A recent move by the United States to impose sanctions on financial institutions dealing with Russia has cast a shadow over the trade between Turkey and Russia, causing disruptions and delays in payments for imported oil and Turkish exports, according to sources familiar with the situation.

While the executive order issued in December didn’t specifically target the energy sector, it has complicated payment processes for Turkish purchases of Russian crude oil. For various Turkish exports, the sources revealed.

The objective of the U.S. sanctions is to undermine the Kremlin’s financial resources and hinder its military activities in Ukraine, all while avoiding a spike in gasoline prices that could be politically sensitive for President Joe Biden, who is seeking re-election in November.

According to oil traders, these payment difficulties are not just affecting Turkey; they have also hampered Russian oil supplies to India and complicated business dealings with the United Arab Emirates and China.

Russia stands as a significant supplier of crude oil and diesel to Turkey, a NATO member with a high energy demand. However, emerging issues stem from Turkish banks scrutinizing their dealings and adhering more strictly to compliance standards with their Russian counterparts.

According to sources within the oil industry, while these payment challenges have caused some delays in cargo shipments, they have not significantly disrupted Turkey’s crude oil supplies.

A source from a major Russian oil company disclosed that payments from Turkey have not been received for a period of two to three weeks, attributing the difficulty to the sanctions imposed in December.

In response to the payment disruptions, adjustments have been made to the agreed-upon payment methods, or payments have been postponed, though the shipments have continued. However, this situation introduces uncertainties on a shipment-by-shipment basis.

Individuals within the industrial and financial sectors discussed these issues on the condition of anonymity, underscoring the sensitivity of the matter.

Although the Turkish Treasury declined to comment and the country’s banking watchdog, BDDK, remained silent on the matter, it’s evident that Turkey finds itself in a delicate position, opposing Western sanctions on Russia while maintaining diplomatic ties with both Moscow and Kyiv.

Despite Ankara’s assurance that it won’t allow sanctions to be bypassed on its soil, pressure from Washington has escalated, especially concerning the transit of dual-use goods that could potentially aid Russia’s military efforts. Additionally, there’s a looming threat of secondary U.S. sanctions targeting Turkish banks and companies, further complicating the situation.

“EXTREMELY METICULOUS”

The disturbance in Russian-Turkish payments originated when President Biden signed an executive order on December 22, threatening financial firms aiding Russia in evading sanctions with potential exclusion from the U.S. financial system. This order specifically targeted financial institutions conducting business on behalf of entities sanctioned by the U.S.

On February 1, the Kremlin acknowledged that Turkish banks were tightening regulations on Russian clients due to what it described as “aggressive” pressure from the U.S. The Russian government stated that it was collaborating with Turkey to address these challenges.

Elvira Nabiullina, Governor of the Russian Central Bank, highlighted additional obstacles in foreign trade transactions, particularly concerning settlements and logistics, during a recent statement.

Turkish bankers emphasized the meticulous scrutiny they apply to transactions involving sanctions, with compliance departments closely monitoring all activities. They underscored the sensitivity of the issue and the proactive measures taken by banks to ensure compliance.

A senior official from the U.S. State Department expressed satisfaction with reports indicating that Turkish banks were reviewing their operations and enhancing compliance measures for dealings with Russian clients. The official reiterated the U.S. stance that foreign financial institutions bear responsibility for preventing transactions that benefit Russia’s military or facilitate the circumvention of U.S. sanctions.

Trade data for January revealed a significant decline in Turkish exports to Russia, dropping by 39% year-on-year to $631 million. Conversely, imports from Russia also decreased by 20.2% to $4 billion in January.

Although crude oil imports from Russia surged in 2022, reaching 12 million tons, they declined by 20% from January to November 2023 compared to the previous year. Despite this decrease, oil imports remained above pre-war levels.

However, the most substantial impact was felt in non-oil trade, particularly in machinery exports, which experienced interruptions due to perceived similarities with military equipment.

A source familiar with the issue emphasized that the primary concern lies not in Turkey’s outgoing payments but in the incoming payments it expects to receive. This demonstrates the circumspect attitude Turkish banks have towards sanctions.

In summary, the recent developments underscore the complex dynamics affecting Russian-Turkish trade, driven by geopolitical pressures and regulatory constraints, with both countries navigating challenges to ensure compliance while sustaining economic ties.