Turkey Eyes Energy Hub Role

Turkey continues to be a key beneficiary of Russia’s war on Ukraine. It’s not just eyeing coveted status as a ‘European hub’ for Russian gas, it’s also raking in big bucks from refining rerouted Russian oil and safe-havened oligarch cash.

Since Russia invaded Ukraine in February, Turkey has significantly increased its imports of Russian crude oil, which it then processes and exports as refined oil products to the EU and the US. We’ve seen the biggest spike in the past two months, as the EU ban on seaborne Russian crude draws closer. In September and October, Turkey enjoyed an 85% increase (over the previous two months) in exports of refined Russian oil products to the EU and the U.S.

The Finland-based Centre for Research on Energy and Clean Air (CREA) recently released new data showing that Russia took in $21.7 billion in fossil fuel exports in October. That’s 7% lower than in September, but the gap is being filled and it’s certainly not a percentage that suggests the dismantling of Moscow’s war coffer. (Those war coffers have just been further topped up by a $1.4-billion payout from oil giant Rosneft).

Other data based on Turkey’s own Ministry of Trade shows Turkey’s total imports (all goods) from Russia more than doubled in the first nine months of this year (YoY), with oil and gas making up the bulk of that increase. Western companies are more than happy for the Turkish bypass that basically lets them access Russian energy products without running afoul of sanctions.

And imports and exports aren’t the only form of money flowing into Turkey courtesy of Russia’s war on Ukraine … Try over $28 billion in capital inflows this year so far, none of which can be accounted for other than to. This is where Russian money (oligarch and state-run) is going to find safe haven.

All the new liquidity certainly comes in handy for Erdogan who is facing an election at a time when inflation is skyrocketing, with official figures showing it has topped 85.5% YoY, hitting a 24-year high in October. Costs of living have risen 99% YoY, and still, Erdogan refuses to raise benchmark interest rates; instead, Erdogan ensures the bank keeps cutting interest rates, which he feels are the stuff of the Devil.

This is the backdrop against which Turkey will hold snap presidential and parliamentary elections next June. Despite out-of-control inflation, Erdogan is expected to win, and his victory, in part, will be made possible by the enormous amount of global political capital he has earned (along with Russian oligarch capital) since Russia’s invasion of Ukraine.

On Thursday, Turkey earned itself yet more global political capital when it convinced Russia to agree to renew the Ukraine grain export deal. But at the same time, Turkey likes to remind Russia that it’s not just a place to store oligarch money and reroute oil … In an unexpected move, since Turkey has not bound itself to Western sanctions against Russia, Ankara has announced that all oil vessels traversing its waters will have to provide proof of insurance starting on December 1st, a few days before the EU ban on Russian seaborne crude goes into effect. Partly, this is meant to cover Turkey in the event of any disastrous spills; but it’s also Erdogan’s way of reminding Moscow where it stands.