The confrontation between Russia and Turkey is raising concerns about its potential negative impact on the region’s economic development. However, detailed analysis indicates that the interdependence between Turkey and Russia is limited, with even fewer possible implications for Georgia. The main ways Turkey depends on Russia are imports of Russian natural gas and revenues from Russian tourists. While we do not expect Russia to cut gas deliveries, we think that fewer tourists will travel to Turkey. Turkish exports of agricultural goods and textiles to Russia are likely to fall, albeit their share of total exports is low. Some of the loss will be compensated by the newly signed EUR 3.0bn deal between Turkey and the EU for managing Middle East migrant inflows. As for the region as a whole, heightened tensions will probably lead to a temporary increase in risk perception, resulting in a higher cost of external financing, particularly for current account deficit economies.
Russia accounts for a minor share of total Turkish exports. Russia’s share of total Turkish exports in 2014 was 3.8% (US$ 5.9bn out of a total of US$ 157.6bn), which fell further to 2.5% in 10M15, as the economic contraction in Russia depressed demand for foreign goods. Turkish exports to Russia are dominated by textiles and clothing (19.1% of total exports in 2014), fruits and vegetables (17.9%), machinery and electronics (15.3%), and transport (10.9%). While the overall dependence is limited, the Turkish agricultural sector exhibits high vulnerability, with Russia accounting for 12.7% (US$ 1.1bn) of total Turkish fruit and vegetables exports in 2014 (US$ 8.4bn). Dependence in textiles and machinery is relatively insignificant, as Russia accounted for just 3.9% of total exports in these sectors. On the other hand, Turkey’s dependence on imports is relatively substantial, with Russian goods accounting for 10.4% of total 2014 imports (US$ 25.3bn out of a total of US$ 242.2bn). Key imports from Russia are oil and gas (65.6% of the total in 2014) and metals (16.5%).
Banned products accounted for 0.5% of total Turkish exports. Russia banned the import of 18 items from Turkey starting January 1, 2016. Exports of these items totaled US$ 0.8bn in 2014 (12.9% of total exports to Russia) and have been declining in 2015, falling by 2.3% y/y in 10M15. This fall will accelerate in 2016 once the ban takes effect. However, given the low share in total exports, its impact should be minor.
Contrary to exports, Turkey is highly dependent on Russia for natural gas imports. Overall, Turkey imported 49.3bcm of natural gas in 2014, including 7.3bcm of LNG. Slightly more than half of this gas demand (27.0bcm, 54.8% of total) was met by Russian gas, with the rest being imported from Iran (8.9bcm), Azerbaijan (6.1bcm), and others (7.3bcm). Turkey used the largest share (48.1%) of its natural gas consumption for electricity generation, followed by industry (25.4%), residential (19.3%), and other purposes (7.1%). Therefore, any disruption in natural gas supplies from Russia could have a serious negative impact on electricity generation in Turkey. The country is expected to partially lessen its dependence on Russian gas starting in 2018, as an additional 6bcm of gas will be imported from Azerbaijan (already contracted).
