Türkiye’s New Role in a Changing Middle East
Interview with Ussal Şahbaz, Managing Partner, Ussal Consultancy
The U.S.-Türkiye relationship has grown increasingly complex over the past few years. While Türkiye remains a key NATO ally, sharp divergences have emerged over Middle East politics (such as President Erdogan’s open embrace of Hamas and hard line against Israel) and its independent foreign policy has meant maintaining, and in some cases deepening, commercial ties with Russia, China, and Iran. Türkiye’s strategy to balance its relationships between East and the West has often frustrated the U.S., but these policies underscore Türkiye’s desire to assert itself as a regional and global power. Much has been written about the concept of new “geopolitical swing states,” a concept Goldman Sach’s Jared Cohen uses to describe countries that “chart their own course on an issue-by-issue basis” and by doing so, “may decide the future of the international balance of power.” Turkiye is a prime example of this growing class of influential nations.
Given this flexible strategy and diverse set of relationships, Türkiye has increasingly cast itself as a mediator of choice, from Russia and Ukraine, where it brokered a deal allowing millions of tons of Ukrainian grain and other agricultural products to move safely through the Black Sea to global markets, to Armenia and Azerbaijan, where it has influenced ceasefire diplomacy and post-conflict economic development. And In recent weeks, however, Türkiye has been given a lot of credit by the Trump Administration for helping broker the Israel-Hamas cease-fire. President Trump called President Erdogan “a tough cookie” – which, in Trump code, is high praise.
Türkiye today is a leading actor in the region. It’s a major market for U.S. and global companies, is strategically located at the intersection of Europe, Asia, and the Middle East — Istanbul is one of the world’s only cities spanning two continents — and can either be a force multiplier or a spoiler on key policy priorities. As reconstruction efforts take shape across the Middle East, Türkiye’s government is poised to play an outsize role in both shaping the politics around reconstruction and through Turkish construction firms that are set to be first-movers in what will be decades-long rebuilding efforts.
To understand – how Türkiye sees Middle East reconstruction, its relationship with the U.S., its broader economic growth agenda, and even what books to read to make sense of the region – we called upon our longtime friend Ussal Şahbaz, a sharp strategist and navigator of the region’s policy and political dynamics. Ussal runs a consultancy that helps businesses navigate Türkiye’s complex political and regulatory landscape. He previously served in the Turkish Government, at leading economic policy research institute TEPAV, and had senior roles in the private sector and the World Bank.
Below is his interview with Riyalpolitik – edited for length.
Türkiye is getting a lot of credit for its role in supporting the Hamas–Israel deal and pressuring Hamas to accept. What do you think Ankara is really trying to get out of this? How do you read Turkey’s broader strategic interests at this moment?
Türkiye has recognized both the State of Israel and a Palestinian state and has historically been a neutral intermediary. Given the level of polarization at this time in history and specifically at this instance of the Gaza conflict, I think it was not possible for Türkiye [to] stay neutral.
First of all, we should all be happy that the humanitarian tragedy is likely to be over soon. Contributing to this process seems to be one of Turkish foreign policy’s main objectives.
Second, for Türkiye, the ceasefire is critical because it is positive for Turkish-American relations. After a decade of swinging between geopolitical blocs, with President Trump taking office, Türkiye now understands that it has much more to gain by remaining in its place within the Western alliance. Anything contributing to this relationship is a gain for Türkiye.
Türkiye’s construction and infrastructure companies have been early movers in post-conflict environments. What’s their strategy and how do they navigate sanctions, political risk, and financing gaps?
Operating in conflict zones or transitional environments requires agility, crisis management, and adaptability. Looking at the more than five decades of Turkish business abroad in the construction sector, I can say that Turkish companies have developed these skills to global standards. They also know the playbook for dealing with (quasi-) authoritarian regimes. They don’t carry the colonial legacy of some European countries. Turkish businesspeople have been risk-takers for decades.
As a result, Turkish companies established a broad network with well-developed capabilities of Turkish construction and infrastructure contractors since the 1970s. Türkiye now has the second-highest number of major construction companies, after China.
Thus, Turkish contracting companies can leverage the accumulated knowledge and expertise gained over decades, combining it with an entrepreneurial spirit. Furthermore, they build fast, and they stay when the cameras leave. These factors make them reliable partners with a strong record of finalized projects in the Middle East, in post-Soviet countries, and most recently in Africa.
