Thread by @Beefeater_Fella

The United States has threatened Turkey with "consequences" for exporting technology to Russia.

This thread explores Turkey’s trade with Russia - and questions whether equal threats should now be made to EU countries complicit in building Turkey as a hub for their products being re-exported into the russian parallel market.

07 August 2024, The Financial Times reports on possible sanctions against Ankara for cooperation with Moscow.

“Washington has warned Turkey that there will be “consequences” if the country does not curtail its exports to Russia of US military-linked hardware that is vital to Moscow’s war machine.”

As part of efforts to curb illegal trade, U.S. Assistant Secretary of Commerce Matthew Axelrod met with Turkish officials. According to the representative of Ankara, the American official demanded that they work harder to limit trade in American-made chips and other spare parts that may be in demand in Russia.

Washington’s warning is the latest sign of how Turkey’s decision to retain strong trade ties with Russia has tarnished relations between the two Nato allies. The US, EU and other western partners have imposed sweeping sanctions on Russia since it launched its full-scale invasion of Ukraine in 2022, but Turkey has eschewed the curbs and increased trade with the country since the war broke out.

Of particular concern to the United States is the fact that Turkey has become a key hub through which Western-made electronics, including processors, memory cards and amplifiers, enter Russia.

At the end of 2023, the Deputy Secretary of the Treasury for Counterterrorism and Financial Intelligence, Brian Nelson, already shared his disappointment about Ankara's trade in military goods. The US Department of Commerce has already imposed sanctions against Turkish companies for allegedly supplying products to the military-industrial complex (MIC) of Russia.

Earlier, Turkish analyst Mehmet Perincek said that Turkey is being forced to impose anti-Russian sanctions in order to weaken its economy and make it not resist the plans of the United States. In his opinion, the conflict in Ukraine is also being used to worsen relations between Moscow and Ankara. This is done to leave Turkey without partners, the analyst believes.

Turkish economic commentator Mustafa Recep Ercin added that because of the sanctions, trade with Russia has turned into a nightmare. In May, he complained that the United States and the EU were intimidating Turkish financial institutions in the event of their cooperation with Russia.

Because of this, the volume of banking transactions fell, and importers faced difficulties in making transactions for purchased products. According to the Turkish Institute of Statistics, shipments to Russia decreased by 32 percent year-on-year in the first quarter.

Washington’s warning is the latest sign of how Turkey’s decision to retain strong trade ties with Russia has tarnished relations between the two Nato allies.

The US, EU and other western partners have imposed sweeping sanctions on Russia since it launched its full-scale invasion of Ukraine in 2022, but Turkey has eschewed the curbs and increased trade with the country since the war broke out.

The US is particularly worried that Turkey has become a key hub through which western-made electronics, including processors, memory cards and amplifiers, are making their way to Russian missiles and drones in contravention of export controls. Machine tools are another significant area of concern.

I argue that if the US is prepared to warn turkey and threaten sanctions for trading with Russia - a wider view and equal threat of sanctions should be applied to European countries. If you think that is controversial, here is why:

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Next 👉 European countries are complicit too

European countries are complicit in the growth of Turkey being a russian trading hub - and they know it!

Not every country in the Caucuses has followed the sanctions circumvention supply chain scam - one exception as an example is Azerbaijan. Their main export markets are Russia, and another group of countries is Central Asia, Caucuses, Belarus, and the UAE. Azerbaijans exports have not spiked or boomed since the invasion and remain comparatively low and moderate, at circa $70 million.

This only represents a handful of dozens of countries that have all seen exponential exports. And this is only one of potentially hundreds of satellite hubs for Russian trade.

One of the largest trading hubs is of course Turkey. The amount of goods and services passing through Turkey is simply staggering. European and G7 nations are masking their sales to Russia through trading hubs such as Turkey.

For example - one of the smallest export EU countries, The Netherlands. Let’s compare what they were trading 2 years ago with a look at their current export destinations:

👉 Dutch exports to Russia were at circa $300 million Euros and after Russia’s latest war on Ukraine this has levelled out to $100 million.

👉 Simultaneously they increased their exports to Turkey from a low of €250 million to a current level in excess of $450 million.

Turkey is a middle man in the supply chain. Yes it enjoys a substantial revenue stream for being the trading hub - but I argue, the players simplicity in the trade begin at manufacturer level. They need to be regulated to ensure they are also not benefiting for knowingly selling to known parallel market exporters and importers.

They are all driven by greed and a need to maintain or increase their global sales, and in doing so they are feeding their products directly to the parallel market and providing russia with both sanctioned and un-sanctioned products, many of which are dual use with commercial and military applications.

Many products are not sanctioned, but lets be clear - any products or services that find their way into russia, support the federal budget in tax revenues to fund the war - and the availability of Western goods and Services, normalises russian consumer expectations and consumer activity - in spite of their genocidal and illegal war being waged in Ukraine.

