Russian President Vladimir Putin signed a decree on November 28 imposing economic sanctions against Turkey over the downing of a Russian jet by the Turkish military over the Syrian border.

Among the measures announced are restrictions on imports of some Turkish goods, a ban on charter flights from Russia to Turkey, an end to Russian tour operators selling trips to Turkey and suspension of employment of Turkish nationals.

The decree signed by Putin has ordered the Russian government to prepare a list of goods, companies and jobs that would be affected. There are close to 90,000 Turkish nationals working in Russia, Putin’s spokesman, Dmitry Peskov, said, adding that taking family members into account that figure rises to 200,000. Most of those Turkish citizens are employed in Turkish companies’ construction projects.

It is difficult to estimate how much the Russian sanctions could cost the Turkish economy exactly, but if Russia fully and strictly implements the measures, the damage could be substantial. Turkey’s exports to Russia at $5.9bn accounted for 0.74% of Turkey’s $800bn economy.

But it is significant that Russia has not taken any concrete measures regarding natural gas exports to Turkey, the Turkish Stream gas pipeline and the Akkuyu nuclear power plant. Russia could bring the Turkish economy down to its knees, if it really wanted to do, by cutting all energy supplies. Yet, the noose-tightening measures announced by the Kremlin suggests that the damage to the Turkish economy will be limited. It looks like Russia just wants to give Ankara a taste of what would happen if it messes with Moscow again.

“Our best estimate of the maximum losses to the Turkish economy is around 0.5% of GDP a year,” argued William Jackson from Capital Economist in an emailed report, published on November 30. “The tourism sector is likely to be the biggest loser, but only if the measures remain in place until the summer. And, overall, the hit to the economy may well be offset by the gains from the EU’s recent pledge of €3bn of aid to Turkey to help with the migrant crisis”. The gains to Turkey could be much larger still if a planned reopening of talks on the country’s accession to the EU lead to meaningful economic reform, according to Jackson.

Bilateral Trade

Trade volume between the two countries was more than $30bn last year. Turkey and Russia were planning to boost the trade volume to $100bn by 2020.

Russia’s share in Turkey’s total imports was 10%, while exports to Russia accounted for 3.8% of Turkey’s all exports. Russia was Turkey's seventh biggest export market and its largest import partner in 2014. As Jackson pointed out: it is very unlikely that all goods from Turkey could be banned, but only some agricultural goods.

Agriculture

Around 20% of Turkey's food industry exports went to Russia last year, generating $1.1bn in revenue. Turkish vegetables account for 20% of the total Russian imports of vegetables, according to the Russian Minister of Agriculture Alexander Tkachev, adding that Turkey supplies more than 360,000 tonnes of tomatoes to Russia. Import of vegetables – tomatoes in the first place – will be substituted with those from Iran, Morocco, Israel, Azerbaijan, Uzbekistan, he said on November 25.

Turkish tomatoes account for one fourth of total exports of Turkish food products to the Russian market. "Turkey imports about 250,000 tonnes of citrus fruits, a quarter of the total citrus imported into Russia,” the head of the agriculture ministry said, reported TASS. “We can replace citrus imports by supplies from South Africa, Morocco, China, Argentina, Israel, Abkhazia, Georgia”.

Tourism

Turkey is one of the favourite destinations for Russian tourists. In 2014, 4.5mn Russian tourists visited Turkey, representing a 12% share in total foreign tourist visits to the country, second only to Germany. In the first 10 months of 2015, the number of Russian tourists declined by 19% y/y to 3.5mn. The Russian government on November 27 announced that it would suspend the visa-free regime with Turkey from January 1, 2016.

According to the Russian Tourism Agency, Turkey’s annual income from Russian tourists is estimated at $10bn. But, Capital Economics disputes this figure. While Jackson from Capital Economics admits that perhaps the most damaging impact to Turkey from the sanctions will come via tourism, he says: “but to take an extreme example, were no Russian tourists whatsoever to visit Turkey over the whole of 2016, the loss to Turkish tourism revenues might amount to $3bn, or around 0.4% of GDP”.