How do you see Turkish firms engaging in potential reconstruction in Syria or Gaza? Would this be government-backed, more private-sector driven, or both?
In February 2023, Türkiye had a large earthquake, the destruction (and the loss of human lives) of which were commensurate with those of the war in Gaza. [It’s estimated that around 60,000 people died in Türkiye and Syria]. After almost two years, all destroyed cities have been rebuilt. In terms of agility and mobilization power, there are not too many construction companies like those in Türkiye. This power should also be utilized in Syria and Gaza.
In Syria, Turkish companies are already active, given the government support and existing networks of Syrian refugees in Turkey. For instance, the recent U.S.-brokered and Qatar-financed project to bring gas from Azerbaijan to Northern Syria will be undertaken by Turkish construction companies.
In Gaza, rather than government-to-government connections, there is more room for private-sector-driven engagement. Many Turkish companies have become accredited by international organizations, such as NATO or the UN, and have also established themselves as reliable partners and subcontractors of global organizations. Their proven capabilities make it easier to garner political backing, which gives the private sector a unique leverage as defined above.
Are Turkish contractors looking at partnerships with Gulf capital in regional infrastructure projects? How is Turkey viewed today across Arab capitals — competitor, partner, or something else?
The Turkish economy lacks the resources to finance reconstruction in Syria or Gaza. The natural source of financing will be the Gulf. I see Turkish construction companies and Gulf financing as complementary. Indeed, Turkish companies have undertaken various infrastructure projects in the Gulf, including the construction of airports, highways, and power plants.
Türkiye and the Gulf have similar partnerships in third countries as well. One of the concrete examples in which Türkiye plays a key role is the New Development Road project that aims to link the Persian Gulf with Europe. The Al Faw Grant Port in Basra will be linked to a highway and railway, enabling the transportation of cargo from Asia to Europe via Türkiye. The UAE and Qatar are partners of this project, along with Iraq.
One critical point about reconstruction in Syria and Gaza is that excessive financial inflows can sometimes create bubbles, and capital tends to focus on short-term returns. This results in extractive construction projects, such as luxury condos that will be sold to the diaspora. The international community should refrain from this approach and focus on infrastructure development and inclusive urbanization in these regions. Long-term peace is built on inclusive development.
You’ve written about Türkiye’s shift from “construction-led growth” to “technology-driven growth.” Where do you see the most promising sectors — AI, semiconductors, defense tech?
Being good at the construction business does not mean you don’t do other things! Indeed productivity is the only source of long-term growth and manufacturing always brings more productivity. If you compare with the other countries in the Middle East, Türkiye is a manufacturing giant both in terms of the diversity of its products and the markets it serves, from Europe to Asia.
Yet Türkiye is also trapped in middle-tech manufacturing, such as automotives, consumer durables, and some green tech. Most of these industries are now threatened by overcapacity in China. This mirrors what Mexico or Vietnam are facing, just like many other countries around the world. Like many other countries, Türkiye lacks a concise strategy to respond to China. This is an issue that we need to discuss more strategically with our Western allies.
Türkiye has been unable to develop manufacturing capacity in high-tech verticals, such as semiconductors. There are significant entrance barriers in these areas, both in terms of capital and skills, and major players are already concentrated in the U.S., Taiwan, the Netherlands, South Korea, Japan, and China.
Although the defense industry has recently achieved global success, Turkish drones are now well-known worldwide for their cost-effective design and agility. All innovations stem from external pressures. Türkiye’s success in the defense industry has its roots in the American defense embargo in the 1970s due to the Cyprus incident and then ongoing burning needs due to several wars we were involved in recently. However, the spillovers to civilian tech are, for the moment, questionable.
How real is Turkey’s ambition to become a digital hub between Europe and Asia? What policies or investments are moving the needle?
Türkiye’s immense investment in the energy sector since the early 2000s, combined with its well-trained human resources and its geolocation, along with the well-integrated logistical and financial infrastructure of Istanbul, makes it a potential bidder to become a digital hub between Asia and Europe. However, there are certain impediments, including financial constraints, a regulatory environment that seeks harmonization with the EU, and relatively higher energy costs compared to energy-rich countries in the region. The UAE and Saudi Arabia are also investing in becoming digital hubs, along with Kazakhstan in Central Asia.
