Raid by Israel on Turkish aid convoy to the Gaza Strip

During the night of May 31 Israel Defense Force (IDF) commandos raided a Turkish aid convoy bound for the Gaza Strip in the Palestinian occupied territories.  Initially it was reported that 10 of the passengers on the convoy were killed by the IDF, then that number was escalated to 16, and the latest information I saw says only 10 were killed.

Reportedly Israel first contacted the aid convoy via radio with instructions directing the convoy to the naval port of Ashdod.  The flotilla refused to comply.  Israeli commandos then boarded the lead ship.  What happened next is not known exactly as the two sides are reporting different outcomes.  The IDF has said that it met with resistance in the form of passengers throwing rocks and using knives to try and stab IDF soldiers.  Meanwhile, Turkish convoy passengers have denied that fact.  In support of the IDF is news coverage showing that one of its soldiers was stabbed.

Fascinatingly, literally within moments of the tense incident unfolding there were Palestinian commentators on Al Jazeera condemning the Israeli actions.  I have been tracking the flotilla’s progress over the last week after it had been announced by Turkey.  It is clear that the incident was carefully orchestrated by Turkey.  But for what purpose?

Turkey over the last several years has been trying to re-establish itself as the leading Islamic power.  This is why it has taken on the role of Iranian nuclear plant negotiator along with Brasil and as convoy aid provider to the Gaza Strip.  In other words, Turkey is trying to increase its profile by pressuring Israel.  The track of the convoy was carefully put in place to force Israel into a course of near predictable action.  In its history Israel has never backed down when the sovereignty of its nation has been challenged.  So this outcome was somewhat known ahead of time.  Yet, Turkey knowingly persisted.  It is unclear what Turkey’s next step will be.  Will it follow through with its suggestion of military escorts for future flotillas?  Will it back down?  At this point the response is unknown.  Also unknown will be the response of the United States.

The U.S. is trying to withdraw forces in Iraq in August per Obama’s campaign promise.  Unfortunately, the U.S. has been hoping that Turkey, in fulfillment of its regional hegemon ambitions, would help fill the regional power void left by an Iraqi withdrawal of troops.  Will the U.S. still trust Turkey to do this without further complicating the region’s politics?  Will the U.S. back Israel or Turkey in the incident?  All of this is unknown at this point.  I will track the course of the story closely.

What is known is that financial markets are not going to like another Middle Eastern conflagration.  Will the IDF convoy raid escalate from incident to full on Middle Eastern conflict?  It’s unknown at this point.  At the moment of this blog posting most financial markets around the world are up.  As you know U.S. financial markets are closed today because of the Memorial Day holiday.

Analysis: It’s my feeling that the short-term financial market response to escalating tensions in the Middle East will be sideways to down.  This is because investors do not like uncertainty.  It is highly unlikely that Turkey will continue to up the pressure on Israel resulting in actual warfare.  Instead, Turkey is trying to position itself as the “go-to” nation for Muslim issues.  In my opinion, once Turkey feels that it has earned its street cred, it will dial back the pressure.  Medium-term, a stronger Turkey will probably serve to make the Middle East more stable as the balance of power becomes more balanced.  Put bluntly, a strong Turkey is a weakened Iran.  This should result in better financial markets performance vis-a-vis Middle Eastern entanglements.

Importance grade: 9; the international political arena is witnessing a gladiatorial contest between international powers Turkey and Israel.  This is unnerving.  However, my feeling is that the real story of the convoy incident is Turkey’s exertion of renewed confidence and power.  Long-term I feel this is a good thing.

Jason