Industry and textiles

Russia purchased Turkish-assembled cars last year worth $794mn. Turkey exported $174mn worth of steel to Russia in 2014, while cement and glass shipments amounted to $128mn. According to data of the Turkish Exporters’ Assembly, Turkish companies collected $89mn from the precious metals & jewels sales to Russia, while electronic goods sales totalled $314mn. Local air conditioning and refrigeration manufacturers delivered $299mn worth of goods to Russia last year. Chemicals exports stood at $607mn and machinery & equipment sales to Russia generated $359mn.

Some 15% of Turkey’s textile exports, worth $910mn, went to Russia last year. Leather and leather products exports generated $410mn in revenue. More than 30 Turkish retailers, including ready-wear, home textile, jewellery, and furniture companies, operate 700 stores across Russia, according to the Turkish Hurriyet newspaper.

Construction

Russia is a lucrative market for Turkish construction firms. Between 1989 and 2014, Turkish companies carried out more than 1,900 projects with a total value of more than $60bn, making Russia by far the most important market for Turkish construction services. In the first nine months of the year, Turkish construction companies have been awarded eight projects in Russia. The value of these projects is $2.3bn.

Energy

Turkey imports nearly all of its energy supplies, spending around $50bn a year. Russia is Turkey’s largest supplier of natural gas. Turkey imported 49.3bn cubic meters of natural gas in 2014 of which 27bn cubic meters came from Russia.

Even though Putin did not order any restrictive measures that could sever energy ties, Russia’s Economic Development Minister Alexey Ulyukayev had previously suggested the Turkish Stream gas pipeline and the Akkuyu nuclear power plant projects may fall under these restrictive measures.

“While Moscow may threaten to cut off gas supplies, this remains unlikely”, said Teneo Intelligence in an email on November 27. “In contrast, Russia may be more serious about cancelling or freeze the ‘Turkish Stream’ gas pipeline project.”

In December 2014, Turkey and Russia signed a memorandum of understanding for the construction of the gas pipeline after Moscow decided to abandon its South Stream project.

With an estimated price tag of €11.4bn, the Turkish Stream project’s four-strand pipeline would carry a total of 63bn cubic metres of gas per year to Turkey and to southern Europe via Greece by 2020. According to the agreement, Turkey would receive 14bn cubic meters of that amount and the rest would be delivered to the Turkish-Greek border.

Russia and Turkey inked a deal for the Akkuyu plant back in May 2010. Russia's nuclear concern Rosatom has been commissioned to build the nuclear power plant at an estimated cost of $22bn. The first reactor of the plant is expected to come online by 2022.

“But the most important will be the question of whether or not to hold on to Russia’s build-and-operate-transfer project for Turkey’s first nuclear station in Akkuyu. A negative decision could have long-term implications for Turkey’s efforts to reduce the country dependence on fossil fuel imports,” said the analysts at Teneo.

MAJOR TURKISH COMPANIES DOING BUSINESS IN RUSSIA

Enka Insaat

Sector: Construction

Share price as of November 26: up 0.65% compared to end-2014, down 6.44% compared to November 23.

One of Turkey’s largest contractors, Enka is also one of the largest Turkish construction companies doing business in Russia. Russia accounts for 12% of Enka’s order book, or $270mn as of end-September 2015. Its retail portfolio in Russia includes 337,000 square meters of class A office space, 276,000 square meters of retail space, and a five-star hotel in Moscow, while total rental income from Russia declined by 21% y/y to $293mn in January-September, representing 8% share in consolidated turnover. The company has completed 130 projects in Russia since 2002.

Anadolu Efes

Sector: Brewing

Share price as of November 26: down 10.42% compared to end-2014, down 5% compared to November 23.

The market share of Anadolu Efes, Europe’s sixth largest brewer, in Russia, the world’s fourth largest beer market, was 13.6% as of end-September. Russia is Anadolu Efes’ largest beer market, despite unfavourable regulatory developments in recent years. Sales volume in Russia has a 50% share in Anadolu Efes’ total beer sales, and  an18% share in combined beverage sales. Russia’s Interfax reported that a group of young people staged a protest outside the office of Anadolu Efes in the city of Ulyanovsk and tore down a Turkish flag.

Tupras

Sector: Refining

Share price as of November 26: up 33.82% compared to end-2014, down 0.80% compared to end-November 23.

Turkey’s sole refiner Tupras imported 2.69mn tonnes of crude oil and other oil products from Russia in January-August, a 15% share in the company’s total oil imports. Russia’s share was 9.6% in Tupras’ oil imports, or 1.97mn tonnes.

