The Russia-Ukraine War is Threatening Turkey’s Economy

As Russia’s invasion of Ukraine grinds on, its impacts are already being felt far beyond Ukraine’s borders. In Turkey, the war has cast a shadow over President Recep Tayyip Erdogan’s economic ambitions, which include reining in soaring interest rates, boosting exports, spurring growth, and creating jobs.

Turkey’s ties with Russia and Ukraine have long benefited the Turkish economy, but now, they have become liabilities.

Once viewed as having the potential to be a major food producer, Turkey today imports most of what it eats. As inflation rates climb, this dependence on buying from abroad is bankrupting consumers. The Turkish Statistical Institute (TUIK) recorded a 16.4 percent increase in the consumer price index during the first two months of 2022, while Turkey’s Inflation Research Group (ENAGrup), which tracks price trends, estimates that consumer goods and services spiked nearly 124 percent between February 2021 and February 2022.

The rising cost of wheat is particularly problematic. In 2019, Turkey became the third-largest wheat importer in the world, and today, it imports almost 20 tons annually. According to the Turkish Grain Board, the price of wheat per ton has surged to USD $517, up from $262 last March, the most it’s been in 14 years. As a result, the price of bread is 120 percent higher than three years ago. And because Turkey imports 65 percent of its wheat from Russia and 13 percent from Ukraine, these prices are only going to worsen.

The war in Ukraine has also led Turks to panic buy sunflower oil, which Turkey imports in abundance (it is the world’s largest importer of this commodity). Again, Russia and Ukraine are the key sources, accounting for 70 percent of Turkey’s imports. In the last week alone, the price has jumped to $2,000/ton from $1,400/ton, and fears are rising that the country will soon run out of the essential cooking oil. Ankara is trying to solve the problem by subsidizing the planting of sunflowers this growing season, but it remains unclear how much of Turkey’s needs can be met domestically. 

Finally, fuel prices are skyrocketing, as they are in many countries. Six months ago, the average price for a liter of gasoline was 7.76 lira (about $0.53). Today it is nearly triple that. Some 4,000 service stations are on the verge of shutting down as customers stay away from the pump. If things continue like this for much longer, more than 50,000 people connected with the oil and gas industry could be out of work.

As Turks line up for bread across the country, inflation fears are dominating Turkish society. “Everything is getting expensive, from your food to your bread, from your shirt down to the socks you wear,” one participant in Istanbul’s subsidized bread program recently told Al Jazeera. The sentiment is nearly universal. A February 2022 report from the Gezici Research Institute found that 71 percent of Turks say that the country’s teetering economy is their biggest concern and that an economic crisis is looming.

Unfortunately, the government’s mitigation strategy is obfuscation. Despite the lira losing 44 percent of its value against the dollar in 2021, the government insists Turkey’s economy grew 11 percent last year. But as economist Fatih Ozatay has suggested, official numbers are almost certainly tampered with; the actual percentage is likely closer to four percent. Yet even if Turkey’s economy did grow anywhere close to double digits last year, 2022 will be another story. As Simone Kaslowski, President of the Turkish Industry and Business Association, notes: “The war between Russia and Ukraine has increased the [economic] risks for Turkey.” 

One reason is Turkey’s exposure to the Russian and Ukrainian markets. Currently, there are more than 700 Turkish companies in Ukraine with more than $4.5 billion worth of investment. One of them is Anadolu Efes, Europe’s fifth-larger brewer, which has 11 facilities in Russia and three in Ukraine. All of them have temporarily shut down. 

The ready-to-wear clothing manufacturers based in Istanbul’s Laleli district have also been hurt. Orders by companies in Russia and Ukraine make up 40 percent of the district’s $3 billion in annual trade volume. Sales have come to a standstill since the war started.

Unlike its Western counterparts, Turkey has fewer options to bring Russia to the table. While Europe shuts its doors to Russian airlines in retaliation for the Kremlin’s actions, Turkey remains reliant on Russian holiday makers. Russians do not need a visa to enter Turkey and can stay in the country for 90 days every six months. There are already roughly 30,000 Russians living in Antalya, and the Russian-Turkish Business Association estimates there have been as many as 100,000 marriages between Russians and Turks in recent years. 

These family ties translate into new cash flowing into the housing market, especially in Istanbul. According to TUIK, in December 2021, Russians were among the top foreign buyers of homes in Turkey. Already a popular Russian tourist destination, Turkey could become an important safe-haven for those escaping Russian authoritarianism.

As the smoke of Russia’s war machine continues to engulf Ukraine, Europe is on edge for what comes next. But in Turkey, the war has already arrived. The sooner that Ankara concedes to this reality, the more ammunition Turks will have to weather the economic storm.

By Alexandra de Cramer is a journalist based in Istanbul. She reported on the Arab Spring from Beirut as a Middle East correspondent for Milliyet newspaper. Her work ranges from current affairs to culture, and has been featured in Monocle, Courier Magazine, Maison Francaise and Istanbul Art News.

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