Russia and Turkey announced Friday that they will strengthen their economic cooperation, amid Western fears that Moscow is seeking new avenues to circumvent sanctions imposed for its invasion of Ukraine.
The statement did not mention the bilateral trade and economic pact that Putin had called for beforehand. Kremlin spokesman Dmitry Peskov did not respond to questions Friday evening about whether a deal had been signed.
Concerns are increasing in both the West and Ukraine that Moscow is seeking Erdogan’s assistance to bypass restrictions on its banking, energy and industrial sectors, which are biting deeper into its economy. Though a NATO nation, Turkey has not joined other member states in levying the sanctions.
A Russian proposal intercepted ahead of the meeting and shared with The Washington Post by Ukrainian intelligence called for Erdogan’s government to permit Russia to buy stakes in Turkish oil refineries, terminals and reservoirs — a move that economists say could help disguise the origin of its exports after the European Union’s oil embargo kicks in fully next year. Russia also requested that several state-owned Turkish banks allow correspondent accounts for Russia’s biggest banks — which economists and sanctions experts say would be a flagrant breach of Western sanctions — and that Russian industrial producers be allowed to operate out of free economic zones in Turkey.
There was no indication after the talks that Turkey had agreed to such arrangements, which would leave the country’s own banks and companies at risk of secondary sanctions and cut off their access to Western markets. Alexander Novak, Russia’s deputy prime minister, said the two countries had reached new agreements in the financial and banking sphere but did not give specifics.
A senior Turkish official, who spoke on the condition of anonymity to discuss a sensitive diplomatic meeting, said Friday morning that the country remains “committed to Ukraine’s independence and sovereignty.” He added that Turkey “as a matter of principle … exclusively joins sanctions that are imposed by the United Nations.”
Western government officials, also speaking on the condition of anonymity because of the sensitivity of the situation, told The Post that they were not aware of the intercepted proposal but said they fear Russia is seeking ways to circumvent the war-related sanctions and their growing economic damage. Russian officials are traveling the world trying to find people who would be willing to do business with their financial institutions, they said, noting that Turkey is among a group of jurisdictions being approached because of their lax regard to enforcement.
With Russia cut off from much of the global economy, such overtures are a sign of the regime’s increasing worries, those Western officials and economists say. Putin has derided Western sanctions as a failure — a steady stream of revenue from energy sales has propped up the Russian ruble and the country’s financial system — and the International Monetary Fund now forecasts Russia’s economy to fall only 6 percent this year.
But economists say headline numbers mask a collapse across a large swath of Russian manufacturing, and they call the banking sector a “zombie system,” with the withdrawal of hard-currency deposits banned. Though Russia has sought to divert trade flows through countries like India and China, the Western-imposed block on imports of high-tech components has brought some industries to a standstill.
“The situation will be darker next year,” said Sergei Guriev, professor at France’s Sciences Po and former chief economist at the European Bank for Reconstruction and Development. “No one knows how things are going to function when the European oil embargo kicks in. We’re in unchartered territory.”
New figures released last week by Russia’s state statistics agency, Rosstat, show how hard some sectors have been hit. Car production, 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 and that of washing machines nearly 59 percent lower.
“It’s clear things are going to get tougher and tougher,” said Maxim Mironov, professor of finance at the IE Business School in Madrid. The announcement this week that one of the main auto plants of state-owned AvtoVAZ would reduce its workforce signals a lack of other options for the company — and the government, he noted. “Cutbacks are beginning and it could lead to social tension.”
Sergei Aleksashenko, a former deputy Central Bank chairman now in exile in the United States, said it’s imperative for Russia to find alternate financial channels for its banks. “It is a question of money,” he said, pointing out that Iran, with help from Russia and Turkey, had previously managed to get around Western sanctions. “If you pay a lot, there will be some banks ready to take the risk.”
The Putin regime had previously hoped to bypass the sanctions by creating alternate payment systems through Chinese banks, according to a well-connected Russian state official, speaking on the condition of anonymity because of fear of retribution. Yet Chinese banks have balked at taking on that role because of the risk of secondary sanctions. And despite the country’s increasing imports of Russian oil and gas, it cannot fill all of Russia’s equipment needs.
The Western officials said it had become obvious that China was not an adequate channel for Russia to mitigate the impact of sanctions, forcing the Kremlin to desperately look for other partners.
In Erdogan’s complicated relationship with Putin — marked by periods of conflict and cooperation — Russia had significant past leverage and showed its displeasure by cutting off the flow of tourists to Turkey or banning the import of Turkish agricultural products. Since the start of the Ukraine war, Turkey has positioned itself as a mediator between Moscow and Kyiv — a role that appeared to pay dividends last month when Turkey and the United Nations brokered an agreement to resume grain shipments from blockaded Ukrainian ports. Putin thanked Erdogan on Friday for his role in orchestrating that.
Erdogan wants Putin’s acquiescence for a planned Turkish military operation against Kurdish forces in northern Syria. Russia maintains troops in the area as part of its support for Syrian President Bashar al-Assad. It was unclear whether any progress was made on the issue during the leaders’ latest meeting.
According to two Moscow businessmen, retail supply chains are already being rebuilt in Russia with Turkey’s help. The owner of a major retail chain said his outlets had completely reorganized supplies through new hubs in Turkey, Israel, China and Azerbaijan. Monthly Turkish exports to Russia surged by about $400 million between February and June, recent data from the Turkish Statistical Institute shows.
But consumer goods aside, sanctions experts and Western officials doubt Turkey could become a hub for vitally needed equipment supplies without facing the risk of crippling secondary sanctions. Those officials said the country has to make a choice, knowing that any business it does with Russia risks casting a pall over its economy and financial sector and will make it harder to do business with the rest of the world.