|Does shooting down your second-largest trading partner's jet affect trade? I guess we'll find out soon.|
We have news that Turkey recently shot down a Russian jet assumed to be making a Syria-related mission over what Turkey claims was its airspace. From a security standpoint, this incident may be unexceptional since countries do have a right to patrol their airspace. However, the interesting things here are that (a) the Turks likely knew it was a Russian fighter but (b) they shot it down anyway. This despite (c) Russia being Turkey's second-biggest trading partner:
Russian stocks fell the most worldwide and government bonds slid as Turkey said it shot down a Russian fighter jet close to the Syrian border, threatening trade relations amid an escalation of regional tensions. The dollar-denominated RTS Index fell 2.6 percent to 873.94 by 1:35 p.m. in Moscow as Turkey said it repeatedly warned the pilots that they were violating the nation’s airspace.Aside from Turkey not exactly representing "the West," this incident is an interesting one in terms of its implications. Would you so knowingly shoot down the jet of a trespasser--even if it was that of your second-largest trade partner? The important question now is how both countries will react. If they both acknowledge it was the result of a "miscommunication," then things will go on just as they were. However, if Russia makes a big thing out of it, then trade may indeed be affected as a result.
The declines were led by Gazprom PJSC, which relies on Turkey for 17 percent of its natural-gas exports outside of the Commonwealth of Independent States, according to BCS Financial Group. Government bonds declined and credit risk rose. “A break in the relationship between the countries will have a direct economic impact,” said Joseph Dayan, the head of markets at BCS in London. “The two sides do not have an interest to completely break down relationships. The probability of military confrontation or a freeze in trade relations is highly unlikely.”
The developments are unravelling a rally in Russian assets last week that was spurred by a rapprochement between President Vladimir Putin and the West as their interests aligned to fight Islamic State terrorists in Syria in the wake of the Paris attacks. Any deterioration in relations between Turkey and its second-biggest trading partner, Russia, threatens to undermine economic ties and growth prospects for companies.
UPDATE 1: For now there's been a lot more bark than bite of the "either you're with us or the terrorists" variety. Another consideration though that I did not think of earlier is the fate of the significant numbers of Turkish migrants living in Russia who have now been singled out in Russia media:
The Russian president clearly feels that Recep Tayyip Erdogan has personally betrayed him. “Today’s loss is a result of a stab in the back delivered by accomplices of terrorists. There is no other way I can qualify what happened today,” he stated. It’s not only Putin who feels double-crossed. For hours, #УдарВСпину, the Russian approximation for ‘stab in the back’ trended on Twitter. Russian people have long regarded Turkey as a friendly country. Millions of them holiday there and there is barely a large Russian city without a Turkish migrant worker presence, with over 20,000 in Rostov alone. That goodwill probably died on Tuesday.UPDATE 2: Russia has now suspended visa-free travel for Turkish citizens to Russia:
Russia is suspending its visa-free regime with Turkey from January 1, 2016, Foreign Minister Sergey Lavrov said. The announcement comes in response to the downing of a Russian warplane by the Turkish Air Force earlier this week.
“We have decided to suspend the visa-free regime between Russia and Turkey. This decision will come into force on January 1,” Lavrov said on Thursday, after a meeting in Moscow with his Syrian counterpart Walid Muallem. Lavrov also called the suspension of visa-free travel between Russia and Turkey “not an empty threat but a real warning.”