Turkey becoming captive to Russia as Western sanctions loom
Turkey is still struggling through an economic downturn which the government’s foreign policy could make worse by risking sanctions from the West while making the country extremely reliant on Russia.
Repeating a call he made when Turkey was in the depths of a currency crisis sparked by limited U.S. sanctions last year, President Recep Tayyip Erdoğan told citizens this week to deal in the Turkish lira and not foreign currencies – a sure sign of economic trouble ahead.
When the currency crisis hit after Washington sanctioned Turkish ministers over the imprisonment of a U.S. pastor in August 2018, Erdoğan described support for the lira as a national duty. Yet central bank figures announced on Nov. 15 show that foreign currency savings in Turkey had increased by $36 billion to $225.5 billion in the past year.
Despite the ongoing economic worries, Turkey risked further U.S. sanctions this week by testing its S-400 missile defence systems, which were purchased from Russia in defiance of Washington.
The Ankara Governorate announced that F-16 fighter jets from the Turkish air force would fly over the capital for two days to test the Russian systems, which have been deployed to an air base near the city. This rubbished previous claims that Turkey would avoid sanctions from the United States by leaving the S-400s inactive.
U.S. and NATO officials say the presence of the Russian systems on NATO-allied territory could leave the alliance’s military hardware open to subterfuge, but Foreign Minister Mevlüt Çavuşoğlu confirmed that the tests had been conducted on the F-16s.
Moreover, he said, there was no way Turkey would leave the S-400s in storage since its NATO allies had failed to provide it with the air defence systems it sorely needed.
The missiles are likely to become fully operational next spring, according to the timeline previously discussed by Turkish officials. The head of Russia’s state arms exporter Rosoboronexport said this month that negotiations were nearly complete for Turkey to buy a second consignment of the S-400s around the time that the first systems go online.
The estimated $4 billion deal to buy more S-400s could also pave the way for Turkey to buy Russian Su-35 fighter jets to fill its need for new-generation aircraft. The United States suspended Turkey from the F-35 fighter jet production programme after it received the S-400s in July and has withheld Ankara’s order for 100 of the jets.
Meanwhile, the economic ties binding Ankara to Moscow continue to grow tighter. Turkey’s tourism sector is buoyed by the 6 million Russian tourists who flock to the country each year and it exports large amounts of agricultural products to Russia, where Turkish contractors have signed up for construction projects worth billions.
These bonds are just as tight from a strategic perspective, since Turkey relies on Russian gas to meet its energy needs, and a Russian company is contracted to build and operate Turkey’s first nuclear power plant. The new defence deals only deepen this dependence.
Ankara has discussed its aim of increasing trade volume with both the United States and Russia to $100 billion. Yet in Russia’s case, this could work against Turkey’s interests: In 2018, the share of Turkish exports in the $25.5 billion trade volume with Russia came to just $4.2 billion, with Russia making $21.3 billion.
Turkey’s main opposition Republican People’s Party (CHP) drew attention to the country’s growing financial and energy dependence on Russia in a report it presented to parliament during discussions on the 2020 budget, stating that this could lead to grave dangers in the years to come. Of particular concern for the CHP was the deal with Russia’s state nuclear energy corporation Rosatom to build the nuclear plant in Akkuyu, southern Turkey.
When the deal was signed in 2010, it stipulated that the Russian side would secure financing and investment for the plant. But in 2015, the Turkish military shot down a Russian fighter jet that had strayed across its border, sparking a diplomatic crisis between the countries. Moscow imposed sanctions on Turkey that reduced the flow of tourists to the country, restricted imports and placed limits on Turkish companies doing business in Russia.
The price Erdoğan paid to repair relations included “super incentives” for the Akkuyu project, granting Rosatom a wide range of subsidies including tax, VAT and licencing exemptions. The president also agreed to provide $10 billion of investment in the project from the treasury.
As part of the agreement, Turkey has also guaranteed a price per kilowatt hour of power produced at the plant for the next 15 years. And, the CHP’s report says, the agreement also states that the nuclear plant and the energy it produces belong to Russia, that Rosatom’s share in it will not fall below 51 percent, and that Turkey will buy all of the energy it produces.
Since the plant is due to go into commission in 2023, these terms will be in force until 2038.
The CHP’s report says that, with the kilowatt hour price guaranteed at $0.1235 kWh and the plant expected to produce an annual 19 billion kilowatt hours, Russia stands to treble its initial investment.
This means Turkey will be paying the Russian state-owned company over $2.3 billion for the energy produced at the plant per year, and more that $35 billion over the 15-year period.
At this rate, the CHP says, Turkey will be vastly overpaying for the energy from Rosatom’s plant, since the kilowatt hour price set by Turkey’s Energy Market Regulation Authority is just $0.029. At that rate, the price of energy from the nuclear plant would come to just $551 million per year, nearly $1.8 billion less than the Turkish government has agreed to pay Rosatom.
That amounts to neary $27 billion above the market price over 15 years – an amount that even inflation and favourable changes in currency markets will not mitigate. And on top of that is the $10 billion contribution to the project, plus other subsidies and exemptions offered as super incentives.
In other words, the data presented in the CHP’s report marks out the Akkuyu plant as a $37 billion bung to Russia, paid at an extremely heavy cost to the Turkish economy. Energy and Natural Resources Minister Fatih Dönmez has not responded to the CHP’s findings or to questions raised by the party’s members of parliament.
It is clear, though, that with Turkey’s economic and strategic dependence on Russia deepening, any future disagreement that draws sanctions will be even more damaging.