Russia/Turkey: Business (Almost) As Usual?

By Tim Marshall

For the first few hours after the shooting down of the Russian SU-24 by Turkey there was an outbreak of slightly breathless Russia/Turkey war talk. Given the tensions and Russian planefragility of the Syrian situation, this was to a degree understandable. Then most analysts chimed in with the myriad reasons why the two sides would not fight, not least of which was that neither side wanted to.

There followed a more sustained outbreak of talk of a trade war between them. Again this was understandable given the seriousness of what had happened. We are indeed likely to see some economic action from the Russian side, but in the medium term things should return to business as (almost) usual.

If the politicians can get the politics right, there won’t be a war, and once each side has finished growling at the other over this incident, the hard economics of their relationship should kick in but there is going to be an economic fallout.

The easier diplomatic and economic sanctions are already being enacted. Russia’s Defence Ministry has announced it has suspended cooperation with the Turkish military including as hot-line set up to share information about activity near the border. It has also deployed a cruiser to sit off the Mediterranean coast. The state tourism agency Rostourism has said ‘obviously’ it will halt cooperation with Turkey. Some tour operators have stopped selling holiday packages and the Government has advised holidaymakers from going to Turkey. This will dent Turkish revenues as more Russians visit Turkey than any other people except the Germans. Russian Prime Minister Medvedev has instructed his government to draw up a range of economic punishments. They may include restriction on food imports and even freezing some joint investment projects, a free trade zone idea is now on ice. Already the Russian food safety body has discovered an outbreak of listeria in some of the shipments of Turkish poultry and withdrawn an import license. But what has been withdrawn can be re-instated, and what has been frozen can be thawed.

A step up from the above would be tearing up a new wheat deal. Turkey is the largest buyer of Russian wheat. However, Turkey had a good harvest this year and alternative suppliers are available.

The biggest stick Russia has is energy, but if Moscow wields it, it will hit itself as well. Turkey is one of Russia’s largest energy customer. It imports 30% of its oil, and 55% of its natural gas from Russia. There is also the proposed TurkStream gas pipeline project which could be scrapped, and a $20 billion nuclear power plant Russia is building which could be halted, but here again Russia would also suffer.

Moscow has calmed fears on gas and oil supplies. Not only does it need the money Turkey pays, but the current supply route to Turkey also feeds Ukraine, Romania, and Bulgaria.

So the only really meaningful sanction threat are those over TurkStream and the nuclear power plant. You can’t rule out Russia pulling the plug, but it doesn’t make long term political or economic sense. Unlike the EU, the USA, and others, Turkey has not imposed sanctions on Russia over Ukraine, and Moscow would not want to push Ankara into that decision.

The Russian’s know that Turkey has not been the most reliable NATO state (as far as the other countries are concerned), and here again, they do not wish to push it closer to the Americans and Europeans.

The two countries, have clashed many times in the past 500 years, they may do again, but not this time, and even the economic ‘war’ is likely to be muted.

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