Russia, Turkey rebuild trust and confidence through commerce
Only by restoring trust through economic ties can Presidents Vladimir Putin and Recep Erdogan sit down to discuss the crisis in Syria
Russian President Vladimir Putin’s visit to Istanbul on Monday — officially on the occasion of the World Energy Summit — is perhaps not going to change history, but the meeting with his Turkish counterpart Recep Tayyip Erdoğan should produce significant results.
The Kremlin said the two leaders would discuss the normalization process between the countries as well as the current situation in Syria, and as M.K. Bhadrakumar recently wrote in Asia Times, the “two countries have a congruence of interests in advancing economic ties.” But the major focus of the talks was Syria, as the real question is to what extent the two countries’ interests in the war-torn country can align with each other and how far Russia and Turkey would be willing to work together. In other words, they both stand to benefit from increasing commerce, but can they really cooperate in Syria?
The thawing of the ice between Russia and Turkey is real, and so is Ankara’s disappointment with Washington’s insistence on cooperating with the Syrian Kurdish militia, whom Turkey recognizes as an extension of a terrorist organization.
It is surely a good development that the two sides are getting together after the crisis of the downing of a Russian warplane near the Turkish-Syrian border last year, and normalizing their relations. The two sides had already reinstated dialogue over Syria with Erdoğan and Putin meeting in St. Petersburg in August, and four days before Putin was scheduled to arrive in Istanbul, the two also discussed Syria-related matters on the phone. However, before such reinvigorated communication can start producing concrete outcomes, Russia and Turkey need to recover the confidence they lost in each other in the aftermath of Turkey’s shooting down of the Russian jet and the consequent sanctions.
Meetings, phone calls, apologies and shaking of hands certainly help, but for confidence to be restored to pre-crisis levels, Turkey and Russia need to heal their economic wounds first, as it was the damaging effects of the crisis on bilateral economic relations that undermined confidence in the first place.
In other words, when Putin met Erdoğan in Istanbul, it was economic issues that were on the table, not only because both sides stand to benefit from restoring these ties, but also because such progress is necessary to re-establish confidence between the two countries, without which finding a common ground in Syria will be extremely difficult.
Gas exports from Russia to Turkey is the major issue in the economic realm. Talks on the proposed Turkish Stream gas pipeline, which will take Russian natural gas beneath the Black Sea to Turkey and onward to European markets had resumed in August, but there are some points of contention remaining unsolved, such as the rate of discount that Turkey will receive from the Russian gas company Gazprom. A rate of 10.25 percent was agreed on in early 2015, only to be canceled due to the jet crisis, before a formal agreement was signed.
The discount is vital for the Turks, because they depend on imports for almost all of their gas consumption, and they are eager to reduce their gas bill. A recent report from Turkey’s Electricity Producers’ Association shows that the annual average of fees paid by Turkey for a thousand cubic meters of natural gas was US$432 for gas bought from Iran, US$412 for Russian gas, and US$282 for Azeri gas. Iranian gas is expensive and politically troubled. Azeri gas is relatively cheap; but it won’t stay as such forever as the current price has reference to the initial deal made between Turkey and Azerbaijan and it will have to be renewed, at a higher rate. Also, Azeri gas on its own cannot meet Turkey’s demands volume-wise.
The only way for Turkey to go forward, in addition to diversifying energy resources and investing in renewable energy, is to pay less to the Russians. If this can be achieved, and if Turkish Stream starts running, not only will both sides gain economically, but this will also profoundly contribute to the erasing of adverse effects of the crisis and embargoes, to rebuilding of confidence, and to the improvement of political ties as well.
In addition to gas exports, Putin and Erdoğan can achieve a breakthrough in two more economic items as well: the building of a nuclear plant on Turkish soil by a Russian company, and the revitalization of food trade between Turkey and Russia, which was hurt by embargoes, Turkish food exporters losing business and Russian consumers having to face rapidly rising inflation in food prices.
A day before the Putin-Erdoğan meeting, economy ministers of the two countries, Alexei Ulyukayev and Nihat Zeybekçi, and their top aides sat down together (the fourth such meeting in the last three months), putting the final touches to the four-year program that will determine the short and medium term future of Russian-Turkish economic relations.
This involved reactivating the Joint Intergovernmental Commission that was put on standby due to the jet crisis, going through the details of a future free trade agreement that will also cover services trade and investment (Minister Zeybekçi announced an agreement can be signed as early as late 2017), and moreover, launching the Russia-Turkey Investment Fund, which will be established jointly by the Russian Direct Investment Fund and the newly founded Turkey Wealth Fund, each equally contributing a startup capital of US$500 million to the initiative.
This fund will be used to finance joint investment projects, and its size will be increased whenever needed. Raising money together and spending it together is a good way of building confidence.