The growing tensions between Israel and Turkey have destroyed prolific commerce relations which took years to establish, says Menashe Carmon, chairman of the Israel-Turkey Business Council.

Diplomatic relations between Jerusalem and Ankara have been strained ever since Israel launched Operation Cast Lead . Tensions rose further after Turkish Prime Minister Recep Tayyip Erdogan walked off the stage at the World Economic Forum in Davos, Switzerland, after verbally sparring with Israeli President Shimon Peres over the fighting in Gaza.

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announced it would be looking into the possibility of prosecuting Israeli officials for alleged genocide during the Gaza offensive.

The situation has strained the commerce relations between the two countries, which span some $3.4 billion per annum, and their future seems vague.

Turkey's economy was able to stabilize after the financial crisis that hit it in 2001 and its impending induction into the European Union has prompted hundreds of Israeli companies to establish factories and production lines in Turkish cities; as well as sign import-export contracts with many Turkish companies.

The sensitivities of the new situation have prompted executives in these companies to clam up media-wise, and none are willing to elaborate on the newfound complexities they now have to deal with.

Defense exports as risk

Industry insiders have admitted that the main export lines to Turkey – agriculture and chemicals – have already begun suffering the consequences, as the Turkish government body which subsidizes their contracts declared an embargo on Israeli-made equipment.

Another field of commerce bracing for a blow is that of defense exports. Turkey has one of the largest armies in the world and Israel's Elbit Systems Ltd. and Aerospace Industries (IAI) signed a $141 million deal with its air force just days before the diplomatic crisis erupted.

"They wouldn’t have won the bid today," said a source in the defense establishment. "Elbit and IAI are lucky to have signed it prior to the war in Gaza. Still, it may take Turkey longer to materialize it."

The Defense Ministry has scheduled a special session to discus the problems defense exports to Turkey may face next.

"Tensions between Israel and Turkey seem to be subsiding," said Doron Avrahami, Israel's commercial attaché in Turkey. "You must remember that 2008 was a record year for commerce between the two and since the majority of the trade is done between private companies, we can hope that not every poetical statement will automatically mean a secession of commerce.

"We hope to be able to maintain the same scope of business in 2009," he said adding that a growth in trade was unlikely. "Politics aside, the financial crisis has hit Turkey as well.

"We recommend that Israeli companies that already have business in Turkey carry on as usual, but anyone planning on launching new ventures should understand that it may take a lot longer than before."