Economy
CBRT says strong exports offset Iran war-driven energy import surge
Türkiye’s foreign trade balance improved in the second quarter despite a sharp rise in energy costs, as resilient exports and weaker non-energy imports helped offset the impact of higher global fuel prices, the country’s central bank said on Monday.
In an analysis, the Central Bank of the Republic of Türkiye (CBRT) said the U.S.-Israeli war with Iran, which began in late February, had been expected to worsen the country’s external trade outlook through higher energy prices and disruptions to global supply chains.
“However, second quarter data painted a different picture. Despite a marked increase in energy imports, exports remained strong and the foreign trade balance improved,” CBRT analysts said.
The conflict’s most immediate impact was felt in energy markets, where second quarter average Brent crude prices rose 55.2% from a year earlier, while natural gas prices increased 28.2%.
As a result, Türkiye’s calendar-adjusted energy imports climbed 32.4% year-over-year, reflecting not only higher prices but also the structure of energy imports, supply contracts, spot purchases and delivery lags, the bank said.
Although the recent easing in global energy prices points to slower growth in energy imports, upside risks remain in the near term because changes in prices feed through to import costs with a delay, it added.
Exports offset higher energy bill
The analysis said energy prices alone do not determine the external balance, as the current account is also shaped by export performance, services revenues and domestic demand.
It noted that the current episode differed from 2022, when surging energy costs following Russia’s invasion of Ukraine placed much heavier pressure on Türkiye’s current account.
“This divergence was primarily driven by exports,” it noted.
Although exports to Middle Eastern countries dropped sharply in March after the outbreak of the conflict, they recovered during the second quarter.
The central bank said the disruption to shipping through the Strait of Hormuz and higher freight and insurance costs encouraged some buyers to shift orders toward Türkiye as global supply chains adjusted.
Interviews with firms indicated that stronger demand came mainly from Europe and was driven by precautionary purchasing, with companies initially viewing the increase as temporary.
The analysis said precautionary demand boosted exports of chemicals and base metals, while supplier diversification supported apparel and textile shipments.
It also highlighted the growing contribution of the defense industry, whose share of Türkiye’s total exports has increased by about 2.3 percentage points over the past four years to 4%.
Weak domestic demand curbed imports
The improvement in the trade balance was also supported by the composition of imports, the CBRT said.
While total imports increased in the second quarter due to higher energy purchases, imports excluding energy declined.
Imports of intermediate goods excluding gold and energy were broadly unchanged, while imports of investment and consumer goods fell amid weak domestic demand and improved export order expectations.
High-frequency indicators, including credit card spending, also pointed to softer consumer demand and lower imports of consumer goods, the bank said.
Purchasing Managers’ Index (PMI) data likewise showed manufacturing output weakening during the quarter even as export demand expectations improved.
“In sum, the adverse impact of rising energy prices on the foreign trade balance in the second quarter was largely offset by the robust course of exports,” the analysis said.
It added that subdued domestic demand, driven by tight monetary policy, had altered the composition of imports and further supported the improvement in the trade balance.
“Taken together with the recent normalization in energy prices, these developments suggest that the upside risks posed by the war to the current account deficit have diminished compared with a few months earlier,” analysts said.
France is willing to consider a possible sale of the Franco-Italian SAMP-T air-defense system to Türkiye following years of opposition, clearing the way for more substantive talks with Ankara, a report said on Monday.
The shift in position followed talks between French President Emmanuel Macron and Italian Prime Minister Giorgia Meloni during a summit on June 25 ahead of this week’s NATO summit in Türkiye, although negotiations remain at an early stage.
That’s according to a Reuters report that cited five sources familiar with the matter. “Before, there was a clear lack of openness, now there is openness,” said one source.
The French presidency said it did not confirm the information, pointing to “significant inaccuracies.” It did not say what the inaccuracies were and declined to explain them.
France’s Foreign Ministry declined to comment and referred to the French presidency, as did the Defense Ministry. Türkiye’s Foreign Ministry did not respond to requests for comment.
The report comes a week after Defense Minister Yaşar Güler said Türkiye was “evaluating all options” to boost its air defenses, including the potential purchase of Patriot systems from Washington or SAMP-T systems.
Güler said Ankara remained open to cooperation involving technology transfer and joint production. Technical and political talks with the relevant countries are taking place “from time to time,” he added.
Discussions between leaders
The sources said that Paris had set aside some political reservations that had previously blocked progress.
Türkiye, France and Italy launched cooperation on a possible long-range air-defense program in 2017 to 2018, including studies into codevelopment and coproduction.