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Next 👉 The effects of US sanctions threats

The effects of US sanctions threats:

Biden’s decree last year authorized the U.S. to impose sanctions on any bank that helped Russia evade sanctions on the import of items essential for the defense sector. Up to now, no such sanction has been introduced, but just the possibility has been enough to seriously worry many financial institutions.

The U.S. is making strenuous efforts to ensure it is taken seriously: U.S. Secretary of the Treasury Janet Yellen has spent months touring the world – from China to Germany – to issue warnings about financing Russian imports.

As a result, Russian companies have faced serious problems making payments to foreign banks. Turkish banks have demanded additional checks, in and in Hong Kong there are stricter rules for working with Russian clients.

In China, things are especially tricky. In some cases, it is taking six months to process payments through Chinese banks, sources told Reuters last month, and the more closely the goods in question look like potential military components, the more extensive the checks and delays.

The threat of sanctions have also complicated payments in Chinese yuan – which the Kremlin had been relying on as a way of mitigating the effects of sanctions, and reducing risks.

The first four months of 2024 saw total Russian imports fall 10.3% year-on-year to $20.9 billion, according to Central Bank data.

As well as payment difficulties, other reasons for this trend, according to the bank, could be high interest rates, accumulated inventories and the weakness of the ruble.

Which industries are affected?

Deliveries of electronics, equipment and components to Russia are in decline. In particular, there’s less Turkish machinery and Chinese equipment reaching Russia.

In the first three months of 2024 there was a 57% year-on-year fall in imports of “machinery, equipment, vehicles, instruments and apparatus” from Kazakhstan. There were similar falls from Hong Kong (32%) and Serbia (almost 50%), according to The Bell’s calculations.

Why the world should care

Some observers believe there is a risk of blowback from secondary sanctions that could affect markets that have nothing to do with Russia. But it is clear these sanctions are pushing Russia further into isolation, and will cause productivity issues over the long term.

“Recent events show that sanctions can be an effective instrument if they are properly applied and observed,” said Heli Simola, senior economist at the Bank of Finland’s Institute of Developing Economies. “However, it’s obvious that compliance must be constantly monitored and improved as Russia keeps trying to find new workarounds.”

What lies behind this parallel market and russian trading hub activity?

In recent years, in light of the Russia-Ukraine conflict, global economic sanctions have targeted Russian entities and individuals, aiming to curb their activities and financial reach to pressure their government to de-escalate war efforts.

These sanctions were accompanied by decisions by private companies to suspend their activities partially or completely in Russia.

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Next 👉 The parallel import program authorised by Putin

Western companies are leaving Russia in protest of the war, and to avoid any possible backlash against profits gained in Russia, which might be used to finance the latter’s war in Ukraine.

But the withdrawal of Western brands also has massive political implications, serving as a greater reminder to ordinary Russians of their isolation than sanctions on Kremlin officials or central bank reserves.

The sanctions have already shaken the Russian economy, leading to a sharp fall in the ruble and inflationary pressures. Russian-speaking threat actors have jumped on the opportunity to cater to this growing need to evade these sanctions.

There has been a rapid growth of fraudulent activities with the goal of satisfying the Russian consumer and creating an illusion of an intact world in Russia. With this in mind, since the major brand withdrawal and the first sanctions.

In May 2022, Russia launched a parallel import program, covering goods ranging from car parts, and electronics, to clothing, as imports plummeted. In May 2022, Russia published a list of Western goods that can be imported under the parallel import system.

The list includes essentials such as warships, railway spares, and auto parts, as well as consumer goods such as electronics and household appliances, clothing, footwear, and cosmetics – goods that Russia says its Western manufacturers “refuse to supply directly”.

Russia even went so far, as to list specific brands that are eligible for this import scheme. The Russian scheme protects importers from civil lawsuits for bypassing official distribution channels.

Products now arriving in Russia are usually initially exported to countries that are part of the Eurasian Economic Union (EAEU) led by Moscow, with which Moscow shares a customs union: Armenia, Belarus, Kazakhstan, and Kyrgyzstan. These products are then shipped to Russia and sold on the market.

Companies are feigning exits and knowledge of their products being sold to re-exporters to Russia, whilst enjoying the financial benefits on continuing supply volumes of their products. They are without a doubt - a special class of war supporter. They operate with impunity, and with no regard to impacts their product sales have in sustaining an illegal and murderous war of genocide.

For a deeper dive into the parallel market in Russia, and an explanation as to why businesses are using the market to feign “no knowledge or participation” in their products being exported to Russia - read my thread here 👉

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References and sources:











ft.com/content/e7e4e7…
cyberint.com/blog/threat-in…
automotivelogistics.media/trade-and-cust…
b4ukraine.org/whats-new/para…
en.thebell.io/secondary-sanc…
business-humanrights.org/en/latest-news…

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