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.