US Tightens the Screws on Turkey Over Cooperation with Russia 

By Conor Gallagher

Two of Turkey’s largest banks are no longer accepting Russia’s Mir payments system. The moves on September 19 come following threats from the US of secondary sanctions.

Turkey’s largest private lender IsBank and Denizbank, a Turkish unit of the United Arab Emirates’ NBD, were the banks who suspended services.

Visa and Mastercard suspended their Russian operations back in March, which means all transactions initiated with such cards issued in Russia will no longer work outside of the country and any cards issued outside of Russia will no longer work within the country.

The European Union has also banned Russian banks from SWIFT, the system that enables financial transactions all around the world. Russia created the Mir payment system in 2014 out of fear that the US and Europe would one day enact these very sanctions.

Three state-owned Turkish banks are still processing payments using Mir. The list of other countries that accept Mir include Armenia, Belarus, Cuba, Kazakhstan, Kyrgyzstan,  South Korea, Tajikistan, and Vietnam. 

It does not appear the US has directly threatened any of the other nations to stop using Mir, but making an example of out of Turkey seems to be having its desired effect. Kazakhstan’s largest bank cut Mir on September 21. Vietnam’s BIDV Bank did as well. On September 23 Uzbekistan’s UZCARD system suspended processing of Mir, and some Armenian banks also blocked the Russian cards. US officials expect more banks around the world to follow suit. 

Russia’s Central Bank said last week that foreign banks were reluctant to join the Mir system out of fears of secondary sanctions. Other countries that are considering adopting Mir include Angola, Egypt, India, Iran, Myanmar, and Sri Lanka. The Mir card’s issuing company estimates that more than half of Russia’s population has such a card.

Back in August the US Treasury Department sent a letter to the Turkish Industry and Business Association warning of the risk of sanctions if companies establish relations with sanctioned Russian entities and individuals. U.S. Treasury Deputy Secretary Wally Adeyemo wrote:

Turkish banks cannot expect to establish corresponding relationships with sanctioned Russian banks and retain their corresponding relationships with major global banks as well as access to the U.S. dollar and other major currencies.

At the time Turkish Finance Minister Nureddin Nebati called the letter “meaningless,” but apparently the private banks felt otherwise.

Earlier in September the US sanctioned the chief executive of the Bank of Russia’s National Card Payment System, which runs Mir. NSPK, the company which issues Mir and Mir are not themselves sanctioned, and analysts said this implied that existing, limited agreements with NSPK – such as those allowing Russian tourists to pay their hotel bills abroad – were not likely to violate U.S. sanctions.

If that’s the case, the US is singling out Turkey to apply pressure on Ankara in other areas and/or because Washington believes Russia is seeking to connect its domestic payments system to Turkey to help evade sanctions.

It might not be the first time Turkish banks helped a country bypass US sanctions. In 2019 state-owned Halkbank was charged in a Manhattan court for allegedly participating in a multibillion dollar scheme to help Iran evade sanctions. The case is on hold while Halkbank appeals to the US Supreme Court.

It remains to be seen if the government-owned banks in Turkey ban Mir as well, but even the partial suspension could be a blow to the Turkish economy desperately in need of the money.

Any business Turkey can get is vital for its battered economy, which has an inflation rate of more than 80 percent. The country’s central bank just delivered another surprise rate cut on September 22, which sent the lira to an all-time low. The tanking economy is a major headache for Turkish President Recep Tayyip Erdogan, but he remains committed to lowering borrowing costs in an effort to stoke exports and investment.

The nosedive in the value of the lira has made the country a cheaper holiday destination. Home purchases by Russians are also climbing in Turkey with Russians buying a fifth of the nearly 25,000 homes sold to foreigners from April to July.

Turkey, as the only member of NATO not to apply sanctions on Russia, has been seeing a major uptick in Russian tourism. The Turkish Ministry of Culture and Tourism said that from January to July tourism numbers were up 128 percent compared to the year prior. Russians played a large role in the jump as  2.2 million Russian tourists (an increase of 600,000) entered the country in the first seven months of 2022.

