Happy to Bear


Economic News

22 Jul 2010
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Turkish-Russian ties returned to the spotlight this week in a celebratory manner, as Turkish Prime Minister Recep Tayyip Erdogan travelled to Moscow on an official visit amidst news of strong economic growth between the neighbouring countries. Russian President Vladimir Putin hosted a dinner for the Turkish PM - the fourth in seven months - underlining that Turkish-Russian relations were stronger than ever.

The celebrations were not without good cause, trade between the two countries was up by 50% in the first-half of 2005, and looks set to keep rising. Analysts say that they expect trade to touch the $16bn mark in 2005.

"Last year our trade volume with Ankara reached $11bn and we expect this figure will reach $25bn by the end of next year," said a bullish Putin.

While the two leaders met in the Russian Black Sea resort of Soci, energy ministers from both countries held a joint press conference in Istanbul to announce they had completed discussions in Ankara on economic co-operation.

Referring to the "fast tempo" in trade between the two countries, Russian Energy Minister Viktor Khristenko said, "We couldn't have imagined these figures just three years ago."

Relations have not always been so friendly. Earlier this month, Turkey claimed to have lost over $100m as a result of a Russian ban on Turkish fresh fruit and vegetable products. The ban is now being lifted.

Ahmet Hamdi Gurdogan, the executive board president of the Eastern Black Sea Exporters Union (DKIB), was recently quoted as saying, "Exports to Russia decreased significantly this year. Turkey's losses exceeded $100m due to the ban, which lasted for 35 days."

This is the most recent dispute between the two countries resulting, Gurdogan says, from a lack of communications on both sides. And if history is anything to go by, it most certainly will not be the last.

After the disintegration of the Soviet Union, profound changes took place in international politics, and Turkey saw this as an opportunity to strengthen ties between the two neighbouring countries.

The first historic meetings, which demonstrated a desire for closer relations, were initiated on January 20-22, 1992, when Turkish Foreign Minister Hikmet Cetin visited the Russian Federation. A visit to Ankara by the Russian Foreign Minister Andrei Kozyrev followed only one month later, in February 1992.

The first trade agreement was signed when former Turkish prime minister Suleyman Demirel visited Russia later in 1992. The "Treaty on the Principles of Relations between the Republic of Turkey and the Russian Federation" was signed on May 25-26, 1992. The treaty set out the legal basis and principles for relations between Turkey and the Russian Federation, while confirming the will of both sides to further add new dimensions to their relations.

The Russian president of the time, Boris Yeltsin, then attended the first summit meeting of the Organisation of the Black Sea Economic Co-operation (BSEC) on June 25, 1992.

In spite of such agreements laying the foundation for a new era between Turkey and Russia, further disputes arose. Among the most noteworthy of such disputes took place in March 2003. When the two nations failed to agree on how to calculate Turkish payments for imported Russian gas, Ankara cut imports through the Black Sea pipeline linking the two countries.

Turkey's action went against a 25-year-agreement it signed in 1986 with Russia to import 6bn cu metres of natural gas. A similar agreement had been inked in 1998 for 8bn cubic metres of "Turusgaz".

Russia retaliated by filing a suit in the International Arbitration Court, accusing Turkey of unilaterally breaching its agreement with Gazprom - a Russian joint-stock company which accounts for 25% of the world's gas market. The case against Turkey's state-owned pipeline company, Botas, for its refusal to buy gas via Blue Stream - Gazprom's export arm - was settled when PM Erdogan visited Moscow for talks and the Russians agreed to lower gas prices and quantities.

Before a settlement was reached, however, Russia almost went as far as imposing a ban on Turkish construction companies operating in the country.

Encouraged by increasing investment, relations presently look strong. Turkey's Vestel, for instance, has put up $15m to open a television plant in Alexandrov in December 2002, and has recently invested heavily in a white goods factory at the same location. The plant will start operation in the second half of 2005 with an annual capacity of 500,000 units, and plans an increase to 1m units in the second year of operations.

While Turkish entrepreneurs and traders have been active in Russia, Russian entrepreneurs have also taken an interest in the privatisation of Turkish companies. Russian oil concern Tatneft won a tender for Turkey's largest petrochemical company, Tupras, in early 2005. Though the deal later fell foul of a union challenge in the Turkish courts, Russian interest in Turkey's growing economy has not waned.

Another sign of growing economic integration can be seen in the tourism sector. Russian tourist numbers were up in 2004 to 1.7m from 1.2m in 2003. Turkey is a popular holiday destination for many Russians, though a significant part of the tourist numbers are thought to be made up of traders or temporary workers.

As the world's biggest natural gas exporter, Russia is keen to realise a new project with Turkey in the energy sector. To bypass the impending bottleneck at Turkey's Bosphorus Straits, where oil traffic has risen by 30% in the last two years alone, a new pipeline is now under consideration.

The Trans-Thracian pipeline would run 193 km, from Turkey's western Black Sea coast south to Ibrikbaba on Turkey's Aegean coast, and could potentially transport about 60m tonnes per year. As the waiting time for ships passing through the straits grows, and Turkish patience thins, the Russians are now seeing the potential benefits of bypassing the waterway altogether.

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