Arcelik

Sector: Household appliances

Share price as of November 26: up 9.46% compared to end-2014, down 4.80% compared to November 23.

Arcelik, one of Europe’s largest household appliance makers, has a refrigerator and washing machine production plant in Russia and also a subsidiary, Beko. Russia and Ukraine make up just 3% share of the company’s total sales.

Vestel Elektronik

Sector: Household appliances

Share price as of November 26: down 15.43% compared to end-2014, down 7.89% compared to November 23.

Vestel has a refrigerator production plant in Russia. This factory annually produces close to 90,000 units.

Zorlu Enerji

Sector: Energy

Share price as of November 26: down 34.95% compared to end-2014, down 7.59% compared to November 23.

Zorlu Enerji has two power plant investments, namely Tereshkovo and Kojukhovo, in Russia through its 75.5% subsidiary Rosmiks.

Turkish Airlines

Sector:  Air transport

Share price as of November 26: down 19.73% compared to end-2014, down 9.38% compared to November 23.

A decline in tourism activity, as a result of the crisis with Russia, will hit Turkish Airlines (THY), one of the world’s fastest growing carriers, which has tripled its global market share over the last decade. The Turkish operator increased Russian flights by more than 16% in 2015 as international rivals cut services by as much as 43%, Bloomberg reported on November 11. As a result, Turkish Airlines has become the biggest foreign carrier serving Russia as competitors including former market Lufthansa drop flights amid a slump in demand. The carrier has 90 flights per week to 10 destinations in Russia and Russia operations have a 1.5% share in total revenues. The carrier was also planning to add Makhachkala as its 11^th destination in Russia.

Anadolu Cam

Sector: Glassmaking

Share price as of November 26: down 11.5% compared to end-2014, down 8.76% compared to November 23.

Anadolu Cam, one of the country's largest glassmakers, has five production plants with a total annual capacity of 1.2mn tonnes in Russia, representing around half its output. The company, part of the Sisecam group, also has a sand producing subsidiary, OAO FormMat, and a sand producing JV, OOO Balkum, in the country. Revenues from Russian operations are 35% share in the company’s total revenues.

Trakya Cam

Sector: Glassmaking

Share price as of November 26: down 37.14% compared to end-2014, down 7.85% compared to November 23.

Turkey’s largest flat glass producer Trakya Cam has two production plants in Russia, one for flat glass production and one for auto glass production. The company has an annual flat glass production capacity of 230,000 tonnes in the country, while its total annual capacity is 2.3mn tonnes.

Ronesans Insaat

Sector:  Construction

One of Turkey’s largest contractors, privately owned Ronesans Insaat collects most of its revenues from Russia.

Ant Yapi

Sector:  Construction

Privately-owned contractor Ant Yapi has 10 on-going projects in Russia. Capital Hill, Moscov City, White Garden, Timura Firunze, Valoyava Bread Factory, Moscow City Plot 16 and Smolenski mixed-use project are Ant Hill’s ongoing projects in Moscow. The company has also on-going projects in Sochi, Saint Petersburg and Perm.

Summa Insaat

Sector:  Construction

Privately-owned Summa Insaat is currently building the 72,000 m2 Ochapovsky Hospital, as well as Krasnador Sports Complex, Sochi Hypermarket, and a logistics center in Izhevsk.

Gama Insaat

Sector: Construction.

Gama Insaat is currently building a electro-metal plant, namely Kaluga, in Obninsk.

Alarko Holding

Sector: Conglomerate

Share price as of November 26 close: down 27.56% compared to end-2014, down 6.74% compared to November 23.

Alarko Holding’s subsidiaries have contracting operations in Russia.

Koc Holding

Sector: Conglomerate

Share price as of November 26 close: down 3.77% compared to end-2014, down 7.84% compared to November 23.

Koc Holding is active in Russia through its subsidiary Arcelik, while another subsidiary Tupras supplies natural gas from Russia.

Is Bankasi

Sector: Banking

Share price as of November 26 close: down 28.35% compared to end-2014, down 7.66% compared to November 23

Is Bankasi has a subsidiary in Russia, namely JSC Isbank, which has 10 branches in the country. Is Bankasi is also main shareholder of Sisecam Gr