Since Russian President Vladimir Putin announced the partial mobilization of reservists on September 20, more than 30,000 people flew from Moscow to Turkey.

Economist Can Selcuki said tourism revenue is especially important this season as Erdogan is set to face his most difficult election next year since he became president in 2014.

“Given the macroeconomics in Turkey right now and the dire need for any kind of exchange currency in Turkey, I would say Russian tourists are very important,” said Selcuki.

If the remainder of Turkish banks suspend Mir, and the number of Russian tourists plummet, there is a chance that an increase in EU travelers will make up for it.

As Europeans deal with energy prices that are already through the roof and brace for a winter of even higher prices and shortages, they are booking winter stays in Turkey en masse. November bookings from the EU are already up more than 50 percent.

Turkey, which receives nearly half of its natural gas from Russia and a quarter of its oil, is not expecting any shortages this winter.

“I think Europe will experience serious problems this winter,” Erdogan said recently. “We do not have such a problem.”

But he might owe some favors in order to ensure that’s the case. Erdogan’s political opponents are suspicious that Russian President Vladimir Putin is helping Ankara with its foreign exchange shortfall in order to boost Erdogan before next year’s election in Turkey.

There’s the case of strange of unknown capital inflows into Turkey. Mustafa Sonmez writes in Al-Monitor that “such inflows — recorded under ‘net errors and omissions’ in the balance of payments — totaled more than $24 billion in the first seven months of the year, and financed 66% of the current account deficit in July.”

Still Turkey’s deficit was at $4 billion for July bringing it up to $36.6 billion for the year. And the foreign trade deficit was at $10.7 billion in July. The increasing import bill – especially energy – played a large role in the figure, and with Russia being the country’s top energy supplier any flexibility from Moscow could go a long way.

Economist Selva Baziki believes Turkey is likely to get ruble loans from Gazprom that it will use to pay for the gas while Moscow provides a guarantee for the loan.

Some observers also believe Russia might defer Turkey’s energy bills until after next year’s June elections.

The moves come as both Washington and Brussels are piling pressure on Turkish companies to limit trade with Russia.

On September 16 Turkey announced it would pay for a quarter of its Russian natural gas imports in rubles under a new set of deals designed to boost trade.

On the sidelines of the Shanghai Cooperation Organisation summit in Uzbekistan Putin said said Russian companies have “received signals they can export our products through Turkey. Turkey is a reliable partner in this regard and can ensure steady deliveries via its territory to the rest of the world.”

Turkish exports to Russia between May and July grew by nearly 50% compared to 2021. There have been whispers about Russian industrial producers being allowed to operate out of newly established free trade zones in the Black Sea region of Turkey.

Aside from the US, Turkey is really the only NATO member to pursue independent foreign policy – largely due to its indispensable position controlling the Dardanelles Strait and access to the Black Sea from the Mediterranean. That independence has been on full display since the start of the Ukraine War as Erdogan has made it clear he will work with the US when he sees fit, and the same applies for Russia.

Turkey’s failure to toe the NATO company line is driving Washington and Brussels up the wall. The threat of secondary sanctions on Turkish banks is the latest in a series of back and forth in recent years between Ankara and Washington over extradition of Gulenists, purchase of Russian weapons, suspension of F-16 sales (which now might be back on), Finland and Sweden joining NATO, and Kurdish policy in Syria.

The US is also putting pressure on Turkey in Greece and Cyprus.

Ankara, knowing how valuable it is to each side, is using the opportunity to push ahead with its own projects, such as aiding in Azerbaijani attacks against Armenia in order to create a direct link to Baku and realize its long held Pan-Turkic dream.

Erdogan’s skillful playing of both sides has its limits though. He recently expressed his desire for Turkey to join the Russian and Chinese-led Shanghai Cooperation Organization. But Moscow quickly put the kibosh on those talks saying that it won’t happen as long as Turkey is a member of NATO.

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  1. The Rev Kev

    ‘As Europeans deal with energy prices that are already through the roof and brace for a winter of even higher prices and shortages, they are booking winter stays in Turkey en masse.’

