Turkey will pay for part of its Russian gas imports in rubles and extend the use of Russia’s Mir payment system, President Recep Tayyip Erdoğan told reporters following a meeting with his Russian counterpart Vladimir Putin in Sochi.
“One good thing about this Sochi visit is that we agreed on the ruble with Mr. Putin,” Erdoğan said, adding that the move would bring money to both Turkey and Russia. “Turkey’s doors are open to everyone and we will provide all kinds of support to anyone who wants to invest in the country,” he added.
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Erdoğan noted that five Turkish banks have adopted Russia’s Mir payment system. “This is a process that makes tourists from Russia very, very comfortable. They can make their shopping and hotel payments with them,” Anadolu Agency quoted the president as saying.
Mir was developed in 2014 to overcome Western sanctions imposed on Russia following the 2014 annexation of Crimea. It would also allow Russia to partially circumnavigate the SWIFT financial network, from which Moscow was banned following its invasion of Ukraine. Turkey’s adoption of Mir means that Russian customers, especially tourists, can make electronic transfers without depending on Visa or Mastercard, which stopped services in Russia. Moreover, Ruble payments would allow Russia to bypass dollar restrictions and Russian banks could trade with Turkish financial institutions through the Mir system.
We're approaching the four year anniversary of Turkey's BoP sudden stop. The lira fell 40% in the week leading up to Aug. 13, 2018 due to US sanctions. Turkey's large current account deficit makes it uniquely vulnerable to sanctions because it needs foreign capital inflows... pic.twitter.com/m50XO2CTMd
— Robin Brooks (@RobinBrooksIIF) August 7, 2022
Turkey’s move comes at a time when Erdoğan’s government has spent tens of billions of dollars trying to prop up the lira, as the currency continues to weaken against the United States dollar (USD). Last month, the lira crashed to a new low of 17.50 to the USD.
The lira crisis has largely been blamed on Erdoğan’s policy of cutting interest rates despite inflation continuing to rise. In this respect, Turkey’s decision to pay in rubles could help Erdoğan in his re-election campaign for next year’s presidential election. Paying in rubles would allow Turkey to use dollars to prop up the lira and protect its hard currency reserves.
Russia's Deputy Prime Minister Alexander Novak says Russian President Vladimir Putin and Turkish President Recep Tayyip Erdoğan agreed that Turkey would start partly paying in rubles for Russian gas supplies.#Türkiye #RecepTayyipErdoğan #anews pic.twitter.com/yhl2jWBwDe
— ANews (@anews) August 6, 2022
Turkey is heavily dependent on Russian energy. In fact, Moscow is Ankara’s third largest supplier of natural gas and accounts for a quarter of its gas imports. Russia is also Turkey’s largest supplier of crude oil, providing Turkey with almost half of its oil.
Erdoğan also said there would be no restrictions on Russian nuclear agency Rosatom in the construction of Turkey’s first nuclear power plant. The $20 billion Akkuyu nuclear power plant is being built by Rosatom under a joint venture. Turkey aims to start the first reactor of the plant by mid-2023, the 100th anniversary of the founding of the Republic of Turkey.
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Noting that Turkey’s ties with Russia are special, Erdoğan said his meeting with Putin demonstrates Turkey and Russia play a very important role in global politics. Putin praised Erdoğan for visiting Russia and vowed to expand cooperation with Turkey in all fields.
Turkey’s decision to pay for Russian gas in rubles is likely to upset its fellow North Atlantic Treaty Organization (NATO) allies, especially the US, as the West has been trying to reduce dependence on Russian energy and look for alternate sources. Moreover, while Turkey has voiced concerns over Russia’s invasion of Ukraine, it has toned down its criticism of Moscow and refused to impose sanctions, unlike other NATO members and the West at large.