Comment Russia is turning to Turkey and other potential new trading partners as it tries to circumvent Western sanctions that are beginning to bite even deeper into its economy after its invasion of Ukraine. Russian President Vladimir Putin is due to meet his Turkish counterpart Recep Tayyip Erdogan in Sochi on Friday, and the meeting — the leaders’ second in just over two weeks — is sparking alarm that the Kremlin could boost economic ties with a NATO state. which was not involved in imposing sanctions on Moscow. A Russian proposal intercepted ahead of the meeting shows Russia hopes Turkey will agree to new channels to help it avoid these restrictions on its banking, energy and industrial sectors. The proposal, shared this week with the Washington Post by Ukrainian intelligence, calls on Erdogan’s government to allow Russia to buy stakes in Turkish oil refineries, oil terminals and tanks — a move that economists say could to help disguise the origin of its exports after The European Union’s oil embargo begins in full next year. Russia is also asking several state-owned Turkish banks to allow correspondent accounts for Russia’s biggest banks, which economists and sanctions experts say would be a flagrant violation of Western sanctions and allow Russian industrial producers to operate outside free economic zones in Turkey. . There is no indication that Turkey would support these arrangements, as they would leave the country’s banks and companies at risk of secondary sanctions and cut off their access to Western markets. Kremlin spokesman Dmitry Peskov did not respond to requests for comment. The Kremlin previously described the Putin-Erdogan meeting as focused on military-technical cooperation. A senior Turkish official, responding to questions about the Russian proposal, did not elaborate, but said the country remains “committed to Ukraine’s independence and sovereignty.” He added that Turkey “as a matter of principle…participates exclusively in the sanctions imposed by the United Nations.” The official, who spoke on condition of anonymity to discuss a sensitive diplomatic meeting, noted that Turkey is “the only NATO ally that both Ukraine and Russia talk to and trust. That’s why no other country could bring together the two foreign ministers or the official delegations.” Western government officials, also speaking on condition of anonymity because of the sensitivity of the situation, told The Post they were not aware of the intercepted proposal but knew Russia was looking for ways to circumvent sanctions related to its war and growing economic damage. Russian officials are traveling the world trying to find people willing to do business with their financial institutions, they said, noting that Turkey is among a group of jurisdictions being approached because of their lax view on enforcement. Russians face prospects of Soviet-style shortages as sanctions bite With Russia cut off from much of the global economy, such initiatives are a sign of the regime’s growing concerns, Western officials and economists say. Putin has derided Western sanctions as a failure – a steady stream of revenue from energy sales has supported the Russian ruble and the country’s financial system – and the International Monetary Fund now predicts Russia’s economy will shrink only 6 percent this year. But economists say the headlines mask the collapse of a large portion of Russian manufacturing and call the banking sector a “zombie system”, with hard currency deposits banned. Although Russia has tried to divert trade flows through countries such as India and China, the Western-imposed block on imports of high-tech components has brought some industries to a standstill. “The situation will be darker next year,” said Sergei Guriev, a professor at France’s Sciences Po and former chief economist at the European Bank for Reconstruction and Development. “Nobody knows how things will work when the European oil embargo kicks in. We’re in uncharted territory.” New figures released last week by Russia’s state statistics agency Rosstat show how hard some sectors have been hit. Auto production, the industry most dependent on foreign components, fell 89% in June year-on-year, while output of computers and semiconductors fell 40% year-on-year and that of washing machines almost 59% lower. “It’s clear that things are going to get tougher and tougher,” said Maxim Mironov, professor of economics at IE Business School in Madrid. The announcement this week that one of state-owned AvtoVAZ’s main car plants will cut its workforce it signals a lack of other options for the company — and the government, he noted. “Cuts are starting and could lead to social tension.” Other high-tech industries, such as pharmaceutical manufacturing, are also faltering. A survey by the Central Bank of Russia last month found that 40 percent of pharmaceutical producers had not found substitutes for ingredient and equipment imports. “Russia is trying to get pharmaceutical production off the ground, but it clearly hasn’t been successful,” said Elina Rybakova, deputy chief economist at the Washington-based Institute of International Finance. “Sometimes the aggregate data doesn’t cover all the nuance,” he said, with aluminum producers facing choke points on vital chemical supplies. Sergei Aleksashenko, a former deputy chairman of the Central Bank now in exile in the United States, said it was imperative for Russia to find alternative financial channels for its banks. “It’s a matter of money,” he said, noting that Iran, with the help of Russia and Turkey, had previously managed to circumvent Western sanctions. “If you pay a lot, there will be some banks willing to take the risk.” The historic sanctions on Russia were rooted in Zelensky’s emotional appeal The Putin regime previously hoped to circumvent current sanctions by creating alternative payment systems through Chinese banks, according to a well-connected Russian government official, speaking on condition of anonymity for fear of retaliation. However, Chinese banks have refused to take on this role due to the risk of secondary sanctions. And despite the country’s growing imports of Russian oil and natural gas, it cannot replace all of Russia’s equipment needs. A study by the Green Finance & Development Center at Shanghai’s Fudan University concluded that fears of sanctions prompted China to abandon new investments in Russia this year as part of its Belt and Road initiative. Western officials said it had become clear that China was not the right conduit for Russia to soften the impact of the sanctions, leaving the Kremlin to desperately seek other partners. In Erdogan’s complicated relationship with Putin — marked by periods of conflict and cooperation — Russia has had significant leverage in the past and has shown its displeasure by cutting off the flow of tourists to Turkey or banning the import of Turkish agricultural products. Since the start of the Ukrainian war, Turkey has positioned itself as a mediator between Moscow and Kiev – a role it appeared to fulfill last month when Turkey and the United Nations brokered a deal to resume grain shipments from blockaded Ukrainian ports. Erdogan wants Putin’s consent for a planned Turkish military operation against Kurdish forces in northern Syria. Russia maintains troops in the region as part of its support for Syrian President Bashar al-Assad. According to two Moscow businessmen, retail supply chains are already being rebuilt in Russia with the help of Turkey. The owner of a major retail chain said its stores had completely reorganized supplies through new hubs in Turkey, Israel, China and Azerbaijan. Recent trade data from the Turkish Statistical Institute, the Ankara-based statistics office also known as Turkstat, shows that monthly Turkish exports to Russia rose by about $400 million between February and June. But aside from consumer goods, sanctions experts and Western officials doubt that Turkey could become a hub for vital equipment supplies without facing the risk of crippling secondary sanctions. Those officials said the country must now make a choice, knowing that any deal it makes with Russia risks hitting its economy and financial sector hard and making it difficult to trade with the rest of the world.