However, the project stalled as ties between Ankara and Paris deteriorated over Syria, Libya and disputes in the Eastern Mediterranean involving Greece and Greek Cyprus.
The SAMP-T, also known as Mamba, is produced by the Franco-Italian Eurosam consortium, bringing together MBDA France, MBDA Italy and Thales.
The system can track dozens of targets simultaneously, intercept multiple threats at once and is the only European-made system that claims to be able to intercept ballistic missiles.
Often described as Europe’s closest counterpart to the U.S. Patriot system, it divides analysts on its efficiency, who point to its lack of combat use over the years.
Türkiye has NATO’s second-largest army and has for years been ramping up investments as it seeks to have its own fully fledged missile defenses. It is meanwhile producing components for its integrated, multilayered “Steel Dome” air defense system.
One source added that Meloni and Turkish President Recep Tayyip Erdoğan discussed the matter during a call on July 3.
Political will to advance
A Turkish official said the process had been unable to move forward since 2020 due to tensions in the Eastern Mediterranean and European Union sanctions.
“Now, it appears there is political will on all three sides (Türkiye, Italy, France) for this process to advance,” the official said.
Beyond Paris and Rome, the system has only been exported to Singapore, although it has been transferred to Ukraine in recent years and France deployed it to help the United Arab Emirates (UAE) defend itself against Iranian missile attacks this year.
Italy sent the system to Türkiye in mid-June as part of NATO defense planning.
Any deal would likely center around the new generation of the system, which is being rolled out to the French and Italian militaries.
Erdoğan and Macron will hold a meeting on the sidelines of the NATO summit to discuss bilateral issues, officials said.
While Italy has long been in favor of sharing the SAMP-T with Türkiye to deepen defense industry cooperation, Turkish officials have for years privately and publicly regarded France as the principal political obstacle to the program.
Momentum has returned over the past year as Ankara has intensified efforts to strengthen its missile defense capabilities amid regional instability and NATO allies have reassessed defense cooperation and capability needs.
The sources said that France’s new openness should not be interpreted as approval for a sale.
“This is just the beginning. It will be a long journey if France agrees to sell it,” said Murat Aslan, defense and security researcher at Türkiye’s Foundation for Political, Economic and Social Research (SETA).
A custom-built limousine version of Türkiye’s first domestic electric car, Togg T10X SUV, will be transporting leaders during the NATO summit in the capital, Ankara this week.
Ten exclusively produced, extended-wheelbase T10Xs have been added to the protocol fleet for the crucial summit of the members of the 32-country military pact that will begin on Tuesday.
They draw attention with elongated bodies and lack of side doors and feature Türkiye’s red-and-white national colors, as well as specially designed versions decorated with turquoise tones and traditional motifs.
The limousines are expected to operate on short-distance routes within the summit venue at speeds of about 50 kilometers (31 miles) per hour.
They are also expected to provide controlled transportation along designated protocol routes throughout the summit.
Togg is backed by a consortium of major groups, including BMC, Zorlu Holding, Anadolu Group and Turkcell, along with the Union of Chambers and Commodity Exchanges of Türkiye (TOBB).
Mass production of the T10X commenced in 2022 before orders were launched in March 2023, with deliveries starting a month later.
Togg launched its T10F sedan model in Türkiye last year, when it also started sales in Germany to mark its official entry to the European market.
The company also plans to enter France and Italy in the coming period.
The world has coped unexpectedly well with the disappearance of over a billion barrels of oil since the start of the Iran war, yet the risk of sharp price increases still hangs as hopes for a durable peace fade and buffer stocks run low.
Tehran’s throttling of the Strait of Hormuz in response to the U.S. and Israeli attacks launched on Feb. 28 fed fears of a catastrophic global energy crunch.
The ensuing four-month conflict did, indeed, create the biggest energy disruption in history, according to the International Energy Agency (IEA). At its worst, the headline supply loss was 14 million barrels per day.
But worries that Asia and Europe would run out of gasoline, diesel or jet fuel never materialized. And after peaking around $126 per barrel in April – still some $20 below the 2008 record – benchmark Brent oil prices are now lower than they were when the conflict began.
“This suggests traders viewed the disruption as serious but manageable, reflecting confidence in today’s more resilient energy and economic systems,” said John Baffes, senior economist at the World Bank.
Since the oil crisis of the 1970s, World Bank data shows that oil intensity – a measure of the role oil plays in economic activity – has fallen by more than half in most advanced economies and roughly 20% in emerging and developing countries.
