran bandwagon. It was pretty strong rhetoric in the run-up to a presidential visit,” one Ankara-based diplomat was quoted as saying by Reuters.

However, Sinan Ulgen, a former Turkish diplomat, thinks that Erdogan's Iran outburst has nothing to do with Turkey’s concerns about Tehran's increasing influence in the region. The president’s recent remarks on Iran aim to mend Turkey's relationship with Saudi Arabia, which had deteriorated because of Turkey's staunch support for Egypt’s Muslim Brotherhood, Ulgen told Today’s Zaman, also warning that with the recent statements there is a risk of creating the perception that Turkey is supporting one side in the regional sectarian fighting.

Hikmet Cetin, a former foreign minister, doubts that Erdogan’s remarks were based on a strategy worked out in coordination with the government. Maintaining dialogue with Iran has always been important for Turkey, Cetin told Al Monitor, adding that he is not sensing a coherent strategy behind Erdogan’s words. Erdogan may be trying to curry favour with the United States, which supports the Saudi-led operation in Yemen, according to Cetin who also points out the strained ties between Ankara and Washington over Syria and Iraq.

Diplomats and analysts, however, told Reuters that the long-term impact would be minimal as Turkey needs Iranian gas, and sanctions-hit Tehran desperately needs export markets.

With GDP of about $366bn, Iran's economy is about 20% smaller than it would have been without sanctions, according to a study by the US Congressional Research Service, cited by CNN. “If you put together the consumer potential of Turkey, the oil reserves of Saudi Arabia, the natural gas reserves of Russia, and the mineral reserves of Australia you have it all in one country," Ramin Rabii, CEO of Iranian investment firm Turquoise Partners, told CNN. Iran has the second largest population in the Middle East with 80mn. It holds the world's fourth-largest proved crude oil reserves and the world's second-largest natural gas reserves, according to the US Energy Information Administration (EIA). 

The tentative nuclear deal reached this week, if it leads to a final agreement later this year, can unleash Iran’s huge economic potential in the medium and longer term which Turkish companies can exploit.  

Iran plans to sign 12 co-operation agreements with Turkey during Erdogan’s visit, Iran’s Press TV reported. The agreements mostly address cooperation between the two countries over energy, trade, health, transport, and customs issues, according to Iran’s Minister of Communications and Information Technology Mahmoud Vaezi.

The Turkish stock exchange rose on the Iran nuclear deal news. Turkey’s sole refiner Tupras, which buys crude from Iran, will probably be the immediate beneficiary of the nuclear deal if Iran will be able to increase its oil exports as a result of the easing of sanctions. Turkey, which runs a large current account deficit as it pays around $45bn-$50bn each year for energy imports, will also enjoy lower oil prices in the world markets.

A more open Iran, integrated with the global economy, will mean increased trade and a lower energy bill for Turkey. Turkey’s Finance Minister Mehmet Simsek said on April 3 that Iran’s nuclear deal would have a positive impact on the Turkish economy through the trade channel and lower oil prices.

Trade between Turkey and Iran stood at $13.7bn in 2014, down from $14.6bn in the previous year. Turkey’s exports to Iran were at $3.9bn last year, representing a 2.5% share in Turkey’s total exports, while its imports from Iran, mostly energy, amounted to $10.9bn, representing 4% of Turkey’s total imports. Iran imports mostly auto parts, textile fibres, and steel & iron from Turkey; in return it sells oil and natural gas, according to a report, published in January, by Turkey’s Foreign Economic Relations Board (DEIK).

Turkish fertiliser company Gubretas will also benefit from the nuclear deal, said Is Investment, a local brokerage house. Razi Petrochemicals, Gubretas’s subsidiary in Iran, had to cut its prices and its exports fell as a result of the sanctions, notes Is Yatirim. Razi is the largest fertiliser complex in Iran, producing ammonia, urea, sulphur, and sulphuric acid. Gubretas has a 48.88% stake in Razi, which has 10 plants.

Over the medium and long term, Turkey’s automotive, food and white goods companies can also win from Iran’s deeper integration with world markets, according to Is Investment. But it warns that Turkey’s steel producers and petrochemicals companies can face fierce competition from their Iranian peers. Iran has a significant steel production capacity and its petrochemical firms enjoy cost advantages.