Turkey Offers Dilemma on Russia Sanctions --- As inflation and other troubles vex nation, a key trading partner emerges

"Sanctions and other trade restrictions are very tough to enforce alone, even for a country as large as the U.S. A certain amount of badgering of friends and allies -- along with veiled threats and inducements -- comes with the territory.

But the case of Turkey is particularly confounding. Turkey is a NATO ally, has supplied Ukraine with drones that made a crucial difference early in the war and helped broker the pact with Russia that keeps Ukrainian grain flowing to the world. But it has emerged as a key transit point for semiconductors and other potentially dual-use electrical equipment into Russia, a destination for Russian tourists and for Russian airlines flying U.S.-made airplanes to transit. Turkey also is a key buyer of Russian energy -- all while holding up Sweden's and Finland's accession to the alliance.

It is a country in deep economic crisis, recovering from a devastating earthquake. Its trade with Russia has become an economic lifeline.

All of this makes any serious effort to pressure the country into taking a stronger stance against Russia highly fraught. That probably means many high-tech goods and other key equipment will continue to flow through it into Russia. A new administration after May's election might change that calculus, but probably only if the West and its allies are willing to step in with financial assistance to offset the advantages of the country's relationship with Russia.

The cornerstone of that relationship, unsurprisingly, is energy. In large part due to the Erdogan administration's insistence on a highly unconventional monetary policy, Turkish inflation was sitting at 36% in December 2021. The run-up in oil prices and trade disruptions at the beginning of the war then supercharged it: The Turkish lira dropped sharply again, and inflation increased as high as 85%.

As bad as that is, the situation would probably have been significantly worse without the subsidy from Russian oil imported at a hefty discount to the global benchmark of Brent crude: around $20 a barrel for much of 2022. In 2021, 28% of Turkey's import bill for mineral fuels and oils, a trade category that includes crude oil, came from Russia, according to United Nations data. In 2022, 43% did -- and nearly 60% of the net increase in spending went to Russia. Meanwhile, transport, electricity and fuel directly account for close to one-quarter of Turkey's consumer-price basket.

The impact of rising exports to Russia was less dramatic, but still important in the context of a trade deficit that blew out from about $4 billion a month in mid-2021 to roughly twice that by the last quarter of 2022, and a run on the currency that forced Ankara to guarantee many lira-denominated deposits against currency depreciation. Turkey's overall exports managed to rise 13% last year, according to figures from data provider CEIC, but exports excluding Russia rose 11%. Exports to Russia rose 62%.

With oil prices down in early 2023, Turkish inflation is down marginally, too: It was 55% in February. But the country faces slowing growth -- 3.5% year over year in the fourth quarter, down from 9.6% a year earlier -- and the costly earthquake aftermath.

To be sure, the Erdogan administration's unconventional monetary policy -- cutting rates amid rising inflation -- and other missteps bear much responsibility for Turkey's troubles. But the nation's emergence as a vital trading partner for Russia highlights one of the harsh realities of sanctions: Tough enforcement always entails significant political and economic costs, and sometimes in places suffering substantial natural or man-made misfortune." [1]

 

 This is a lesson for Lithuania: it is possible to be part of NATO and trade profitably with Russia, taking advantage of the fact that we live in Russia's neighborhood. In the matter of morality, we must constantly remember Jesus, our Lord: let him who is without sin cast the first stone.

 

1. Turkey Offers Dilemma on Russia Sanctions --- As inflation and other troubles vex nation, a key trading partner emerges
Taplin, Nathaniel.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 31 Mar 2023: B.12.