Unlock Editor’s Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
Turkish exports to Russia collapsed at the start of 2024, suggesting that a U.S. crackdown on trade in goods used by Moscow in the war in Ukraine is beginning to pay off.
Exports from Turkey to Russia fell by a third to $2.1 billion in the first three months of this year compared to the same period in 2023, according to Financial Times calculations based on data from the Turkish Statistical Institute.
The decline came after the Biden administration issued an executive order in late December giving the Treasury Department the authority to impose secondary sanctions on banks if they do business with companies banned by the US because of their ties to Russia’s military-industrial complex subject to. The White House used the measure to stop trade in goods such as microchips that Russian President Vladimir Putin needs for his war against Ukraine.
Turkey is among countries that have seen a sharp increase in trade in these so-called high-priority battlefield goods since Russia launched its full-scale invasion in early 2022.
The US and its partners such as the EU have pressured governments such as Ankara to curb this trade. The executive order was seen as a way for Washington to directly pressure the private sector, as international banks rely heavily on their access to the American financial system.
The Kremlin complained about “unprecedented, open, aggressive pressure” from the US on banks in Turkey.
Similar problems have arisen in countries that have become conduits for rerouting trade to Russia, such as China and the United Arab Emirates, as well as in former Soviet states such as Armenia and Kazakhstan.
Kremlin spokesman Dmitry Peskov said earlier this month that Russia and Turkey “continually maintain working-level contacts on all financial issues and are looking for a way out of this situation.”
“It is obvious what the reason for these problems is. “It seriously harms the interests of Russian and Turkish economic actors,” Peskov said.
The sharp decline in exports from Turkey to Russia occurred from December 2023 to February 2024 before a slight recovery in March. Flows remain below March 2023 levels, a potential indication that Turkish banks are adjusting their sanctions compliance strategy.
Seasonal agricultural flows contributed to the overall decline, but most of the decline was due to a decline in exports of mechanical goods, vehicles and other export categories, which increased rapidly after Russia’s full-scale invasion of Ukraine.
Ukraine’s allies have identified certain “high priority” items that they are particularly concerned about entering the Russian defense sector – a list that includes ball bearings, lasers and computer equipment.
Turkish exports of the most sensitive of these items totaled $8.8 million in December, before falling to $2.2 million in February and recovering slightly to $5.2 million in March.
There was also a sharp decline in Chinese exports to Russia at the start of the year, where goods exports fell from $10.7 billion in December to $7.6 billion in March, according to Trade Data Monitor, a trade statistics platform. While interpreting this data is more complex due to the Lunar New Year holiday in February, the largest decline occurred in electronics and electrical machinery. There was also a significant decline in exports of mechanical engineering goods.
According to Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center in Berlin, Chinese banks are larger than Turkish ones and are less exposed to secondary sanctions, making them better able to withstand initial U.S. pressure.
Given Turkish banks’ familiarity with rerouting transactions through intermediaries, Russia is able to rebuild payment channels with Turkish banks much more quickly – taking into account the March surge, she added.
“These are all temporary solutions. “Russia has not found a systematic way out of the problem,” Prokopenko said.
The signs of a slowdown in Turkish-Russian trade also come amid an improvement in Ankara’s relations with Washington this year. President Recep Tayyip Erdoğan dropped his veto on Sweden joining NATO, while the US agreed to sell Turkey billions of dollars worth of F-16 fighter jets.
A visit by Putin to Turkey, originally planned before Russia’s presidential election in March, has been postponed. Peskov said last week that a date for the trip had not yet been set.
Turkey’s energy minister told the FT last week that Ankara was keen to “diversify” its energy supplies at a time when the country relies on Russian gas and oil to fuel its US$1 trillion economy to boost the dollar. Russia is also building and will operate Turkey’s first nuclear power plant.