Beyond that structural shift, however, three specific factors have been responsible for forestalling the worst-case scenario during the Gulf crisis.
Saudi Arabia and the United Arab Emirates (UAE) found alternative routes to export. Asia, led by China, curtailed buying. And countries around the world likely pulled around 1 billion barrels of oil from their reserves, including via an IEA-led record stocks release.
China adjustments ease global pressure
When the war broke out, China had nearly 1.4 billion barrels of oil stored, according to the U.S. Energy Information Administration. That was more than the 1.2 billion barrels held by all the 32 members of the IEA combined, including the United States’ 413 million barrels.
China’s rapid electric vehicle adoption in recent years along with flexibility in oil and petrochemicals output also helped, said Ilia Bouchouev, of the Oxford Institute for Energy Studies.
“They are managing the market a lot better than (the Organization of the Petroleum Exporting Countries) used to,” said Bouchouev, a former head of derivatives trading at Koch Global Partners.
The adjustments by China, the world’s biggest oil importer, helped ease global demand pressure. And the IEA’s scheme to release 400 million barrels of reserves provided further breathing room at a time when U.S. President Donald Trump was repeatedly stating an end to the war was imminent.
“Traders always took the view this can’t go on much longer,” said Neil Atkinson, a former IEA official.
Washington’s narrative management, that more supply was coming, also made hedge funds reluctant to hold long positions that bet on prices rising, Societe Generale analysts noted.
With the signing last month of a preliminary agreement to end the war, there has been a rapid swing back towards business as usual.
“The market seems to have decided that this peace deal is for real,” Atkinson said.
Lost buffer risks more spikes
In reality, however, little is as it was before the war.
Even as Saudi Arabia, Kuwait, Qatar, Iraq and Bahrain resume production and exports, it will be years in some cases before they fully repair the damage to their energy infrastructure caused by Iranian attacks.
While prices may reflect expectations of a rapid return to pre-war supply levels, data on tanker traffic through the Strait of Hormuz tells a different, more pessimistic story.
And with the clock ticking on the 60-day cease-fire between Washington and Tehran, progress towards a final agreement to end the war has been achingly slow, with key questions – including the fate of Iran’s nuclear program – still unresolved.
Meanwhile, there’s the mammoth task of rebuilding global oil inventories.
The global economy weathered the shock by drawing down stocks at a record pace, according to IEA data, draining the very buffers designed to protect it from supply crises.
“It doesn’t mean we can’t operate without one, it just means that forward prices could be more prone to spikes,” Bouchouev said.
That kind of volatility is costly.
Every $5 increase in oil prices adds roughly $190 billion in annual costs to the global economy, according to Reuters calculations based on oil demand of 104 million barrels per day.
Replenishing oil stocks, never cheap, has likely been made more expensive by the war.
Before the conflict, the European Central Bank (ECB) had estimated 2027-2028 oil prices at $63 to $64 per barrel. That’s now risen to an average of $65 to $75, according to an ECB report published in June.
At current Brent prices, it would likely cost more than $70 billion to replace reserves drawn down to mitigate Iran war supply loss.
But until that is done, the world is operating without a safety net in an environment still fraught with uncertainty.
“The markets may be underestimating the risk of further oil flow disruptions,” said Saul Kavonic, head of research at MST Marquee. “Iran is likely to continue to find pretexts to stymie flows through the strait.”
Türkiye’s agricultural output exceeded the $80 billion mark for the first time last year, Agriculture and Forestry Minister Ibrahim Yumaklı announced on Saturday.
Sharing the milestone on social media, Yumaklı described it as a “historic record in agriculture” and said that “Türkiye is at the top of the global league.”
Citing the World Bank’s 2025 Agricultural Output Report, the minister said the country’s agricultural output had surpassed $80 billion for the first time in history, reaching $83.2 billion.
“We rank first in Europe and seventh in the world. I sincerely thank all our producers, farmers, exporters and industrialists who have brought life to our land and made us proud,” he said.
“The abundance of Anatolia will continue to be Türkiye’s strength,” he added.
An infographic shared by the minister also compared agricultural output figures across countries.
Türkiye ranked 12th globally with the agricultural output of $24.5 billion in 2002. By 2023, the year marking the hundred years of the republic, it had climbed to eighth place with $72.9 billion.
Continued growth in agricultural output in the following years enabled the country to reach a record $83.2 billion last year.
China topped the global ranking with agricultural output worth some $1.298 trillion.
