Putin-Erdogan meeting may deepen economic ties despite war sanctions

Suspension

Russia is turning to Turkey and other potential new trading partners as it tries to circumvent Western sanctions that have begun to deepen its economy after its invasion of Ukraine.

Russian President Vladimir Putin is scheduled to meet his Turkish counterpart Recep Tayyip Erdogan in Sochi on Friday, and meet – second commander In just over two weeks – it raises alarms that the Kremlin could boost economic ties with a NATO country that has not joined the imposition Sanctions on Moscow.

A Russian proposal intercepted before the meeting indicates that Russia hopes Turkey will agree to new channels to help it avoid such restrictions on the banking, energy and industrial sectors.

The proposal, seen by Ukrainian intelligence this week, calls on Erdogan’s government to allow Russia to buy stakes in Turkish oil refineries, oil terminals and tanks — a move economists say could help mask the source of its post-EU exports. oil embargo It starts next year fully. Russia is also demanding that several Turkish state-owned banks allow correspondent accounts of Russia’s largest banks, which economists and sanctions experts say would be a flagrant violation of Western sanctions, and that Russian industrial producers be allowed to operate outside Turkey’s free economic zones. .

There is no indication that Turkey will support these arrangements because it would leave the country’s 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 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 go into its details but said the country remains “committed to Ukraine’s independence and sovereignty”. He added that Turkey “in principle … adheres exclusively to the sanctions imposed by the United Nations.”

The official, who spoke on condition of anonymity to discuss a sensitive diplomatic meeting, noted that Turkey is “the only NATO ally that Ukraine and Russia both talk to and trust. This is why no other country has been able to bring together the two foreign ministers or delegations.” Officials.

Western government officials, who also spoke on condition of anonymity due to the sensitivity of the situation, told The Post they were unaware of the intercepted proposal but knew Russia was looking for ways to circumvent war-related sanctions and mounting economic damage. They said Russian officials are traveling around the world trying to find people willing to do business with their financial institutions, noting that Turkey is among a handful of jurisdictions being contacted due to its lax enforcement.

Russians face the possibility of a Soviet-style shortage due to sanctions

With Russia isolated from much of the global economy, such initiatives are a sign of the regime’s growing fears, these Western officials and economists say. Putin has ridiculed Western sanctions as a failure – a steady stream of revenue from Energy sales supported The Russian ruble and the country’s financial system – The International Monetary Fund now predicts that the Russian economy will decline by only 6% this year.

But economists say the headlines are masking a collapse across a large swath of Russian manufacturing and calling the banking sector a “zombie system,” with hard currency deposit withdrawals banned. Although Russia has sought to divert trade flows through countries such as India and China, the West’s ban on imports of high-tech components has brought some industries to a halt.

“The situation will be much bleaker next year,” said Sergei Guryev, a professor at the French Institute of Political Studies and former chief economist at the European Bank for Reconstruction and Development. “No one knows how things will turn out when the European oil embargo begins. We are in uncharted territory.”

New figures released last week by Russia’s state statistics agency Rosstat show the extent of the damage to some sectors. Production of automobiles, the industry most dependent on foreign components, was down 89 percent in June year-on-year, while production of computers and semiconductors was down 40 percent year-on-year, while production of washing machines was down nearly 59 percent.

“It is clear that things are going to get tougher and tougher,” said Maxim Mironov, professor of finance at IE Business School in Madrid. The announcement this week that one of the major auto plants of state-owned AvtoVAZ will reduce its workforce He noted the lack of other options for the company – and the government. “The cuts have begun and could lead to social tension.”

Other high-tech sectors such as pharmaceutical production are also floundering. A survey conducted by the Russian Central Bank last month found that 40 percent of drug producers failed to find alternatives to imports of components and equipment. “Russia has been trying to make the drugs on land, but it clearly hasn’t worked,” said Elena Rybakova, deputy chief economist at the Washington-based Institute of International Finance. “Sometimes the aggregate data doesn’t cover all the nuances,” she said, as aluminum producers face bottlenecks over biochemical supplies.

It is necessary for Russia to find alternative financial channels for its banks, said Sergei Aleksachenko, a former deputy head of the Central Bank and now residing in exile in the United States. “It’s a matter of money,” he said, noting that Iran, with the help of Russia and Turkey, had previously managed to get around Western sanctions. “If you pay too much, there will be some banks willing to take the risk.”

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The Putin regime had previously hoped to bypass current sanctions by creating alternative payment systems through Chinese banks, according to well-connected sources. A Russian government official spoke on condition of anonymity for fear of reprisals. However, Chinese banks have refrained from taking on this role due to the risk of secondary penalties. And despite the country’s increasing imports of Russian oil and gas, it cannot replace all of Russia’s equipment needs.

A study by the Center for Green Finance and Development at Fudan University in Shanghai concluded that sanctions fears have prompted China to abandon new investment in Russia this year as part of the Belt and Road Initiative. Western officials said it became clear that China was not an appropriate channel for Russia to mitigate the impact of sanctions, forcing the Kremlin to search desperately for other partners.

in Erdogan Complicated Relationship With Putin – marked by periods of conflict and cooperation – Russia has had significant influence in the past and demonstrated its displeasure by cutting off the flow of tourists to Turkey or banning the import of Turkish agricultural products. Since the beginning of the Ukrainian war, Turkey has positioned itself as a mediator between Moscow and Kiev – a role that seemed to be paying off last month when Turkey and the United Nations brokered an agreement Grain shipments resumed from the blockaded Ukrainian ports.

Erdogan wants Putin to acquiesce in a planned Turkish military operation against Kurdish forces in northern Syria. Russia maintains troops in the region as part of its support for Syrian President Bashar al-Assad.

According to two Moscow businessmen, retail supply chains are already being reconstructed in Russia with the help of Turkey. The owner of a major retail chain said its outlets have completely reorganized supplies with new centers in Turkey, Israel, China and Azerbaijan. Recent trade data from the Turkish Statistical Institute, the Turkish Statistical Office also known as Turkstat, shows that monthly Turkish exports to Russia rose by nearly $400 million between February and June.

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

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