Perhaps a more strategic vision would be a partnership among these states, that would make Türkiye an integral actor in the ongoing initiative for a digital hub in the region, situated at the nexus of Europe, Eurasia, the Middle East, and Africa. To this end, Türkiye should leverage its position outside the regulatory parameter of the EU, yet with a proximate location, to attract digital investments that are fleeing from overregulation in the EU. President Trump’s recent pro-tech policies, along with ongoing U.S. debates about reshoring and deregulation, resonate very well with Turkey’s position.
You’ve advised both government and business — what’s the biggest misunderstanding outsiders have about navigating Türkiye’s business and policy climates?
Türkiye is neither an eastern nor a western country. Thus, business development in Türkiye is somewhat complicated; it requires a unique playbook that involves navigating the [country’s] institutional framework, which is structured mainly along Western lines, while also building a people-to-people network, a crucial factor in these relations. Thus, successful marketing or operational models in the West, or those with loose institutional structures relying solely on networks, will not work efficiently here without understanding these characteristics. In this sense, having reliable partners in Türkiye is a key factor for success in understanding these dynamics. For the last eight years, at Ussal Consultancy, I have advised some of the most prominent American companies and multinational corporations on government affairs in Türkiye and this approach has been key to our success in these matters. Recently, I also began working on similar projects in the Middle East through our partnership with M&P, based in Cairo, and I have found many similarities in the institutional structures of countries throughout the region.
How do you see Türkiye’s economic identity evolving over the next decade — industrial power, logistics hub, and/or tech innovator?
I think an economy as large as Türkiye – the world’s 17th largest with 85 million people – cannot rely on either of these verticals. It has to have everything.
Yet, we must be aware of some global trends: First, there is an ongoing deindustrialization trend in middle-income countries, and Türkiye is no exception. The share of manufacturing in total employment is falling. This is partly due to China becoming the world’s factory, and partly because manufacturing is becoming more automated and less labor-intensive. Given the competition, it is inevitable that some Turkish manufacturing companies will relocate parts of their value chains to lower-cost locations, such as Egypt, Syria, or even Bangladesh. Indeed, as a result of this trend, we have been helping many Turkish companies navigate government affairs in other countries. This will ultimately bring more prosperity and stability to our region in the long term.
In parallel, some of the economic activities will prosper in Türkiye. As value chains diversify, Türkiye will likely consolidate its position as a logistics hub by leveraging the investments made in the last three decades in the energy, transportation, and communication sectors. The management, finance, and marketing functions of industrial companies will also remain in Turkey, just as they did in Japan or Korea when their companies invested abroad.
Regarding technology, unlike Israel or Estonia, which are global tech hubs, Türkiye will have niche success stories. It is already the second-largest gaming hub in Europe, after the UK. Defense innovation is very strong. And I would expect more in health and climate tech in the upcoming years.
If you were writing Turkey’s trade and investment strategy for 2035, what would be its three pillars?
First, Turkey should get the basics right. These are robust macroeconomic policies, innovation policies, and trade policies. There are global playbooks on how to get these things right.
Let me add two overlooked issues:
First, Türkiye needs to strengthen its state capacity. As the successor of an empire, Turkish bureaucracy has traditionally been powerful — yet this legacy also brings a certain inertia. At the same time, the growing dominance of market-oriented and short-term financial priorities over the past decades has led to a gradual erosion of talent within public institutions. The most successful development stories in the world have always rested on strong and capable states. Reinvesting in Türkiye’s institutional capacity should therefore be a top priority.
Second, Turkish diplomacy is also very influential, but we are not as strong in economic statecraft as we are in political or humanitarian diplomacy. Turkey has a lot to contribute to its region and to the broader world, and in return, with its economic capacity and diplomacy, can pave the way. Countering China, as I mentioned earlier, will be one of the most significant challenges for economic development in the coming years.
Finally, what two or three works on these topics would you recommend our readers consult to get smarter on these issues?
Simon Sebag Montefiore’s Jerusalem: The Biography is a classic to understand the Middle East. His recent book The World: A Family History of Humanity is the only book I have read that gives a chronological flow of history that unfolds in the different parts of the world, so it is unique.
Azeem Azhar’s book, The Exponential Age: How Accelerating Technology is Transforming Business, Politics and Society is a classic for understanding AI and other emerging technologies, and how they will reshape the global economy. Without this understanding, you cannot understand individual country dynamics. Azeem’s weekly newsletter, the Exponential View, is also one of my favorites.
Of course, Nobel laureate Daron Acemoglu’s Why Nations Fail is another classic. He is from Türkiye, and I think that is one of the reasons why he places more importance on institutions for economic development than anyone else.