Turkey’s Trade Boom With Russia Stalls Under Weight of Sanctions

(Bloomberg) -- Turkey’s trade with Russia is stuttering because of Western sanctions, hitting a key supply line for Moscow and one the US and European Union say fuels its war in Ukraine.

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Machinery exporters, who benefited most from Turkey’s surging shipments to Russia in 2023, could see sales there fall by $1 billion this year due to “ambiguous” and “rapidly expanding” sanctions lists and a crackdown on items with potential military uses, said Kutlu Karavelioglu, chairman of the 22,000-member Machinery Exporters’ Association.

That’s a third of last year’s sales to Russia, he said by email, adding that machine tools, pumps and electric motors have seen some of the biggest drops so far.

“It doesn’t seem possible for any serious corporate machinery manufacturer to sustain its previous interest in Russia in the face of increasing pressure on the banking system and supply chains,” he said.

It’s bad news for Turkish companies – and the government’s attempt to lower the current-account deficit. But it indicates US and EU sanctions on Russia are increasingly effective, even in foreign jurisdictions like Turkey, a NATO member that’s tried to maintain economic ties with Moscow despite the war.

Preliminary data published on Thursday from Turkey’s Trade Ministry said exports to Russia fell 33.7% in the first quarter from a year earlier.

Read More: How Sanctions Have Stressed Russia’s Economy, Ruble: QuickTake

Increased Scrutiny

Turkey-Russia trade soared after the invasion of Ukraine in February 2022. That drew criticism and later sanctions from the US and EU as they sought to stop flows of products such as industrial machinery and spare parts that they said could help the Russian military.

The EU says Turkey, the United Arab Emirates and China are among countries circumventing the bloc’s restrictions on trade of sanctioned technology with Russia, Bloomberg reported in February.

This year’s fall in exports to Russia comes as Ankara tries to boost its relationship with Washington, including with heightened scrutiny of Russia-linked bank transactions involving Turkey. China has also increased due diligence on bank clients’ connections to Russia, following a US threat of secondary sanctions in December.

Read More: Turkey Walks Tightrope Between US and Russia in Diplomacy Puzzle

Companies around the world have a sprawling number of Russia sanctions to contend with. The US and its allies had announced almost 18,000 as of February, up from about 2,600 before the invasion, according to Castellum.AI, a compliance screening company.

“We are seeing ever-increasing scrutiny by regulators, especially around the metals and mining, construction, aerospace and manufacturing sectors of Russia,” said Tan Albayrak, a sanctions and export controls lawyer at Reed Smith. He highlighted components like machine parts, chips and circuit boards.

“Most of these items have both civilian and military applications,” he said. “They can be used in a washing machine – or a battle tank.”

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