The Impact of the Russia-Ukraine War on Turkiye's Foreign Trade.

• Author: Ozdemir, Adnan

Introduction

Foreign trade significantly contributes to economic growth, development, and job creation in any given country. It enables nations to exceed the limits of their domestic markets and gain access to the global marketplace. As such, enterprises in a given country can reach more customers and offer them more products and services. Moreover, foreign trade promotes stronger commercial and cultural relations among countries.

Certain factors, in turn, impact trade between different countries. Social and political developments, epidemics and pandemics, economic crises, other financial developments, and armed conflicts immediately come to mind. As a matter of fact, similar developments have taken a toll on the foreign trade and economic performance of countries around the world in recent years. Particularly, the Russia-Ukraine war impacted almost all nations and regions, starting with Asia and Europe. (1)

The impact of the Russia-Ukraine war has varied across the world. As a country sharing maritime borders with both nations, Turkiye views Russia as an important economic partner. Whereas the country sells agricultural produce, textiles, and construction materials to Russia, its main imports include energy products, such as natural gas and crude oil, as well as steel and machinery. The total trade volume between Turkiye and Russia increased steadily over the years to reach $28.9 billion by the end of 2021. Moreover, the two countries launched several joint projects designed to meet their growing energy needs. For example, the Akkuyu Nuclear Power Plant, which remains under construction, shall meet approximately 10 percent of Turkiye's electricity demand upon completion. (2) Such partnerships and collaborations create major investment and business opportunities in Turkiye and Russia. At the same time, the Association of Turkish Travel Agencies (TURSAB) reports that Russia was Turkiye's leading source of tourists in 2021 with approximately 4.5 million visitors. In 2022, Russia was the second-largest source of tourists for Turkiye with more than 4.5 million visitors according to the TURSAB. (3) Likewise, the country remains the single greatest foreign market for Turkish construction firms.

Furthermore, Turkiye's main export items to Russia include fresh fruits and vegetables, machinery, land vehicles, and their equipment, and clothing and fashion accessories. Turkiye, on the other hand, imports mostly oil, natural gas, hard coal, iron-steel products, raw aluminum, and a variety of agricultural items. (4) Although Russia and Ukraine are not leading manufacturers in the world, they are important providers of energy and raw materials. For instance, Russian petroleum and natural gas play a vital role in meeting the global energy demand of many countries, including Turkiye. Turkiye consumed 48.1 billion cubic meters of natural gas in 2020. During that year, Turkiye received 33.6 percent of its natural gas from Russia, 24 percent from Azerbaijan, and 11.1 percent from Iran through the pipelines, according to the Energy Market Regulatory Authority's (EMRA) Natural Gas Sector Report. (5)

It is possible to say that trade relations between Turkiye and Ukraine have developed over the years. The two countries also signed a free trade agreement in February 2022 to increase their bilateral trade volume and promote stronger commercial ties. Whereas Turkiye exports textiles and construction materials to Ukraine, it buys iron, steel, and agricultural products, including grains, from Ukrainian suppliers. According to the Turkish Statistical Institute's (TUIK) 2021 data, exports from Russia and Ukraine meet 78 percent of Turkiye's annual demand for wheat. (6) 13 percent of that grain comes from Ukraine. Moreover, TURSAB states that Ukraine was the third-largest source of tourists for Turkiye in 2021 with more than 2 million visitors.

This article aims to investigate the impact of the Russia-Ukraine war on Turkiye's foreign trade. This article is structured as follows: first, Turkiye's foreign trade statistics with Russia and Ukraine will be compared as before and after the war. Next, the statistical data of the effects of the Russia-Ukraine war on the tourism and contracting sector of Turkiye will be discussed. Subsequently, we will present our analysis of the direct and indirect effects of the Russia-Ukraine war on Turkiye's foreign trade.

Foreign Trade Relations between Turkiye and Russia

Turkiye and Russia have complex and multi-dimensional trade relations. In recent years, the two countries have maintained a strong commercial relationship thanks to their mutual dependence on the energy sector. With Turkiye's rapidly increasing energy needs, the country is an important source of income for Russia's economy, despite ongoing political tension. Specifically, Russia remains one of Turkiye's main energy suppliers and it provides most of the country's natural gas and crude oil. Since Turkiye is heavily dependent on Russian gas, it could be asserted that small disruptions in natural gas supplies could have a crucial impact on Turkish consumers and industries. (7) Furthermore, Turkiye imports a significant amount of Russian steel, machinery, and other industrial products. At the same time, Turkiye sells textiles, agricultural products, and consumer goods to Russia.

Graph 1 demonstrates that the foreign trade volume between Turkiye and Russia has been around $20 billion per year since 2012. Turkiye's imports remained around $25 billion in 2012, 2013, and 2014; whereas its exports were over $5 billion per year. However, against the backdrop of cordial relations, a Russian Sukhoi Su-24 military aircraft violated Turkish airspace on November 24, 2015, to be shot down by Turkish F-16 fighter jets in accordance with the rules of engagement. (9) That incident dealt a heavy blow to Turkish-Russian relations, resulting in diplomatic and economic boycotts between the two countries.

Due to Russia's economic sanctions and embargoes against Turkiye, there was a sudden drop in the foreign trade volume between them. By 2016, Turkiye's exports to Russia plummeted to $15 billion as its imports decreased to $1.7 billion. The following year, the improvement of bilateral relations and Russia's decisions to lift its economic sanctions increased Turkiye's imports to $20 billion and exports to $2.8 billion. The foreign trade volume between the two nations increased steadily in 2018 and 2019, as Turkiye's imports increased to $22.7 billion and $23.1 billion, respectively. Likewise, Turkish exports amounted to $3.6 billion in 2018 and $4.1 billion in 2019. Nonetheless, the COVID-19 pandemic disrupted the bilateral trade volume's steady increase. Accordingly, Turkiye's imports from Russia dropped to $17.8 billion in 2020. In contrast, Turkish exports reached $4.5 billion. With various medical developments curbing the COVID-19 pandemic, the bilateral trade volume exceeded $25 billion anew. In 2021, Turkiye's imports increased approximately 60 percent year-on-year to reach $28.9 billion, making...