The Russian Central Bank published the scope and currency structure of the Russian-Turkish trade. Turkey is Russia’s 5th biggest trade partner, and it primarily receives USD as payment for its export of goods and services, while it transfers rubles for 1/3 of its imports to Ankara.
The Bank of Russia began to disclose the currency structure of bilateral trade between Russia and Turkey. The first data was published for the second quarter of 2019 and in retrospect for all periods starting from 2013. The data can be found as an Excel file here [.xlsx].
Prior to this, the Central Bank disclosed only the share distribution by currencies in trade with the European Union, China, India and the EAEU countries – Belarus, Kazakhstan, Armenia and Kyrgyzstan.
As mentioned above, Turkey is Russia’s fifth largest trading partner, with a turnover of $13.2 billion in the first half of 2019 and $15.4 billion including services, and most recently, Moscow and Ankara signed an intergovernmental agreement on settlements in national currencies.
The Russian Ministry of Finance disclosed to RBC that in 2018, the share of trade settlements between Russia and Turkey in rubles amounted to 21%, in dollars – 65% and in euros – about 13%, but without a breakdown by export and import.
US Dollar is still the main payment for Russian exports from Turkey, the settlements in national currencies agreement hasn’t completely stepped in yet.
In the first half of 2019, Russia mainly exported goods and services to Turkey for US dollars – 83.1%. In monetary terms, this is more than $8.5 billion from total exports of $10.28 billion. Only 11.7% of Russian exports to Turkey are denominated in rubles, or about $ 1.2 billion.
Finally, 5% of exports, according to data for the first half of 2019, were carried out in EUR and 0.2% in other currencies, including the Turkish lira.
The currency structure of settlements for Russian exports to Turkey for January-June 2019 almost exactly corresponds to the distribution for 2018. Generally, some years there are more exports that are paid in rubles, but USD still remained in the 80-90% share.
Traditionally, the main share of Russian exports to Turkey falls on oil and gas, metals and various products resulting from them. So, in the first half of 2019, about 58% of all exports of goods and services, or $5.9 billion, accounted for oil, oil products and natural gas.
Most likely, the sale of Russian weapons is carried out for rubles – especially if we take into account the unfavorable sanctions background both around Russia and around Turkey, says Dmitry Dolgin, ING chief economist for Russia and the CIS.
This is indirectly evidenced by the experience of trade between Russia and India, where in the first half of the year there was a jump in exports in rubles to 76.5%, which coincided with the news about the next deliveries of Russian weapons to India, Dolgin pointed out.
The Russian Federal Customs Service reports that deliveries under the secret code SSSS, in the first half of 2019 amounted to $45 million, and went up to $593 in August 2019. Turkey bought 4 S-400 missile defense systems, in the amount of $2.5 billion and paid part of the sum in advance, with some of the deliveries already a fact.
In the import of Turkish goods and services to Russia, the ruble occupies a more significant place. Total imports of goods and services from Turkey amounted to $ 5.1 billion for the first half of 2019. Out of the sum, 39.7% were paid in USD, 32.8% in rubles and 25.7% in EUR.
More than half of Turkish exports to Russia is the provision of services. In particular, the cost of tourist services provided to Russians in Turkey relates to Russian imports of services. However, Russian tour operators pay contracts in euros with their Turkish partners, but “do not pay in rubles,” said Maya Lomidze, executive director of the Association of Russian Tour Operators.
According to her, Russian tourists didn’t want to pay in rubles to Turkey, because of the unfavorable exchange rate.
Another channel for possible transfers of rubles for imports from Turkey is the sale of construction services and building materials to Russia, said Sergey Suverov, senior analyst at BCS Premier.
In general, the share of settlements in national currencies in trade between countries is greater, the more they have mutual investments and the presence of affiliated companies in various partner sectors, said Alexander Knobel, director of the Institute of International Economics and Finance of the All-Russian Academy of Foreign Trade.
“Turkey has certain investments in this sector. If the company operates in Russia and sells services here, then, of course, it has revenue in rubles. And it is quite reasonable to make purchases also in rubles, if it is connected with some affiliated companies in Turkey,” he said.
But, with the agreement for settlements in national currencies, the US dollar will be used less and less as the years go by, but that will likely not be a sudden and instantaneous event.
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