Downed jet bashes Russia, Turkey economic ties

November 25, 2015 12:23 AM (UTC+8)

 

MOSCOW–The downing of a Russian warplane by Turkey has dealt major repercussions for bilateral economic ties.

The Kremlin’s strong rhetoric came as an ominous sign for Turkish business interests. Russian President Vladimir Putin described Turkey Tuesday  as “accomplices of terrorists” and lashed out at downing of Russian jet as a “stab in the back.”

Just a few days ago Putin attended high-profile meetings at the Group of Twenty (G-20) summit in Belek, Turkey, to find ways to spark a diplomatic revival with the West. His plans for detente have now fallen prey to yet another escalation in the region.

In the immediate aftermath of the jet shoot-down, the Russian Foreign Ministry and the Tourism Agency lost little time in telling Russians not to visit Turkey. Russian tour operators then refrained from selling package holiday tours to Turkey.

The move is set to deal Turkey’s hospitality sector a serious blow. About 4 million Russian holiday makers visit Turkey annually under visa-free travel arrangements.

Turkey, ironically, had been viewed as an alternative tourist haven after Moscow suspended flights to Egypt earlier this month following the MetroJet plane bombing over Sinai. But Russian authorities now appear ready to impose a de facto ban on tourist trips to Turkey.

Russia also is a major exporter of oil and gas to Turkey. The Turkish energy market largely depends on Russian natural gas supplies. Turkey imports nearly two thirds of its 50 billion cubic meters (bcm) of annual natural gas consumption from Russia.

Last year, Russia and Turkey agreed on the TurkStream pipeline project that would traverse some 900 kilometers across the bottom of the Black Sea. Russia’s gas monopoly Gazprom estimated that the TurkStream project to cost $12.5 billion to build.

The project, however, appeared to have stalled in recent months amid pricing disputes. The Turkish representatives were believed to be seeking a more than 10% discount on Russian gas prices. But Russia insisted on granting the discount only if the Turkish government approved the plans for the TurkStream.

In the interim, Russia’s Gazprom has almost halved the planned capacity of its TurkStream gas pipeline project to 32 bcm/year.

Earlier this month, Putin dismissed rumors about a slowdown in the TurkStream project. He would only say that the project still requires further consideration. But in the wake of the warplane incident, bilateral prospects for the TurkStream pipeline have become even more uncertain. A key bilateral  meeting on the project was also cancelled this week in the wake of the jet downing.

Another multibillion bilateral energy project is also affected. In May 2010, Russia and Turkey signed an agreement in Ankara to build the Akkuyu Nuclear Power Plant on Turkey’s Mediterranean coast. The plant is due to have four power units of 1200 MW each. The Akkuyu NPP is based on a build-own-operate (BOO) model in which the company that constructs the NPP is also its owner. The Russian government had planned to allocate $4 billion to finance the Akkuyu NPP project.

But possible delays in implementing Akkuyu NPP could be a good news for  Russian state coffers, since a hard-pressed government in Moscow may no longer be required to finance the Turkish nuclear project.

Russia’s hospitality sector is also set to benefit from the possible ban on tourist trips to Turkey. Millions of Russian holiday makers may be forced to stay home and visit domestic resorts instead of traveling to Turkey in coming months. Such a development could give Russia’s domestic tourist industry a much-needed boost.

But none of this can offset the jet incident’s long-term repercussions on economic ties between Russia and Turkey.

Sergei Blagov is a Moscow-based independent journalist and researcher. In the past three decades, he has been covering Asian affairs from Moscow, Russia, as well as Hanoi, Vietnam and Vientiane, Laos. He is the author of non-fiction books on Vietnam, and a contributor of a handbook for reporters.

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