Economic sanctions against Turkey will be dearly felt in Ankara, but will also resonate in Moscow. Not only established commercial ties will suffer a blow, but also all outstanding Russia-Turkey projects.
On 24 November, Russia suffered its first official military loss since the beginning of its campaign in Syria.
Turkey shot down a Russian Su-24 fighter jet, declaring that the warplane violated its airspace. As a result, one of the pilots and one crew member of a rescue helicopter sent to save the second pilot were shot dead by Turkmen rebel forces.
In Russia, the incident was interpreted as a groundless act of aggression.
Russian President Vladimir Putin had a quick and sharp response, referring to the Su-24 downing as a “stab in the back”, carried out by the “accomplices of terrorists” and warning of “serious consequences” that would follow.
Amid a major diplomatic spat, Russia terminated military cooperation with Turkey and announced economic sanctions.
Fyodor Lukyanov, a prominent Russian analyst, argues that the Kremlin could have interpreted the incident as a deliberate attempt to sabotage the creation of an international anti-terrorist coalition in Syria that would bring together Russia, France and the United States. Given that the response of Turkey’s President Recep Tayyip Erdogan is simultaneously defensive and ambivalent, tensions between Moscow and Ankara will endure.
Traditionally Ankara draws most of its profits from commercial ties with Moscow and tourism. The economic cost of the incident for Turkey will be defined by the extent to which Russia itself is willing to sustain financial losses in times of economic recession, as any economic sanctioning will inevitably affect both sides. As it stands, the rhetoric of the Kremlin is resolute and the retaliation will be dearly felt by Turkey.
What Hurts the Most: Moscow Uses Trade Against Turkey
Russia is Turkey’s second largest trading partner after Germany. As Moscow’s relations with Brussels and Washington soured amid the Ukrainian crisis and Russia was targeted by Western sanctions, Ankara was expected to step up as Moscow’s major trading partner. In fact, over the last year imports of Turkish meat grew tenfold, allowing Russia to hold prices in check.
Additionally, in October, before the Su-24 downing, Russia’s Minister of Economic Development Alexey Ulyukaev confirmed that a Russia-Turkey free trade of services and investment deal was in development and anticipated to be signed in 2016.
However, tensions between the two countries began escalating in the wake of Russia’s military involvement in Syria and hopes for further economic cooperation started to fade.
Erdogan, who sees no role for Bashar al-Assad in Syria’s future, believes that the sole purpose of Russia’s intervention it to keep the embattled leader in power. Ankara has accused Moscow of violating its airspace repeatedly prior to the Su-24 downing and warned of a potential loss of an ally.
Last Saturday, President Putin signed a decree targeting imports from Turkey, operations of Turkish companies in Russia and the employment rights of Turkish nationals working for Russian companies. Commercial turnover between Russia and Turkey stood at $18.1 bn in the first nine months of 2015 with agricultural products from Turkey being the largest export group accounting for $779.3 mn. Russian retail businesses already started to voluntarily turn down supplies from Turkey and a legal ban on imports from the country will soon come into force.
Turkish fruits and vegetables have a substantial share of the Russian market of around 25%. Ankara mainly supplies citrus fruits and tomatoes. Its tomato exports, for instance, satisfy 43% of the demand in Russia. The substitution of such significant import volumes in a short period of time is not an easy task. The measure could leave Turkish producers with a surplus that could cause a loss of $150 mn and push some businesses into bankruptcy, but at the same time Russians consumers will see price hikes as fruits and vegetables become scarce.
Heavy Measures in Tourism Sector
In 2014, Turkey was the most popular tourist destination among Russians. 3.3 mn Russians visited Turkey, which represents more that 18% of all travels abroad. It is estimated that they spent $1.7 bn in Turkey. There are currently 10-11,000 Russian nationals in Turkey and another 6,000 had to cancel their travel vouchers.
Firstly, the government ordered the suspension of all charter flights as soon as Russian citizens that are currently in Turkey return. Secondly, all major tourist agencies discontinued the distribution of tours to the country a day after the incident with the Russian warplane.
Finally, the visa-free regime with Turkey will be suspended on 1 January 2016.
Representatives of TUI, a tourist agency operating in Russia, say that they do not expect to suffer considerable losses as sales of Turkey travel packages are seasonal and during winter the demand on this destination is low.
However, Turkey was previously projected to replace Egypt as the destination closed for tourists after a Russian liner crashed in Sinai. In fact, the majority of Russians that had to opt for an alternative holiday after the catastrophe destination gave preference to Turkey. A loss of two low-cost destinations at a time can significantly undercut profits of travel agencies.
As the Russia-Turkey standoff is projected to persist in the long-term, the losses in the Russian tourism and leisure sector are likely to be felt with the commencement of the spring-summer season. Indeed, to draw profits, tourist agents need to start sales in February-March, which is inconceivable in the current geopolitical situation.
The financial solvency of Russian tourism businesses will be affected, particularly due to the fact that some companies disproportionately rely on sales of tours to Turkey. Hence, the retaliatory measures in tourism sector will hit Ankara by undercutting tax revenues, but will also resonate across Russia.
The Russian government is targeting Turkey’s most vulnerable sectors, which have significant impact on the Turkey’s economy and state budget. Although Ankara has already confirmed that it would not mirror measures proposed by the Kremlin, Russia’s economy will inevitably suffer a blow.
Not only existing commercial links are at stake, but also those projects that have not yet been realised, for instance the Turkish Stream, as Ankara and Moscow will remain unwilling to re-engage in the foreseeable future.