Eclipse, the luxury private yacht owned by Russian billionaire Roman Abramovich, moors at the cruise port in the Marmaris district of Mugla, Turkiye, March 23, 2022.
Anadolu Agency | Anadolu Agency | Getty Images
The wealth of Russia’s oligarchs are looking for a new home, and Turkey is quickly establishing itself as a welcome host.
Turkey’s Foreign Minister Mevlut Cavusoglu told CNBC on Saturday that he would welcome sanctioned Russian oligarchs to the country both as tourists and as investors, as long as their dealings comply with international law.
It came a day after President Recep Tayyip Erdogan said that “certain capital groups” could “park their facilities with us,” in what was seen as a direct indication of the recent arrival of several Russian luxury goods in Turkey, including two luxury yachts and a private jet of billionaire Roman Abramovich.
The comments have sparked speculation that Turkey – a non-EU country but a NATO member – may be actively encouraging investment from blacklisted billionaires to prop up its struggling economy. According to Reuters reports, wealthy Russians are already actively looking for investments there.
But any prospects for gains could be short-sighted for a country orchestrating a delicate balancing act between Russia and the West.
“Attracting Russian money could hurt Turkey in the long run,” Defne Arslan, senior director at Turkey’s Atlantic Council and former economist at the US Embassy in Ankara, told CNBC.
Find a fine balance
Turkey is trying to walk a fine line in the ongoing war in Ukraine.
While it has harshly criticized the unprovoked invasion of Moscow, it has shied away from implementing sanctions such as those imposed by the US, EU, Britain and others, saying it opposes them in principle.
Instead, it has assumed the role of a neutral mediator facilitating peace talks between Russia and Ukraine. Negotiations in Istanbul on Tuesday seemed to raise hopes of a breakthrough after Moscow agreed to halt its military attacks on Kyiv and Chernihiv, while Ukrainian negotiators suggested adopting neutral status in exchange for security guarantees.
If they park their yacht, that’s fine. But Ankara will be very aware that Turkey will become a reason for sanctions.
Emre Peker
Director and Turkey Specialist at Eurasia Group
Turkey’s stance on nominal neutrality is widely understood given its close economic and diplomatic ties with Russia, particularly in the areas of energy, defence, trade and tourism. As such, Western allies have not pressured Turkey to join the sanctions, nor are they likely to punish it for not doing so.
That makes it a legitimate outpost for assets of sanctioned Russians. Indeed, an influx of foreign investment and luxury assets could be a boon for Turkey’s struggling economy, which slipped into crisis mode last September when unorthodox interest rate cuts pushed up already-rising inflation.
However, according to Emre Peker, director and Turkey specialist at political risk consultancy Eurasia Group, Western tolerance is likely to wane should Turkey start actively soliciting sanctioned assets.
“If they park their yacht, that’s fine,” Peker said. “But Ankara will be very aware that Turkey will become a subject for sanctions and will be careful to prevent it.”
The Turkish embassy in London did not respond to CNBC’s request for comment.
A flagging economy
Turkey can hardly afford to be hit by secondary sanctions, given the pressure the war and resulting Russian sanctions have already put on its economy.
Last month, inflation surged to a 20-year high of 54.4% amid a slide in the lira and rising commodity prices. Data fully reflecting the impact of the war has yet to be released.
“Russia’s attack on Ukraine makes Turkey’s economic situation even more precarious,” Peker said.
“The implications are clear,” he continued. “Inflationary pressures are higher and are destabilizing the Turkish economy. The consequences of the sanctions will restrict or halt tourism from Russia and Ukraine, which account for about a third of inbound tourism. And it will hurt Turkish investment in Ukraine and Russia.”
Meanwhile, Erdogan is keen to uphold Turkey’s reputation as an independent mediator in the ongoing conflict and seeks to win favor at home and abroad ahead of the 2023 elections.
“Erdogan is keen to get through to next year’s elections,” Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, told CNBC.
An advertisement for Starbucks seen on the highway near Istanbul on Tuesday October 17, 2017.
Nurphoto | Getty Images
Still, there are ways for Turkey to shore up its economy and capitalize on the wealth movement from Russia without stirring up political and economic trouble.
That includes attracting investment from some of the 450 Western brands that have so far pulled out of Russia, according to Atlantic Council’s Arslan.
“If it plays right, I think it can be a great opportunity for Turkey not only to stay in line with Western allies, but potentially to attract investment from foreign companies,” she said, highlighting the similarities between Russia’s and Turkey’s Turkish geography and production lines brought out other factors.
In fact, Erdogan said last week that Turkey’s door is “open” to companies looking to relocate their businesses outside of Russia.
“Not only American companies, but also many brands and corporations from all over the world are leaving Russia. Of course, our doors are open to those who come to our country,” he said.
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