On Friday, Turkey announced diplomatic sanctions against Israel, including expulsion of the Israeli ambassador and downgrading relations to second-secretary level.Israel’s relations with Turkey have had ups and down in the past. In 1981, Turkey expelled the Israeli ambassador and all attaches. Relations were not restored for 11 years.That expulsion resulted in an absence of meaningful diplomatic relations, and economic ties, too, fell to a minimum.At this stage, there is no talk of damage to Israeli-Turkish economic ties, but threats about the severing of relations have been heard in the not-too-distant past. Turkey is Israel’s sixth-largest export destination.Despite the cooling of bilateral relations in the past few years, trade between the countries has not been affected.Israeli exports to Turkey totaled $950 million in the first half of 2011, 39 percent more than in the corresponding half of 2010, while imports from Turkey rose 16% to $1.1 billion.Israeli-Turkish trade should reach $4b. this year, amounting to 3% of Israel’s foreign trade. Exports include chemicals, refined oil products, machinery and agricultural inputs. The deterioration in diplomatic relations is liable to affect future trade and could result in nonpayment of $350m. of debts owed to Israeli exporters.Psagot Investment House Ltd. covers Bank Hapoalim, Oil Refineries Ltd. and Hadera Paper Ltd., which have business operations in Turkey.“Even in an extreme scenario of the cancellation of economic relations or the nationalization of assets, we do not expect significant damage to company values, because of the limited extent of their activities in Turkey as a proportion of their total activity,” Psagot said in a report.Bank Hapoalim operates in Turkey through BankPozitif. BankPozitif posted a net profit of $900,000 in the first half of 2011, compared with a net loss in the corresponding half of 2010. Its contribution to Bank Hapoalim, net of exchangerate differentials and Israeli taxes, was a loss of $7m. in the first half, down from $77m. in the corresponding half.Bank Hapoalim has invested NIS 636m. in BankPozitif. In the extreme scenario of nationalization of BankPozitif, the damage to Bank Hapoalim would amount to 3.3% of its market cap.After speaking with executives at Oil Refineries, Psagot estimates that the severing of economic ties with Turkey would cost the company a few million dollars a year. Turkey accounts for 7%-9% of the company’s turnover.Hadera Paper subsidiaries Hogla and Kimberly Clark Corporation (one of the world top-two manufacturers of disposable consumer products) jointly own Kimberly Clark Turkey (KCTR). KCTR, which does not yet have any profits, manufactures Huggies diapers and Kotex women’s hygiene products. KCTR is not branded as an Israeli company, and the Turkish public does not consider it as Israeli. Its employees are mostly Turks, so any deterioration in Israeli-Turkish relations should not affect the company.The holding in KCTR amounts to 4% of Hadera Paper’s market cap.Hadera Paper also exports packaging material to Turkey, which is one of the company’s four export markets.“Although we lack data about the company’s packaging material exports to Turkey, we believe that it amounts to just a few percent of the company’s total income,” Psagot said in a report.