US Threatens Turkey With Sanctions Over Russia’s MIR Card Usage

Posted by

Turkey stands to lose billions in revenues if the US imposes sanctions, but stands to lose freedom of trade sovereignty if it falls into line. 

The Turkish President, Recep Erdoğan is convening a high-level Government economy-focused meeting on Friday (September 23) at which Russia’s MIR payment system and possible Western sanctions will be discussed.

Turkey receives millions of Russian tourists every year, allowing them to access their money in Russia via ATM cards linked to Russia’s MIR payment system permits ordinary Russians to travel and enjoy their holidays. The Russian outbound tourism industry is worth billions of dollars annually and supports large sections of the Turkish economy.

However, the United States and EU said last week they will sanction Turkish banks who provide MIR card services. Several who were planning to do so have suspended MIR card proposals. Erdogan is reportedly furious that the US and EU have taken this position – any Turkish-Russian transactions under the MIR ATM system are purely commercial and not engaged in any criminal activity.

Two private Turkish banks, Denizbank and İşbank, suspended use of Mir this week after Washington expanded its sanctions on Russia over its invasion of Ukraine, including targeting the Russian director operating the payments system. As at today (September 22) Russia’s MIR said its bank cards continued to work in Turkey, apart from the two banks suspending them.

Turkey is a NATO member, and opposes Western sanctions on Russia, however has close ties with both Moscow and Kiev. All have Black Sea coastlines. However, Ankara has condemned Russia’s conflict in Ukraine, although Turkey has been increasing economic ties with Russia.

The U.S. sanctions target both ordinary Russians and businesses doing business with Russia. Last month the U.S. Treasury sent a letter to the larger Turkish MNCs warning they risked penalties if they maintained commercial ties with sanctioned Russians and Russian systems.

Turkey regards the situation as a gross interference in the trade relations between two countries that have enjoyed centuries of trade and sees the United States putting itself into an arbitrary position as judge and punishment provider as to which countries can trade with each other. This puts the United States as the sole power in global trade, and diminishes all other nations sovereignty.

Erdogan will be pragmatic and be looking at both alternatives while maintaining access to Russian trade income, and balancing that against replacement trade volumes with the US and EU. He also holds the NATO card and could use that to counter US sanctions. Ultimately the sanctioning of payment systems will become less of a threat – but only after a few years when cryptocurrency mechanisms are in more common usage. US sanctions threats against banks will then be minimised but this will take a few years.

Turkish exports to Russia are worth about US$6 billion per annum although this is set to significantly increase as Turkish entrepreneurs engage in parallel trading to help replace the exited Western brands from Russia. In 2022 to date, some 2.2 million Russians have visited Turkey, with the primary winter season about to start. An estimated total of 4.7 million tourists from Russia by the 2022 year end has been forecast – provided they can access their money. If not, Turkey stands to lose about US$4 billion in tourism revenues, with knock on effects of unemployment and economic damage to its more popular resorts. Adding Turkish exports to Russia with the loss in tourism trade provides a loss to Turkey of close to US$10 billion if businesses and individuals cannot use MIR cards. That will be higher if the US sanctions Turkish banks. The outcome is that the US is offering sticks but no carrots – and at some point in time countries affected will begin to question where the benefits are, and where the freedom of trade has gone. It is possible that countries like Turkey may be prepared to fight against the US imposition of sanctions for this reason.

Related Reading

 

About Us

Russia Briefing is written and produced by Dezan Shira & Associates. During these uncertain times and sanctions imposition, our firm assists Russian companies relocate to Asia, and provides financial and sanctions compliance services to foreign companies operating in Russia. We also provide market research and advisory services to foreign exporters interested in Russia as the economy looks to replace Western sourced products. Please contact us at russia@dezshira.com or visit us at www.dezshira.com.