Putin Visits Turkey as Syrian Crisis Risks Ensnaring Trade Ties

Photographer: Bulent Kilic/AFP/Getty Images

Protesters march on Istiklal Avenue on Sunday against Russian President Viladimir Putin's visit to Istanbul tomorrow. Close

Protesters march on Istiklal Avenue on Sunday against Russian President Viladimir... Read More

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Photographer: Bulent Kilic/AFP/Getty Images

Protesters march on Istiklal Avenue on Sunday against Russian President Viladimir Putin's visit to Istanbul tomorrow.

Russian President Vladimir Putin embarks on his first foreign trip in two months with a visit to Turkey, trying to shield growing trade ties from a widening rift over the Syrian conflict.

Hampered by a back injury since September, Putin postponed a trip to Turkey in October on the same day that Turkish F-16 jets grounded a Syrian airplane flying from Moscow. A one-day visit to Istanbul today will feature a bilateral council and a meeting with Prime Minister Recep Tayyip Erdogan.

The two Black Sea states are trying to keep relations from becoming hostage to Syria’s 20-month civil war that threatens to spill over to neighboring nations, prompting plans to deploy Patriot missile batteries in Turkey, a move opposed by Russia. Still, economic ties showed resilience as state-run OAO Sberbank bought Denizbank AS (DENIZ) for $3.5 billion in June and Russia’s trade turnover with Turkey has increased.

“The two countries have learned to separate geopolitical competition from complimentary commercial cooperation, including energy ties,” said Lilit Gevorgyan, an analyst at IHS Global Insight in London. “There is little that Putin can do to influence Turkey’s choices, unless of course, he conditions commercial ties to his foreign policy calls. But this is highly unlikely to happen.”

The ruble is the top performer among more than 20 emerging- market currencies tracked by Bloomberg over the past month, gaining 1.7 percent against the dollar compared with the Turkish lira’s 0.6 percent advance. Russian credit-default swaps costs five basis points more than Turkey. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Russian Vetoes

Russia, one of five permanent members in the United Nations Security Council, used its veto three times to protect the government of Syrian President Bashar al-Assad, putting it at odds with Turkey, which has backed the rebels who have been fighting to end Assad’s rule since March last year.

Tensions between the former allies have escalated since a shell fired from Syria landed in a Turkish border town in October, killing five people. In June, a Turkish plane was shot down by Syrian forces in the east Mediterranean. Turkey has deployed additional troops and weapons to the border with Syria.

‘No Bargaining’

“There will be no bargaining on Syria for now,” said Fyodor Lukyanov, an analyst at the Moscow-based Council on Foreign and Defense Policy. “Turkey is very important for Russia. It has become an independent player, with its own ideas about what’s needed to be done in the region.”

Erdogan’s government, which has called on Assad to step down and allowed Syrian officers to command the rebel Free Syrian Army from a refugee camp inside Turkey, has asked NATO to place Patriot missiles in Turkey for the first time in about a decade.

While Turkey says the deployment is purely a defensive measure as rebels and government forces are engaged in clashes near the Turkish border, Russia contends the deployment could provoke regional tensions.

In October, Russia accused Turkish authorities of mistreating Russian citizens who were on board a Syrian plane flying from Moscow to Damascus that was forced to land for a search, charges Turkey has denied.

When pressing Erdogan on Syria, Putin will have to weigh his country’s burgeoning economic ties with Turkey that span banking, energy and tourism.

Tourists, Gas

Turkey is Russia’s seventh-biggest trade partner, ahead of all but one member of the so-called BRICS group of the world’s biggest developing markets. It’s the top foreign destination for Russian tourists and the second-largest export market after Germany for state-owned OAO Gazprom. (OGZD) Russia, the biggest energy supplier for Turkey, is also building the country’s first nuclear plant.

Trade and economic cooperation are in a “completely different dimension” from the discord over Syria, said Putin’s spokesman, Dmitry Peskov. Still, Russia is concerned with Turkey’s “unconditional support for one side, which amounts to interference in Syrian internal affairs and an attempt to impose a solution from outside.”

Trade between Russia and Turkey grew to $25.6 billion in first nine months of the year, an increase of more than 14 percent from a year earlier, according to the Federal Customs Service in Moscow.

Turkey may seek to use oil purchases from Russia to offset a drop in oil shipments from Iran as a result of sanctions against the Persian Gulf state, Energy Minister Taner Yildiz said on Nov. 26, according to Hurriyet newspaper.

Rival Route

Turkey, along with Bulgaria, agreed for a Gazprom-led venture to use its Black Sea territorial waters to build a 10- billion euro ($13 billion) pipeline. Gazprom and its partners in the South Stream venture will mark the ceremonial start of construction on Dec. 7, while seeking environmental permits to begin actual construction of the offshore link to southern and central Europe in 2014.

Russia is rushing to begin the project as the European Union is planning a rival route to bring the Caspian region gas to Europe via Turkey and cut dependence on Russian fuel. Last month, Gazprom concluded a 23-year supply agreement with Turkish companies.

“Perhaps reluctantly the two countries appear to have landed on opposite sides of the crisis,” IHS Global Insight’s Gevorgyan said. Still, Gazprom’s deal signals that “Moscow and Ankara have agreed to disagree on geopolitical issues while keeping the focus on promoting business ties.”

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Selcan Hacaoglu in Ankara at shacaoglu@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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