Turkey welcomes Russian oligarch money — but it’s risky for its economy

Russian oligarch wealth is on the hunt for a brand new house, and Turkey is shortly establishing itself as a welcome host.

Turkish International Minister Mevlut Cavusoglu instructed CNBC Saturday that he’d welcome sanctioned Russian oligarchs into the nation as each vacationers and buyers, so long as their enterprise dealings adhered to worldwide legislation.

It got here a day after President Recep Tayyip Erdogan mentioned that “sure capital teams” may “park their services with us,” in what was seen as a direct reference to the current arrival of a number of Russian-owned luxurious property in Turkey, together with two luxurious yachts and a personal jet belonging to billionaire Roman Abramovich.

The feedback have sparked hypothesis that Turkey — a non-EU nation however a NATO member — could also be actively encouraging funding from blacklisted billionaires because it seeks to shore up its embattled financial system. Already, rich Russians are actively looking for investments there, in response to Reuters reviews.

However any potential good points might be short-sighted for a rustic orchestrating a fragile balancing act between Russia and the West.

“Attracting Russian cash may harm Turkey within the long-term,” Defne Arslan, a senior director on the Atlantic Council in Turkey and former economist for the U.S. Embassy in Ankara, instructed CNBC.

Turkey is looking for to tread a superb line within the ongoing conflict in Ukraine.

Whereas strongly criticizing Moscow’s unprovoked invasion, it has stopped in need of implementing sanctions like these imposed by the U.S., EU, U.Okay. and others, saying it opposes them on precept.

As a substitute, it has adopted the function of a impartial mediator, facilitating peace talks between Russia and Ukraine. Negotiations in Istanbul on Tuesday appeared to boost hopes of a breakthrough after Moscow agreed to chop its army assault on Kyiv and Chernihiv, whereas Ukrainian negotiators proposed adopting impartial standing in trade for safety ensures.

Turkey’s stance of nominal neutrality is basically understood given its shut financial and diplomatic ties with Russia, notably relating to vitality, protection, commerce and tourism. As such, Western allies haven’t pressured Turkey to hitch sanctions, nor are they prone to punish it for not doing so.

That makes it a authentic outpost for property belonging to sanctioned Russians. Certainly, an inflow of overseas funding and luxurious property may present a boon for the beleaguered Turkish financial system, which slipped into disaster mode final September as unorthodox rate of interest cuts pushed already spiraling inflation increased.

Nonetheless, Western tolerance is prone to wane ought to Turkey start actively soliciting sanctioned wealth, in response to Emre Peker, director and Turkey specialist at political danger consultancy Eurasia Group.

“In the event that they’re parking their yacht, that is OK,” Peker mentioned. “However Ankara might be very cognizant about Turkey changing into grounds for sanctions and might be cautious to forestall that.”

The Turkish Embassy in London didn’t reply to CNBC’s request for remark.

Turkey can scarcely afford to be hit with secondary sanctions given the strain that the conflict and resultant Russian sanctions have already inflicted on its financial system.

Final month, inflation soared to a 20-year excessive of 54.4% amid a crash within the lira and hovering commodity costs. Knowledge totally reflecting the affect of the conflict are but to be launched.

“Russia’s assault on Ukraine is making Turkey’s financial scenario extra precarious,” Peker mentioned.

“The ramifications are clear,” he continued. “Inflationary pressures are increased, destabilizing the Turkish financial system. The fallout of sanctions will curtail or halt tourism from Russia and Ukraine, which accounted for about one-third of inbound tourism. And it’ll have an effect on Turkish funding into Ukraine and Russia.”

Meantime, Erdogan is eager to uphold Turkey’s fame as an impartial mediator within the ongoing battle, looking for to win favor each at house and overseas forward of elections in 2023.

“Erdogan is determined to get by means of to the elections subsequent yr,” Timothy Ash, senior rising markets sovereign strategist at BlueBay Asset Administration, instructed CNBC.

Nonetheless, there are alternatives for Turkey to shore up its financial system and profit from the motion of wealth from Russia with out drawing political and financial ire.

That features attracting funding from among the 450 Western manufacturers which have to this point withdrawn from Russia, in response to the Atlantic Council’s Arslan.

“If it performs it proper, I feel it may be an enormous alternative for Turkey, not solely staying in keeping with Western allies however doubtlessly attracting funding from overseas firms,” she mentioned, highlighting the similarities between Russian and Turkish geography and manufacturing traces amongst different components.

Certainly, Erdogan mentioned final week that Turkey’s “door is open” to firms seeking to relocate their enterprise exterior of Russia.

“Not solely American firms, but additionally many manufacturers and teams from world wide are leaving Russia. In fact, our door is open to those that come to our nation,” he mentioned.