Ukraine Ties at Odds With Putin’s Gas Roil Bonds: Turkey CreditSelcan Hacaoglu and Benjamin Harvey
Turkey’s bonds are showing the strain of the nation’s ethnic ties to Tatars in southern Ukraine, embroiled in an escalating crisis with Russia, the source of more than half the Mediterranean country’s gas.
As Russian forces strengthened their presence in the Crimea region yesterday, sending global stocks swooning, the deepening crisis added to stress on Turkish bonds and the lira, which have been rocked by a corruption scandal. The currency fell for the first time in three days, while 10-year yields jumped the most after Russia among 23 emerging markets tracked by Bloomberg. The lira gained today.
Turkey’s Ahmet Davutoglu was one of the first foreign ministers to visit acting Ukrainian President Oleksandr Turchynov in Kiev as he sought to bolster an administration looking to build ties with Europe. Relations with Vladimir Putin were already strained by the Syrian war, where Turkey and Russia are on opposite sides.
“It’s just yet another reason to sell Turkish assets,” Abbas Ameli-Renani, an emerging market strategist at Royal Bank of Scotland Group Plc, said by e-mail yesterday from London. “Turkey’s geopolitical interests of course warrant a strong policy action from the foreign policy team, but the reaction we’ve seen here will not go down well with Russia at all.”
The Turkish lira strengthened 0.8 percent to 2.2150 per dollar at 10:18 a.m. in Istanbul today.
“Turkey will make every effort to secure Crimea’s future within Ukraine’s territorial integrity,” Davutoglu said in the Ukrainian capital, as pro-Russia protesters and Russian troops began their advance on Crimean civilian and military installations. The region lies across the Black Sea from Turkey’s northern shore, and is home to the minority Tatar community whose Turkic-speaking Muslim state was annexed by Russia in the 18th century.
Turkey received 14 billion cubic meters of gas last year through a Russian pipeline that passes through Ukraine, and 16 billion cubic meters of Russian gas from the Blue Stream pipe beneath the Black Sea, Necdet Pamir, an energy expert at Bilkent University in Ankara, said by phone yesterday.
Russia supplied 58 percent of Turkey’s natural gas and 10 percent of its crude oil in 2012, according to the latest data available on the U.S. Energy Information Administration’s website. Turkey imports almost all of its energy.
“If there is a shortage of gas through the Ukraine route as a result of an attack or financial dispute, that would seriously hurt Turkey’s most populous northwestern region, including Istanbul,” said Pamir. About 44 percent of Turkey’s electricity production relies on gas, he said.
Control of the gas taps provides Russia with a key political lever. Gas-export monopoly OAO Gazprom said March 1 it may end last year’s agreement to supply Ukraine at a cheaper rate unless it’s paid $1.55 billion it is owed.
Crimea, where ethnic Russians comprise the majority, has become the focal point of Ukraine’s crisis, the worst standoff between the West and Russia since the end of the Cold War. Ukraine has mobilized its army and called for foreign observers after Russian forces took control of the peninsula. Russia has called for a meeting of the United Nations Security Council.
The yield on Turkey’s 10-year bonds surged 21 basis points yesterday to 10.69 percent. It fell 3 basis points to 10.66 percent today. Credit default swaps insuring the nation’s bonds against non-payment jumped yesterday to the highest level in more than a week.
Where gas now flows, past commerce included slaves captured by Tatar raiding parties in neighboring countries, many of whom were sold to Genoese merchants feeding the demand for captive labor in the Ottoman Empire and western Europe.
Much later, Josef Stalin deported the Tatars from Crimea in 1944 as collective punishment after some of them sided with Nazi Germany. Hundreds of thousands returned after Ukraine’s independence in 1991 following the collapse of the Soviet Union. Turkey built 1,000 homes in the late 1990s to help resettle Crimean Tatars in their ancestral land, according to Turkey’s Foreign Ministry.
Russia may be constrained in using its energy supplies as a political weapon only by its own deteriorating economy, according to Tim Ash, an emerging-market economist at Standard Bank Group Ltd. in London.
Russian shares climbed as much as 4 percent today, after plunging as much as 13 percent yesterday. The ruble also recovered, gaining 0.8 percent after falling to the lowest on record against the dollar and euro yesterday. The central bank raised its main interest rate the most since 1998 to shore up the economy as U.S. President Barack Obama warned Putin that aggression against Ukraine could lead to Russia’s political and economic isolation.
“I think Russians, and Ukrainians, are both eager to keep gas flowing to Europe,” Ash said. “They need the money now more than ever, and they don’t want to give the Europeans another excuse to accuse them of being unreliable partners.”