Turkey, Russia close economic ties may face strain

by Andrew Jay Rosenbaum

ANKARA

The downing of a Russian fighter by Turkey on Tuesday could strain close economic ties between the two countries.

When Russia first violated Turkish airspace in early October, Turkish President Recep Tayyip Erdogan warned that Russian incursions into Turkish airspace could cost Moscow its massive gas export and nuclear construction contracts. "We are Russia's number one natural gas consumer. Losing Turkey would be a serious loss for Russia. If necessary, Turkey can get its natural gas from many different places," Erdogan said.

Other areas of Turkish-Russian trade could be affected as well. Russia is Turkey’s second-largest trading partner, with more than $32.7 billion annually, according to Russian government statistics. Russia takes in 4.3 percent of Turkey’s exports, at a value of $7.1 billion.

Tourism, the food industry, construction, and foreign direct investment could all suffer if Turkish-Russian trade should be put under constraints.

On Wednesday, lawmakers from both houses of the Russian parliament sent an official request to Russia’s aviation watchdog Rosaviatsia to shut down all air traffic with Turkey.

Turkish Airlines is the largest foreign air carrier serving Russia, carrying close to 1 million passengers to and from that destination, according to the company’s statistics.

Russian Foreign Minister Sergei Lavrov on Tuesday advised Russians not to visit Turkey, saying that threat of terrorism there is just as great as that of Egypt, where a bomb attack brought down a Russian passenger plane last month.

Russia's tourism agency also recommended the suspension of package holiday sales to Turkey. Russia is the source of the second-largest number of tourist arrivals after Germany, according to Turkish government statistics, with about 4.4 million Russians arriving in the country in 2014.

Turkey is also one of the most important suppliers of food and agricultural produce to Russia, at a value of $1.68 billion in trade last year.

When Western powers imposed sanctions on Russia for its actions in Ukraine in 2014, Russia retaliated with restrictions on food imports from the EU and other western countries in August. The restrictions created big opportunities for Turkey and Latin American nations like Brazil, which increased food imports to Russia.

Turkey is one of the largest purchasers of Russian wheat. The country bought 4.1 million tonnes of Russian wheat in the period from June 2014 to June 2015.

The Russian market also accounted for 16.9 percent of international contracting projects by Turkish firms in 2014, according to statistics from the Turkish central bank.

And, nearly 10 percent of total foreign direct investment in Turkey came from Russia last year, according to the central bank.

But energy is the most important area of exchange between the two countries.

“Turkey buys close to 30 billion cubic meters (bcm) of gas from Russia each year, and this year Gazprom can expect to secure around $9 billion from its sales to Turkey,”John Roberts, chief analyst at Natural Gas Europe, said in a note published on Wednesday.

Russia’s Rosatom has already spent some $3 billion on developing the $22 billion Akkuyu nuclear energy project, Roberts said, which Russia is financing.

State-owned Rosatom has contracted to build a total of four 1,200-megawatt reactors in Turkey.

Another major joint project is the development of a new gas pipeline to Turkey, the planned Turkish Stream project which is to bring in 31.5 bcm per year.

For now, there has been no immediate official change in economic relations between the two countries.