    That might be true of richer EU citizens but most everybody else are stuck at home with winter looming. I don’t think that the US can push Turkey too far as most of Turkey’s grain come from Russia/the Ukraine. You can bet that they would need the food more than their banking sector. I do wonder how many loans and investments that the EU has in Turkey. Would Brussels be willing to trash all those investments to press Turkey about the Ukraine? I’m sure that Washington would like to see the Montreux Convention renegotiated but that is one bargaining chip that Turkey cannot afford to throw away.

  2. Tom Stone

    If I don’t stop banging my head against the wall every time the Western elites do something incredibly stupid it’s going to collapse.

  3. Xquacy

    I don’t think that the US can push Turkey too far as most of Turkey’s grain come from Russia/the Ukraine. You can bet that they would need the food more than their banking sector.

    The assumption’s being that (1) money can’t buy the grains from elsewhere, (2) that states make decisions with the well being of their populations in mind.

    Both assumptions are wanting for evidence. One striking blindspot of the commentariat here (I generalize, don’t beat me up Yves) is the unstated assumption (2). Heads of States are no doubt constrained by the interests of their populations, but those interests arn’t homogeneous, nor are they unchanging. Governments are often powerful enough to redpill their own people. Therefore the true measure of “national” interest is what the general public will tolerate. How much will they tolerate? Look at India; apparently 750 million poor is politically viable and tolerable. So the answer is “it depends.”

    The point of the meandering is simply to say that what seems like logical self interest, from the point of view of Turkish population need not manifest in their decision making. Russia has resources. But US still exercises overwhelming power over the world. Who is to say the Germans, the Turks and so on arn’t betting on the outcome that US succeeds in isolating or subduing Russia? The Russians may have resources everyone would like, but the US still seems to command the ability to bring other countries in alignment with its own interests, even if that means great sacrifices for them.

    1. Conor Gallagher Post author

      Thanks for catching that, Macu. I managed to miss the notes at the bottom of the Visa & Mastercard press releases: “*Note – The fifth paragraph of this statement was updated on March 6 to clarify that all domestic transactions in Russia are mandated to be processed over a switch run by the central bank. Once the suspension of Mastercard network services is completed in the coming days, the company will have nothing to do with these transactions, including any ability to block them.”

  4. ChrisRUEcon

    Ha! Thanks for this!

    I wonder if China as an intermediary would be a less assailable choice …

    Unionpay for everything!

    LOL @ Erdogan’s trolling: “I think Europe will experience serious problems this winter …”

    He’s right, of course!

    Final paragraph rings true as well … wily old fox he may indeed be, Turkey will be made to bend the knee and that eventuality has come to pass.

    Lighting more votive candles as it were in the Chapel of Global Chartalism (patron saint Wynne Godley!) for the BRICS to come up with their own transnational reserve currency. Can’t come soon enough!

  5. Kilgore Trout

    I would hope Turkey/Turkia won’t submit to US blackmail on this matter. Perhaps even threaten to withdraw from NATO if the blackmail threats don’t stop. Turkey seems uniquely placed to use its good offices for negotiations on Ukraine. If, and that a big if, the EU and the US will let Ukraine go the diplomatic route, that is

  6. Kouros

    I found the methodology used to estimate the number of Russians escaping mobilization flawed.

    No information to past travel provided. As if there are no schedule flights.
    Maximum number of passengers seems to be used.
    Also, all passengers seemed to be assumed men btw 18 and 55 years of age…

    1. truly

      I caught that as well. A more important piece of data would be how much of an increase has happened, and as you say, men btw 18 and 55.
      Saying that 30,000 people have flown since mobilization plans were announced is about as helpful as mentioning that all of the hummingbirds have flown south since I had a bad (and smelly) case of gas in mid September.
      Earlier they mention that tourism is up 128%. 30,000 travelers in a few weeks seems like nothing to me.

  7. Lexx

    Initially when our neighbors told us they were going to Turkey for two months*, I felt a twinge of awe. Not for the destination, but for the luxury of being anywhere else house and job-free for such a long period.

