Turkey lures investors amid Iran war fallout in Gulf economies | US-Israel war against Iran News

For Turkey’s government, the Iran war has complicated efforts to turn around an economy still reeling from one of the worst financial crises in the country’s history.

But even as the conflict has driven up Turkey’s fuel prices and forced authorities to dip into their precious foreign exchange reserves to defend the lira, it has also presented an opportunity.

As the war’s fallout reverberated across the Middle East, Ankara seized the opportunity to promote Turkiye as a model of security and stability for businesses and investors.

While Iranian missiles and drones have caused significant damage to infrastructure in the United Arab Emirates, Saudi Arabia and Qatar, Turkey, protected by NATO air defenses, has emerged largely unscathed from airstrikes blamed on Tehran.

‘New Doors’

Turkish officials have made little secret of their desire to capitalize on the shadow cast by the conflict – which is officially at a standstill until Wednesday under a two-week ceasefire between the United States and Iran – over regional business hubs such as Dubai, Doha and Riyadh.

In remarks earlier this month, Turkish President Recep Tayyip Erdogan, who met with 40 global chief executives last month to discuss ways to boost his country’s competitiveness, hailed the war as a boon for Ankara’s ambitions to transform Istanbul into one of the world’s leading financial centers.

“Just like in the pandemic period, we wholeheartedly believe that this global crisis will also open new doors for our country,” Erdogan said in a statement posted on social media.

Turkish finance and finance minister Mehmet Simsek confirmed shortly afterwards that the government was preparing “radical” incentives to attract foreign capital.

Turkey’s improved economic stability in the wake of its 2018 debt crisis and various financial incentives have helped reposition the country as a regional hub and “safe haven,” said Bilal Bagis, head of the economics department at Fatih Sultan Mehmet Vakıf University in Istanbul.

“A liberal investment environment, ease of access and new comprehensive incentive packages should help strengthen its position,” Bagis told Al Jazeera.

While Ankara has not yet confirmed the measures in the pipeline, they are likely to involve tax breaks for companies that sell goods through Turkish entities without importing them into the country, said Guney Yildiz, a Turkish-born adviser at Anthesis Group that has clients in the Gulf.

“So you will have a commodity trader or a logistics company that will book transactions through Istanbul and get a significant tax benefit for that,” Yildiz told Al Jazeera.

“This is a direct play for the kind of brokerage business that Dubai has owned for two decades,” he said, adding that “the timing is obviously shaped by the war.”

Turkey’s Treasury and Finance Ministry did not respond to questions about the measures being considered, but its plans follow a series of recent initiatives aimed at lending foreign investment, including the opening of the Istanbul Financial Center (IFC) in 2023.

The special economic zone offers tax incentives to financial institutions, including a 100 percent exemption from corporate tax on export earnings until 2031.

An IFC spokesperson said the district had recently seen “growing and concrete” involvement from both foreign governments and private institutions.

“There is a particularly strong strategic focus of Far Eastern institutions,” the spokesperson told Al Jazeera.

“This is not limited to companies in the private sector; we also see involvement at the government level. We remain in close contact with Japan and South Korea, while our discussions with the United Kingdom continue,” the spokesperson said, adding that Istanbul has a “powerful triple advantage built on geography, innovation and economic depth.

“From Istanbul, institutions can reach approximately 1.3 billion people and a 30 billion dollar economy within a four-hour flight,” the spokesperson said.

‘Maths get complicated fast’

Still, Istanbul faces a steep climb to seriously compete with hubs like Dubai.

Istanbul is currently ranked 101st on the latest Global Financial Centers Index, compiled by Z/Yen Partners in collaboration with the China Development Institute, well behind Dubai (7), Abu Dhabi (21), Doha (48) and Riyadh (61).

Turkey’s economy has been plagued by double-digit inflation and a currency depreciation since the start of the 2018 crisis. “The lira loses about a fifth of its value against the dollar every year,” Yildiz said.

“For a financial firm that earns in multiple currencies and pays staff in lira-denominated salaries, the math quickly becomes complicated. You’re constantly managing FX exposure in a way that you simply don’t have to in a pegged-currency jurisdiction like the UAE or Singapore.”

Critics have also accused Erdogan’s administration of economic mismanagement by keeping interest rates low despite fears of inflation. But the government says the move is aimed at boosting the economy and ending foreign exchange manipulation.

While the IFC has reported increasing interest from firms, less than half of its office space is filled, although officials say they expect occupancy to reach 75 percent by the end of this year.

“When we look at surveys of European firms with a subsidiary in Turkey, their main complaints are unpredictability of economic policy, political instability, legal uncertainty, high bureaucracy, high inflation and imported inflation,” Meryem Gokten, an economist at the Vienna Institute for International Economic Studies, told Al Jazeera.

“None of these issues can be resolved in the short term…Turkey has not been a financial hub so far, and I don’t see it becoming one without addressing these structural issues,” Gokten added.

Selim Koru, a doctoral researcher specializing in public policy at the University of Nottingham, expressed similar scepticism.

“Part of Dubai’s attractiveness has been that it is a kind of tabula rasa. There is no firmly established cultural, legal, political climate, and foreign parties can have a say in what they want it to be,” Koru told Al Jazeera.

“That’s not really the case with Istanbul, or anywhere else in Turkey.”

For some analysts, whether Istanbul can directly challenge Dubai is not the real question.

Hasan Dincer, a finance professor at Istanbul Medipol University, said Turkiye’s effort to attract investment from overseas should be seen as a “gradual positioning rather than direct short-term competition”.

“In emerging financial systems, investor confidence is primarily driven by predictability, transparency,” Dincer told Al Jazeera.

“And the credibility of long-term economic policy initiatives, such as the Istanbul Financial Center, represent important strategic steps whose long-term impact will depend on sustained implementation and institutional alignment,” he said.