Top Turkish and Pakistani officials reaffirmed on Saturday the close and brotherly relations between the two countries, emphasizing the potential to further strengthen economic cooperation in a number of fields.
Addressing the Pakistan-Türkiye Business Conference in Istanbul, officials, including Vice President Cevdet Yılmaz and Pakistani Prime Minister Shehbaz Sharif, reinstated their aim to elevate bilateral trade volume to $5 billion.
Speaking at the conference, Yılmaz said that the friendship between the two countries has always been built on “strong emotional bonds,” adding that “now we must make this friendship equally strong in trade, investment, technology and production.”
Starting his speech, the vice president said that they had come together on the occasion of the conference not only to review economic cooperation between the two countries, but also to open the doors to a new era of cooperation.
Yılmaz also praised Islamabad’s diplomatic role in recent months aimed at defusing tensions in the Middle East and its mediating role between the United States and Iran.
Pakistan is not only a leading country in South Asia, but “also a responsible actor that plays a constructive role in regional and global issues and effectively contributes to peace and stability,” he said.
Moreover, he said that the two nations aim to raise bilateral trade volume to $5 billion, a target agreed by President Recep Tayyip Erdoğan and Sharif.
President Erdoğan and Sharif also met later during the day for bilateral talks and a joint news conference.
On trade, Yılmaz said that the current level at around $1.2 billion last year remains below potential, and that the $5 billion target should be seen as “modest” and raised further.
He also informed that Turkish direct investments in Pakistan have exceeded $2 billion, while Turkish contractors have completed 74 projects worth about $3.5 billion in the country.
At the same time, he pointed out that Ankara and Islamabad could further expand cooperation in areas including automotive, agricultural technologies, food processing, medical devices, renewable energy, information technologies, e-commerce, defense industry, shipbuilding, tourism, and film and television production.
Yılmaz also welcomed a proposal to allocate a special zone for Turkish investors inside the Karachi Industrial Park, saying it could add a “new strategic dimension” to the economic partnership.
Sharif, for his part, has called for the ideas discussed at the forum to be turned into concrete results, saying the two countries should move quickly to transform their friendship into deeper economic cooperation that benefits both countries.
The conference was also attended by Industry and Technology Minister Mehmet Fatih Kacır, Trade Minister Ömer Bolat, Energy and Natural Resources Minister Alparslan Bayraktar, Pakistani ministers and businesspeople from both countries.
Pakistani officials, as part of the forum, have showcased the opportunities for cooperation in different sectors, including energy, electricity transmission, IT and emerging technologies, transportation and others.
They also sought to emphasize Pakistan’s recent macroeconomic stability efforts and reform agenda and lure Turkish investors.
In particular, the officials underscored robust legal protections, strategies toward a market-based economy, privatization push, while pointing out that Pakistan is a “re-emerging story.”
Türkiye-Pakistan cooperation
Türkiye and Pakistan enjoy close and friendly ties, which in recent years have further expanded to also include a new grouping – the Regional Four (R-4), a diplomatic partnership – also involving Egypt and Saudi Arabia.
Defense cooperation stands out as one of the strongest pillars of relations between the duo, particularly seen through projects such as MILGEM, through which Türkiye has already delivered two corvettes to Pakistan’s Navy.
Additionally, Ankara and Islamabad have strengthened energy cooperation as the countries have already signed an oil and gas exploration and production agreement covering Pakistan’s onshore and offshore areas.
Further scope of cooperation and potential includes work on transportation and connectivity, through links and projects such as a plan to revive the Islamabad-Tehran-Istanbul freight train route, alongside the Middle Corridor and the planned Development Road project.
Türkiye will gradually phase out its fuel tax adjustment mechanism by October, scaling back a measure introduced to cushion consumers from soaring oil prices during the Iran war.
The government activated the so-called sliding-scale system in March, allowing reductions in the special consumption tax (ÖTV) to offset increases in global oil prices and limit their impact on domestic fuel prices and inflation.
Under the scheme, the government absorbed up to 75% of fuel price increases by reducing the excise tax, helping to contain the inflationary effects of oil prices, which rose by more than 50% during the conflict.
According to a presidential decree published in the Official Gazette on Friday, the tax relief will be reduced in stages before the mechanism is fully abolished.
The forgone excise tax will be capped at 50% of fuel price increases through the end of July, before being lowered to 25% during August and September.
The decree also stipulates that if refinery prices decline, the government will fully restore the corresponding amount of excise tax, rather than restoring only 75% as under the previous system.
The revised rules took effect immediately, while the sliding-scale mechanism will be terminated on Oct. 1.
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