    They’ll be staying with his family on the shore of the Mediterranean, in “cabins” that have been in his family’s possession since the 60’s. I wonder if they knew they might be sharing the beach with thousands of Russian tourists/recent residents? I was trying to imagine the response if it were our beaches and competition for our housing.

    *They left last Friday, telling us it was the perfect time of year to be on the beach in Turkey. Hope the weather holds.

    1. Petter

      I’m not sure there is any competition for housing. Southern Turkey has been a tourist destination for decades now.

      1. Greg

        What’s the logic behind Russia sabotaging Nordstream 2? To my mind it is more useful to Russia as the escape route for Germany to break with the US line and avoid catastrophe.
        Whereas I can see the USA having strong interests in ensuring Europe never accesses Russian gas again.

      2. The Rev Kev

        When the pipeline was being built, ships from other nations – not Ukrainian – had to be chased away from the construction scene as they were suspected of wanting to sabotage that pipeline. Maybe by dragging their anchor lines across the area or something. Even a few months ago, a German politician was saying that that pipeline should be destroyed so that there would be no possibility of Germany getting any gas from NS2

  8. Altandmain

    Forcing Turkish banks to not accept the Mir card is a Pyrrhic short term “victory”. In the long run, this will lead to a further alienation between the Western powers and Turkiye.

    That will be because Turkish public opinion will turn on the West. The nation requires additional revenue sources such as Russian tourism because Turkiye has been facing economic challenges, to put it mildly.

    Trust between the Turkish people and the West is very low.

    I can only imagine that this will further lower that little trust. There is also the matter that the US under the neoconservatives seem to be trying to attempt a regime change effort in Turkey.

    Presumably this will involve a government more servile to the Western interests and not at all what the Turkish people want (Ex: not legitimate democracy contrary to the assertions of the neocons). I’m not saying Erdogan is perfect (far from it), but that he is closer to what the public in Turkiye wants than what the Western world wants to believe.

    In the long run, this will lead to workarounds because the Turkish people need the revenue. They also need Russia’s natural resources and agricultural exports.

    1. Jams O'Donnell

      If, as seems to be the case, EU manufacturing is going to take a nose dive then Turkey will lose out in EU exports / imports. In that case, membership of the SCO may come to seem more and more attractive, even if it means leaving NATO, which currently acts in many ways as a brake on Turkey.

    2. Alan Roxdale

      It’s bigger than Turkey. The dollar won’t survive as a reserve currency under these pressures. If I’m a wealthy Turk, or Saudi, or indeed Italian, I would be a fool to trust my assets to the Anglo-American banking system. We’re one State Dept screw up away from millions losing their life savings and no-one trusting the dollar again.

  9. Fazal Majid

    The US has no leverage over China or India, but it does have some over Turkey. Considering the exceedingly fishy US relationship with Fethüllah Gülen, there is a lot of bad blood between Ankara and Washington.

  10. Mickey Hickey

    The anti-Russian propaganda coming out of the US-UK has been unabated since 1946. Russia sacrifices 27 million lives to save Western Europe and the US from the Germans (Nazis) from 1941 to 1945. As my German father-in-law who fought the Russians on the Eastern front told me, the US and UK armed forces sat in the UK complaining about warm beer waiting for Russia to seriously weaken the German offensive. He also told me that Russia took 82% of the total losses of what was then known as the Allies. The blind hatred of Russia continues today led by P and the 3 Bs’. The US-UK MIC are enjoyably profiting from a public that supports wasting hundreds of billions on unproductive activities. Meanwhile the Russia-China-Iran + coalition is growing by leaps and bounds as Western Europe and the USA withers on the vine. How long will this continue?

  11. russell1200

    Turkey-Azerbaijan are fossil fuel competitors with Russia. The various southern pipeline routes have always been viewed skeptically by Russia: and in normal times also by France/Germany who don’t want additional parties sitting on the routing of their fossil fuels.

    In addition (something the NYT forgot to mention in their recent piece on Azerbaijan-Armenian War), Azerbaijan has had very tense relations with Iran: who is currently a friend of Russia.

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