Reza Zarrab, a Turkish-Iranian businessman, has pleaded guilty in a New York court to conspiracy to violating US sanctions against Iran. Mr. Zarrab gave evidence of a money-laundering network between 2010 to 2015, facilitated by a Turkish state bank, which allowed Iran to gain access to international markets, in contravention of US sanctions. He gave evidence against a co-defendant (Mehmet Hakan Atilla, a banker at the Turkish bank), and gave details of bribes paid to Turkish government officials (over $50m) as part of the scheme.
On 8 October 2017, the US announced that it had suspended the processing of all non-immigrant visa applications in Turkey due to “recent events” (with Turkey having responded in like terms) (see previous blog here).
Almost a month later, the US Department of State has announced that on the basis of “preliminary assurances” from the Government of Turkey, it believes that “the security posture has improved sufficiently to allow for the resumption of limited visa services in Turkey”. In response, the Turkish Embassy in Washington DC has stated that it would also resume processing visa applications for US nationals on a “limited basis”.
On 8 October, the US announced that it had suspended the processing of all non-immigrant visa applications in Turkey due to “recent events”, which appears to be linked to the arrest last week of a US embassy employee in Istanbul. Turkey responded the following day with a matching statement, suspending the processing of all non-immigrant visa applications in its embassy and consulate in the US.
Turkey’s President Recep Tayyip Erdogan has said that his country is considering imposing sanctions on Kurdish northern Iraq in response to the regional administration’s plans for an independence referendum. Although Turkey has a significant trading relationship with the region, it says that it is opposed to its independence on the basis that it may lead to new conflict in the Middle East. Turkey’s government is expected to make a formal response to the situation on Friday.
Russia has agreed to lift most of the sanctions it imposed on Turkey after the latter shot down a Russian plane near the Turkish-Syrian border in 2015 (details not yet released). Several restrictions on tourism to Turkey have already been lifted, and the Turkish Prime Minister Binali Yildrim said that “remaining sanctions in sectors like construction, consultancy, tourism, and wood would be lifted this month”. A ban on Turkish tomatoes, one of Turkey’s key agricultural exports, will remain in place, and the visa ban on Turkish nationals.
Turkey has threatened to impose economic sanctions on the Netherlands, in response to its decision to ban President Erdogan from speaking to rallies of overseas Turkish people in its territory. Turkey has already suspended high-level diplomatic relations with the Netherlands, banned the Dutch ambassador from Turkey, and blocked Dutch diplomatic flights from entering Turkish airspace. Deputy Prime Minister Numan Kurtulmus has said: “pressure will continue against the Netherlands until they make up for what they did. We’ve started with the political, diplomatic sanctions, and economic sanctions may follow,” he said.
We reported here a month ago that Russia had imposed sanctions on Turkey, in the form of a decree “on measures to ensure Russia’s national security and protect nationals of the Russian Federation from criminal and other illegal actions and to use special economic measures against the Turkish Republic.” By that decree, Russia banned or restricted imports of certain Turkish goods, including fruit and vegetables, suspended its visa-free travel agreement with Turkey and banned charter flights between Russia and Turkey.
President Putin today signed an order extending those sanctions, by bringing into force some of the sanctions imposed on November 28 that had not yet been implemented. The new order also bans a number of Turkish organisations or limits their activities in Russia.
Russia’s Economic Development Minister Ulyukayev has said that Russia is not planning to expand its sanctions on Turkey (see previous blog, which summarises the sanctions). Mr Ulyukayev said “the visa regime that we are introducing will remain in place for a long time”, but added that the food imports did not involve the same risks as people visiting a dangerous territory and so could “be the first thing to be abolished”. Turkey’s Foreign Minister Mevlut Cavusoglu has said that Russia should lift the sanctions without delay – “the economy and trade have always taken special positions in our bilateral relations”, and sanctions “will affect directly the economies of the countries and will cause negative consequences for the Russian people, no less than for the Turkish people”.
A report by the European Bank for Reconstruction and Development (link here) concludes that Turkey will be more affected by the sanctions than Russia. It estimates that Turkey’s GDP growth could be 0.3-0.7% lower next year as a consequence of Russian sanctions targeting Turkey’s food and tourism industries, with Turkey’s major reliance on Russia for its energy supply a vulnerability should Russia choose to impose further sanctions. While the overall impact on Turkey’s economy will likely be “moderate”, the impact on individual firms in affected industries is likely to be larger. Key to the extent of any decline in the rate of Turkey’s growth is whether currently operating contractors and workers continue to be exempt from sanctions, and if affected exporters and contractors are able to find alternative markets. As to the effect in Russia, the EBRD notes that there may be upward pressure on import prices and inflation, with a possible 25% increase in the price of embargoed products. Prior to sanctions, Turkey was the second largest source of fruit and vegetable imports into Russia, and sanctions may contribute to an increase in Russia’s inflation of 0.1-0.2% in 2016.