Turkey and Russia strengthen economic ties

Financial Times (Link) - Delphine Strauss (May 14, 2010)

This week�s deal for Russia to build and control Turkey�s first nuclear power plant is a big win for Moscow, which badly wants its state-owned industry to win a bigger share of growing international markets.

But it also marks a new phase in economic relations between rising powers whose mutual interests are centred on energy, but range far wider.

The two countries are driven together by geography: Turkey needs Russian supplies of oil and gas, while Moscow needs Ankara�s help to facilitate traffic from the Black Sea, and pipeline routes to Europe. But the partnership is strengthening thanks to the personal affinity of Vladimir Putin and Turkey�s prime minister, Recep Tayyip Erdogan � two of a kind when it comes to authoritarian populism. It is also underpinned by Ankara�s new policy of balancing traditional western alliances with stronger relations to the east.

As the commentator Murat Yetkin points out, granting Russia majority ownership of a nuclear plant built on Turkish soil shows the degree of trust reached since the days when Turkey served as the west�s Cold War bulwark.

The nuclear deal itself may have a mixed reception in Turkey: people already worry about over-reliance on Russian gas, and it is not yet clear if Ankara has managed to negotiate down the project�s cost from an earlier offer that was more expensive than conventional generation. If it does so by offering Russia stronger guarantees than were given in a 2008 tender, for example in a long-term agreement on state purchases of electricity, then companies such as Gaz de France-Suez, which chose not to bid in 2008, may also have grounds for complaint.

But the Akkuyu nuclear plant is only one piece of the energy jigsaw. Still to be finalised are the terms of Russian involvement in an oil pipeline intended to link Turkey�s Black Sea and Mediterranean coasts � a Turkish priority to cut the dangerous volume of tanker traffic through the Bosphorus. Russia meanwhile wants to build a refinery at the Mediterranean port of Ceyhan, a fast-growing hub for energy exports; it could seek a bigger role for Gazprom in Turkey�s fast-growing internal energy market, and it appears to be discussing plans to produce nuclear fuel in Turkey.

Beyond energy, Sergei Medvedev and Mr Erdogan yesterday announced a target to raise bilateral trade volumes to $100bn in 5 years.

Such round numbers hide a vast imbalance in Russia�s favour � its gas exports account for the lion�s share of trade at present. But both leaders drew attention to the success of Turkish construction companies in Russia, noting their presence in preparations for the Sochi winter Olympics and Kazan university games.

Corporate results also show the benefits for Turkish groups looking to Russia as they diversify away from their home market. Anadolu Efes, the brewing group, is suffering from tax increases and a new smoking ban in Turkey, but gaining market share in Russia. Thursday�s agreement to scrap visa restrictions for short-term visitors will help smaller Turkish traders, who often face long delays with visa applications now. Other agreements, on agricultural produce and aviation, could help exporters and allow Turkish Airlines, which cannot meet demand for flights from Russian cities at present, to add new routes.

�Russia could indeed be a big-buck, or indeed rouble, investor in Turkey,� writes Tim Ash, economist at the Royal Bank of Scotland. The choice of currency is indeed symbolic: Mr Medvedev, according to Reuters, called for a shift to bilateral trade in roubles or lira, away from reserve currencies he said were �feeling ill� too often.