An Expensive Fight for Russia and Turkey
WASHINGTON—It was “a stab in the back,” Russian President Vladimir Putin declared. Turkey’s shooting down of the Russian jet over Turkish airspace in late November sparked angry denunciations from Moscow. But rather than “stab in the back,” the more relevant bodily metaphor is “shot in the foot.” For both Russia and Turkey, the spat over the downed plane — and about Syria more generally — is imposing painful economic costs.
Russia’s trade sanctions on Turkey, which were announced after the bomber was shot down, formally took force on January 1. They target several sectors of the Turkish economy, banning Russian firms from organizing package tours to Turkey, restricting the operation of Turkish construction companies in Russia, and prohibiting the import of most food products. On top of that, Russia canceled the Turk Stream project, a pipeline that was intended to ship gas from Russia via Turkey to European markets.
These sanctions will inflict serious damage on Turkey’s economy. Russians were the second largest group of tourists to Turkey in 2015, behind only Germans. Turkey’s construction firms built roads and skyscrapers across Russia, from Moscow to Magadan. And with the cancellation of Turk Stream, Turkey may lose valuable gas transit fees. All told, exports to Russia, which made up 4.3 percent of Turkish exports in 2015, will fall significantly. Estimates suggest that sanctions will shave 0.5 percent off Turkey’s GDP in 2016 — and will hit the politically influential construction sector especially hard.
A strong point for Russian foreign policy? Hardly. The reality is that the Kremlin’s sanctions hurt Russians as much as Turks. Russians will find other locations for beach holidays. But there are few places so warm, cheap, or safe, with visits to Egypt falling after the bombing of a Russian airliner there in October. Same too with food products. Russia used to import over half its lemons from Turkey, but Russians will need to buy from a new country. The new source of citrus will charge more than Turkey did. Some are pleased that sanctions will push Russian tourists to holiday in Crimea, but even that will be more expensive than Turkey.
Whatever benefits accrue to Crimean resorts, this is hardly a good time to be hiking prices in Russia. The collapse in the ruble, dragged down by low oil prices, pushed up prices by 12.9 percent in 2015. Because average Russian wages have been flat, the purchasing power of Russian wages has declined by about 10 percent over the past 18 months. By increasing prices on everything from tangerines to tourism, however, the Kremlin’s sanctions on Turkey will push up inflation — and push down real wages — in 2016, too. Russia’s central bank was forecasting inflation as low as 7 percent in 2016; that now looks unlikely.
So far Russians have stoically put up with the economic pain, reckoning that the government is not to be blamed for uncontrollable movements in global oil prices. Unlike the oil price, however, the spat with Turkey was avoidable. Why, many in Russia’s business class are asking, were Russian planes flying through Turkish airspace to begin with? And once the plane was shot down, surely the Kremlin could have found a less costly means of signaling its unhappiness with the Turks?
In Turkey, too, the conflict with Russia has reinforced already widespread doubts about the country’s policy in Syria. The government’s desire to assert sovereignty in the country’s skies is understandable, particularly given that Russia repeatedly violated Turkish airspace. But the opposition argues that the government has invited the conflict via its deep, and risky, engagement in Syria’s civil war.
Turks and Russians will pay dearly for the sanctions. Will the economic cost eventually lead Ankara and Moscow to back down? Probably not. For both countries’ leaders, Syria is about aims more important than beach holidays and citrus fruit. Turkey’s government believes its own fate depends on how the war in Syria is resolved, and fears the Kremlin’s aims. Russia, too, is willing to sacrifice to achieve its aims in Syria. The Kremlin has imposed sanctions on many of its major trade partners in recent years, banning European foodstuffs, Moldovan wine, and Ukrainian chocolate — despite little evidence that the prohibitions actually achieve the Kremlin’s goals. But the geopolitical stakes are high, and the losers from economic sanctions are mostly weak and disorganized. So the Turkish-Russian trade war is likely to continue.
The views expressed in GMF publications and commentary are the views of the author alone.