Putin-Erdogan meeting could deepen economic ties despite war sanctions

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Russia is turning to Turkey and other potential new trading partners as it seeks to circumvent Western sanctions that have burrowed even deeper into its economy after its invasion of Ukraine.

Russian President Vladimir Putin is set to meet his Turkish counterpart, Recep Tayyip Erdogan, in Sochi on Friday, and the meeting – second of leaders In just two weeks – setting the alarm that the Kremlin could strengthen economic ties with a NATO nation that has not joined the imposition Moscow ban.

A Russian proposal stalled before the meeting indicated that Russia expects Turkey to agree to new channels to help it avoid those sanctions on its banking, energy and industrial sectors.

The proposal, which was shared with the Washington Post by Ukrainian intelligence this week, calls on Erdogan’s government to allow Russia to buy a stake in Turkish oil refineries, oil terminals and reservoirs – a move that economists say That may then help to hide the origin of its export. of the European Union oil embargo Totally kick off next year. Russia is also requesting that several state-owned Turkish banks allow correspondent accounts for Russia’s biggest banks, which economists and sanctions experts say would be a major breach of Western sanctions, and that Russian industrial producers Turkey will be allowed to operate outside free economic zones. ,

There is no indication that Turkey will support these arrangements as they would leave the country’s own banks and companies at risk of secondary sanctions and cut off their access to Western markets. Kremlin spokesman Dmitry Peskov did not respond to requests for comment. The Kremlin had earlier described the Putin-Erdogan meeting as focused on military-technical cooperation.

A senior Turkish official in response to questions about the Russian proposal did not address its details, but said the country was “committed to Ukraine’s independence and sovereignty.” He added that Turkey “as a principle … joins in specifically to sanctions imposed by the United Nations.”

The official, who spoke on condition of anonymity to discuss a sensitive diplomatic meeting, said Turkey is “the only NATO ally with which Ukraine and Russia both speak and trust. So no other country has two foreign ministers or official delegations.” Couldn’t bring it together.”

Western government officials, also speaking on condition of anonymity due to the sensitivity of the situation, told The Post that they were not aware of the intercepted proposal, but that they were aware of Russia’s war-related sanctions and their growing economic crisis. Looking for ways to prevent loss. Russian officials are traveling around the world trying to find people who would be willing to do business with their financial institutions, he said, noting that Turkey is among a bunch of jurisdictions that have enforcement. They have a loose relationship with respect to

The Russians faced the prospect of a Soviet-style reduction by sanctions bite

Western officials and economists say such proposals are a sign of growing governance concerns, with Russia cut off from much of the global economy. Putin scoffs at Western sanctions as a failure – a steady stream of revenue Energy sales have increased The Russian ruble and the country’s financial system – and the International Monetary Fund – have now projected Russia’s economy to shrink by only 6 percent this year.

But economists say the headline numbers mask a collapse in a large part of Russian manufacturing and what the banking sector calls a “zombie system” that has banned the withdrawal of hard-currency deposits. Although Russia has sought to divert trade flows through countries such as India and China, Western-imposed restrictions on imports of high-tech components have stalled some industries.

“The situation will get worse next year,” said Sergei Guriev, Professor of Science PO in France and former chief economist at the European Bank for Reconstruction and Development. “No one knows how things will work out when the European oil embargo is in place. We are in unknown territory.”

New figures released last week by Russia’s state statistics agency Rosstat show how hard some areas have been hit. Car production, the industry most dependent on foreign components, was down 89 percent year-on-year in June, while computer and semiconductor production was down 40 percent year-on-year and washing machine production was down nearly 59 percent.

“It is clear that things are getting harder and harder,” said Maxim Mironov, professor of finance at the IE Business School in Madrid. Announcement this week that one of the main auto plants of state-owned AvtoVAZ will reduce its workforce That indicated a lack of other options for the company and the government, he said. “Cutbacks are starting to happen and that can lead to social tension.”

Other high-tech sectors, such as pharmaceutical production, are also crumbling. A survey by Russia’s Central Bank last month found that 40 percent of drugmakers had failed to find replacements for imported materials and equipment. “Russia is trying to move pharmaceutical production onshore, but it clearly hasn’t been successful,” said Alina Ribakova, deputy chief economist at the Washington-based Institute of International Finance. “Sometimes the aggregate data doesn’t cover all the specifics,” she said, adding that aluminum producers are facing choke points on critical chemical supplies.

Sergei Aleksashenko, the former deputy chairman of the Central Bank, now in exile in the United States, said it was imperative for Russia to find alternative financial channels for its banks. “It’s a question of money,” he said, adding that Iran, with the help of Russia and Turkey, had previously managed to get around Western sanctions. “If you pay too much, few banks will be willing to take the risk.”

Historic sanctions on Russia had their roots in Zelensky’s emotional appeal

According to one well-connected, the Putin regime had previously hoped to circumvent existing sanctions by creating an alternative payment system through Chinese banks. Russian state officials, speaking on condition of anonymity for fear of reprisal. Yet Chinese banks shy away from playing that role because of the risk of secondary sanctions. And despite the country’s growing imports of Russian oil and gas, it can’t meet all of Russia’s equipment needs.

A study by the Green Finance and Development Center at Fudan University in Shanghai concluded that fears of sanctions prompted China to abandon new investments in Russia this year as part of its Belt and Road initiative. Western officials said it had become clear that China was not a sufficient channel for Russia to cushion the impact of the sanctions, forcing the Kremlin to look for other partners.

in Erdogan complicated relationship With Putin – marked by periods of conflict and cooperation – Russia had significant past advantage and showed its displeasure by cutting off tourist flows to Turkey or by imposing restrictions on imports of Turkish agricultural products. Since the start of the Ukrainian War, Turkey has positioned itself as a mediator between Moscow and Kyiv – a role that last month appeared to pay dividends Turkey and the United Nations made an agreement To resume grain shipments from blocked Ukrainian ports.

Erdogan seeks Putin’s approval for a planned Turkish military operation against Kurdish forces in northern Syria. Russia keeps troops in the region as part of its support for Syrian President Bashar al-Assad.

Retail supply chains are already being rebuilt in Russia with Turkish help, according to two Moscow businessmen. The owner of a major retail chain said that his outlets have completely reorganized supply through new centers in Turkey, Israel, China and Azerbaijan. Recent trade data from the Turkish Statistics Institute, Ankara’s statistics office, also known as Turkstat, shows that monthly Turkish exports to Russia increased by about $400 million between February and June.

But consumer goods aside, sanctions experts and Western officials suspect Turkey can become a hub for much-needed equipment supplies without facing the risk of crippling secondary sanctions. Those officials said the country now has to make a choice, knowing that doing any business with Russia affects its economy and financial sector and will make it difficult to do business with the rest of the world.

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