November 25, 2015 / 4:15 PM / 4 years ago

Russia economic retaliation on Turkey won't cut too deep

* Russian response to jet downing unlikely to affect energy

* Some tourism, Russian poultry exports restricted

* Limits on other food exports may follow, including grain

By Polina Devitt and Denis Pinchuk

MOSCOW Nov 25 (Reuters) - Russia may mothball deals with Turkish firms and curb imports of Turkish goods in retaliation for the downing of a Russian fighter jet, but it is unlikely to let the fallout affect energy exports that are the core of their economic relationship.

Pushed to the margins of the European mainstream, in part because of their idiosyncratic leaders, Turkey and Russia have found support in each other, building burgeoning trade ties.

Those ties were under scrutiny on Wednesday after Russian Prime Minister Dmitry Medvedev accused Turkey of a “criminal act” in shooting down a Russian Su-24 jet. Ankara said it encroached into Turkish airspace, while Moscow said it did not.

“The direct consequences could lead to our refusal to take part in a whole raft of important joint projects and Turkish companies losing their positions on the Russian market,” Medvedev said in a statement.

Energy exports from Russia to Turkey are the biggest part of the trade relationship. After Germany, Turkey is the second-largest buyer of Russian natural gas. Russia’s Gazprom supplies about 27 billion cubic metres of Russian natural gas a year, or almost 70 percent of the total gas Turkey consumes.

Halting gas flows “would be a very tough decision as the export markets are bad, they are not rising but only getting tighter,” said Mikhail Krutikhin, a partner at the RusEnergy consulting firm.

“The loss of such a big market (as Turkey) would be very sensitive both for the state budget and for Gazprom.”

Asked if there was any threat to its supplies to Turkey, a spokesman for Russian state-run gas giant Gazprom declined to comment.

Limiting supplies would have risks for Russia: it would send a message to other customers that deliveries are at the mercy of political considerations, and with global demand low, Moscow would struggle to find alternative customers.

Gazprom could slow preparation work for a planned new pipeline, dubbed TurkStream, that would deliver gas via Turkey to southern Europe. There would though be little real effect because the project is years away from the start of construction and is already beset with obstacles.


There appeared to be no appetite for any steps that would heap serious pain on either Turkey or Russia, both of which are already struggling economically.

Russia’s economy will shrink around 4 percent this year from the combined effects of the low oil price, and sanctions over the conflict in Ukraine.

Andrei Kostin, the head of Russian state-owned bank VTB , told reporters at a forum in the Russian city of Yekaterinburg that politics and economics should be kept separate.

“I would not be inclined to whip up the situation right now,” said Kostin. “I think that one has to approach this very calmly. There are always negative events going on in the world.”

Meanwhile Turkey’s economy will grow only under 3 percent this year, below the government’s target, weighed down by political uncertainty at home and conflict in the Middle East.

“Erdogan is a tough character, and quite emotional, and if Russia pushes too far in terms of retaliatory action, I think there will inevitably be a counter reaction from Turkey (like) tit-for-tat trade sanctions,” Nomura strategist Timothy Ash wrote in a note.

“But I think there is also a clear understanding that any such action is damaging for both sides, and unwelcome.”

But even if Ankara and Moscow avoid inflicting deep economic damage on each other, there was still a whole range of deals, investments and commercial relationships that could be threatened in the fallout from the downing of the Russian jet.

Russia’s state Atomic Energy Corporation, known as Rosatom, is due to build Turkey’s first nuclear power station, a $20 billion project. Rosatom said it has no comment on the issue.

Shares in Turkish firm Enka Insaat, which has construction projects in Russia and two power plants in Turkey using Russian gas, fell for a second day on Wednesday.

Turkish brewer Anadolu Efes, which has six breweries in Russia and controls around 14 percent of the market, also saw its shares fall on Tuesday.

Tourism is already being hit. After Russian officials on Tuesday advised holidaymakers against travelling to Turkish resorts, at least two large Russian tour operators said they would stop selling packages to Turkey.

Russians are second only to Germans in terms of the numbers visiting Turkey, bringing in an estimated $4 billion a year in tourism revenues.


Retaliatory measures could suck in the trade in food.

Turkey, alongside Egypt, is the equal biggest buyer of Russian wheat. It bought 4.1 million tonnes in the marketing year which ended on June 30.

Traders and Russian officials said no restrictions had been imposed on the export of grain to Turkey, but some traders said they anticipated there could be informal measures soon to limit the volumes reaching Turkey.

In the other direction, Russia is a major importer of Turkish food products.

During past diplomatic spats with other countries, Russia’s food safety watchdog has imposed bans on imports of certain products, though it always says it is for public health reasons only and not linked to politics.

The watchdog, Rosselkhoznadzor, announced on Wednesday that it was suspending imports of poultry from one Turkish company, citing tests that showed the presence of dangerous bacteria.

Asked if there would be a blanket suspension of Turkish poultry exports, the watchdog’s spokesman, Aleksey Alekseenko, told Reuters: “For now it’s too early to talk about this. I think a decision will be taken soon at the level of the top political leadership.”

Additional reporting by Denis Dyomkin in YEKATERINBURG, Vladimir Soldatkin in NIZHNY TAGIL, Svetlana Burmistrova and Diana Asonova in MOSCOW; writing by Christian Lowe; editing by Philippa Fletcher

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