Russia-Ukraine war: How will it affect Turkey’s economy?

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The Russia-Ukraine crisis has turned into a de facto war since yesterday (February 24). The war is not only between Ukraine and Russia, but the Western countries are indirectly involved in it, too.

Almost all countries are now unveiling sanctions against Russia one after the other. It will surely have some political and economic consequences.

As for Turkey, it is one of the countries which will be affected by this de facto war the most. The policy to be followed by Turkey will affect several economic fields from tourism to trade, industry to agriculture.

CLICK - 'Turkey will lose, too': What does Russia-Ukraine crisis mean for Turkey's economy?

According to the Turkish Statistical Institute (TurkStat), Turkey's annual foreign trade volume with Russia is 34.7 billion US dollars (USD). Its annual trade volume with Ukraine stands at 7.4 billion USD. Taken together, the total trade volume of the two countries is 42.1 billion USD.

Russia is one of the leading import and export partners of Turkey.

While citrus fruits, fresh grapes and tomatoes, so fresh fruits and vegetables, machines, land vehicles and their equipment, garments and their accessories are the major export goods from Turkey to Russia, Turkey mostly imports oil, natural gas, hard coal, iron-steel products, unprocessed aluminum and various agricultural products from the country.

The most profound effect may be on agriculture

As a matter of fact, Turkey is the largest importer of agricultural products from Russia. Turkey's total import of agricultural products from Russia stood at 4.3 billion USD. As for the agricultural product imported from Russia the most, it is wheat. In 2021, Turkey imported 6.7 million tons of wheat for 1.8 billion USD. However, Russia is not the only country. Ukraine ranks second.

According to the data of the Trade Ministry, 64.6 percent of Turkey's wheat import is from Russia while 13.4 percent is from Ukraine.

So, if the war between the two countries has a negative effect on imports, food prices, especially that of bread, will be affected negatively.

Moreover, Turkey also ranks first in imports of sunflower oil from Russia and Ukraine. The country imports 65.5 percent of sunflowers from Russia while it imports 4.2 percent from Ukraine.

Turkey dependent on Russia for energy

Turkey imports most of its energy from Russia. It gets warm, produces electricity and keeps its industry going with the natural gas from Russia.

Data show that Turkey consumed 48.1 billion cubic meters of natural gas in 2021. 33.6 percent of this gas was coming from Russia.

While Turkey receives 24 percent of its natural gas from Azerbaijan, the share of its eastern neighbor Iran is 11.1 percent. The country also receives Liquefied Natural Gas (LNG) from Nigeria and Algeria.

Turkey has two deals with Russia regarding natural gas from the years 1997 and 1998. One of the deals will remain in effect until 2025. However, the other one expired by the end of 2021, so, last year.

Though Turkey's Energy and Natural Resources Minister Fatih Dönmez announced in November that they agreed with Russia on a new deal in principle, no official statement was made about an agreement.

During the crisis that broke out after Turkey shot down a plane of Russia in 2015, the country did not cut natural gas flow to Turkey but it is not certain how things will turn out during the invasion of Ukraine.

To make matters worse, the current crisis has been further increasing natural gas prices, which were already very high.

Besides, the conflict affects oil prices, too. A barrel of oil now costs more then 100 USD, which marks the highest figure since 2014. Given that Turkey is completely foreign dependent for oil, it will get the same oil by paying more, which will lead to an increase in its current deficit.

A season without tourists?

The year 2021 was an indicator that the tourism sector would recover after the novel coronavirus (COVID-19) outbreak. Nearly 30 million tourists came to Turkey last year, which meant 24.5 billion USD revenue.

While 4 million 656 thousand tourists were from Russia, 2 million 55 thousand were from Ukraine. They are two countries from which Turkey receives the most tourists. The total number of tourists coming from Russia and Ukraine accounts for 23 percent of total number of tourists.

In other words, Turkey is one of the most attractive tourist destinations for the citizens of both Russia and Ukraine.

Turkey was expecting 35 million tourists and a total revenue of 35 billion USD in 2022. The invasion, war economy and sanctions will surely have an effect on the number of tourists to come to Turkey as well.

Hotels, shop owners in tourist destinations and employees are the ones who will be effected by the ensuing crisis the most. Moreover, considering that tourism has a significant impact on narrowing the current deficit of Turkey, this may also trigger a new crisis.

What about drone engines?

Turkey uses the AI-322F engines produced by Ukraine's Ivchenko Progress and Motor Sich for its armed and uncrewed aerial vehicles (UAV).

As of Turkey, there are 13 countries which have been purchasing armed drones produced by Turkey. The total amount of Turkey's imports in the fields of defense and aviation was 2.74 billion USD in 2019.

When the sectoral distribution is considered, the defense industry has a major share in Turkey's exports to Ukraine. The armed and uncrewed drones make a significant contribution to this. An interruption in the delivery of engines from Ukraine may cause a crisis in the defense industry.

Industry sector

One of the leading fields of investment between Turkey and Russia is the construction sector. The new business volume of Turkey's contractors stands at 29.3 billion US with 384 projects in 67 countries.

The highest number of projects are in Russia. Only in 2021, contractors from Turkey had a business volume of 11.2 billion USD in Russia, accounting for 38 percent of the sector's total business volume.

This number was 1.6 billion USD for Ukraine. The number of projects undertaken by contractors in Ukraine was increasing day by day.

Sanctions and the policy to be pursued by Turkey at this point will surely affect the construction sector as well.

Moreover, Russia's state-owned company Atomstroyexport has undertaken the construction of Turkey's Akkuyu Nuclear Power Plant. While the tender of the project has been given to Russia without charge, its cost is expected to top 20 billion USD. (HA/SD)