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Turkey looks to ditch dollar in payments for Russian energy

Published: Updated:

Turkey’s President Recep Tayyip Erdogan will discuss paying for Russian energy imports with currencies other than the US dollar when he meets his Russian counterpart, Vladimir Putin, in Tehran on Tuesday, according to Turkish officials familiar with the matter.

The two countries have been working on a proposal for local-currency trade payments, including for energy deals, a move that would help the government in Ankara slow the decline in its sovereign reserves, the officials said.

They expected Erdogan and Putin to take up the proposal on Tuesday on the sidelines of a meeting on Syria in the Iranian capital.

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Russia remains a critical source of energy supplies for Turkey. It provided a quarter of Turkey’s crude oil imports and around 45 percent of its natural-gas purchases last year, giving Moscow a huge surplus in bilateral trade.

Turkey’s exports to Russia amounted to $6.5 billion last year, while its imports from Russia stood at $29 billion. Also, millions of Russians spend their vacations on Turkey’s Mediterranean Coast, spending billions of dollars on travel.

The mechanism under consideration could allow Turkey to use liras for energy imports, saving more of its foreign-exchange reserves, one of the officials said. Any payment made in the Turkish currency could later be used by Moscow to finance Russian purchases of goods and services from Turkish providers.

Similarly, rubles would have to be part of any arrangement between the two nations, the official said. Turkey’s Energy Ministry declined to comment. Russia’s Energy Ministry didn’t immediately respond to an emailed request for a comment.

“Russia ran a trade surplus of about $20 billion with Turkey for 2021 and under current conditions a switch to local currency payments makes sense for both countries. From the Russian perspective it means essentially that exporters will be accumulating more liras instead of EUR or USD, which may be perceived as safer from the sanctions perspective, while for Turkey this may mean a lower pressure on its currency as it will be able to fund part of its external trade deficit locally. -- Alexander Isakov, Russia economist

Over the last few years, Turkish policy makers have negotiated currency-swap agreements with major trade partners to reverse a slow but steady fall in central bank reserves. Turkey’s monetary authority and state-run commercial banks have sold tens of billions of dollars to support the lira since at least 2019 as it came under pressure during disputes with the US and Erdogan-inspired drives to lower interest rates.

Turkey’s gross foreign-exchange reserves fell to just under $59 billion as of July 1, from around $97 billion nearly five years ago. The tally includes the billions of dollars that Turkey has borrowed from foreign nations and its own commercial banks under swap arrangements, masking the real decline in reserves.

Erdogan said last year that authorities sold in excess of $165 billion to defend the currency in the two preceding years.

Russia’s oil production is recovering for a third consecutive month despite unprecedented sanctions imposed by the West after the invasion of Ukraine. Its gas giant Gazprom is curbing exports to Europe.

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