Turkey's neutrality policy in the Russian invasion of Ukraine may cause problems for them

Back then, Turkey was once part of the powerful Byzantine and Ottoman Empires and was home to one of the richest cities in the world. However, modern-day Turkey is an economic disaster and only one man is to blame for all of it. President Recep Tayyip Erdogan is a man who thinks that economic policy is something you can just freestyle as you go along. Under his excellent guidance, President Erdogan orchestrated a massive 92% free fall of the Turkish lira in the past two decades, even though at one point the Turkish lira was well on its way to trading one on one with the dollar. But today, you can barely get 7 cents for one Turkish lira.

This disastrous decline, together with a whole range of terrible economic policies, has brought the Turkish economy to its knees, and while desperately trying to hold on to power, President Erdogan has become a rogue agent in the NATO alliance. Now, joining the dark side is nothing new for Turkey, since Erdogan has a long history of choosing personal interests over the interests of NATO and even over those of his closest friends. The invasion of Russia into Ukraine showed Turkey’s true colors, and it illustrated perfectly how the country is playing both sides while claiming to be a neutral party that wants peace.

TRY/USD price change in 10 year, XE

Behind the scenes, Turkey is catering to both sides, while publicly they are condemning the war, which has earned Turkey the label of "pro-Ukrainian neutrality," which is not meant as a compliment. You see, in his infinite wisdom, President Erdogan has not only crippled the Turkish economy, but he has made it completely dependent on Russia. Currently, Russia supplies well over 70% of the total wheat imported by Turkey. Next to this, Russia supplies well over 40% of Turkish gas and, before the pandemic, Turkey was earning well over $34 billion in tourism, of which Russia was the largest contributor, with around 7 million Russians visiting the country each year. These are just a few of the economic ties that Turkey has with Russia, but the full list is huge and if Russia decides to impose sanctions on Turkey, it could easily bankrupt the entire country. This completely explains why Turkey has outright refused to join the NATO sanctions, claiming that diplomatic channels need to be maintained.

Now, in theory, this all sounds wonderful. However, if you are truly concerned about diplomatic relations, this doesn’t come across when you’re supplying Ukraine with dozens of TB2 attack drones that have decimated the Russian military. Turkey is breaking up a bar fight as a neutral party while giving one person a broken bottle to attack the other one, and even though it’s a cheap knockoff of the American predator drones, it is a highly effective piece of equipment. These drones have played a major role in decimating the Russian army. Russia has repeatedly asked Turkey to stop supplying Ukraine with the Bayraktar drones. However, Turkey keeps saying that these are private company sales and that it’s not a state-to-state weapons deal.

When I learned about this excuse from the Turkish government, I laughed my a*s off since not only is Turkey a heavily authoritarian regime that constantly tries to get foreigners extradited for just insulting their magnificent leader, but even the most democratic western countries have strict rules for weapons manufacturing and are heavily involved in determining who you can sell to. It would take President Erdogan less than 5 seconds to stop the Baykar Defense Company from supplying Ukraine with drones. He wouldn’t even need a court order or an official government phone call, since the Baykar Defense Company is owned by the family of his son-in-law. Erdogan’s daughter is married to the chief technology officer of the company, in a country that he rules with an iron fist, and yet the ministry of defense claims that it’s powerless to stop Baykar from selling drones to Ukraine. This is an absolute joke.

So clearly, Turkey is playing with the Russians here and, for some reason, President Putin has not yet punished them for doing so. Now, perhaps this is because Putin genuinely doesn’t know how disastrous the war is going and what role the drones are playing in all of it since his advisers are afraid to bring him any bad news and just make stuff up. It could also have something to do with the fact that Erdogan and Putin do seem to get along now, especially when fighting in Syria to help their buddy Assad and to push the Kurds further away from Turkey, or it could be simply because Turkey is currently acting as a nice workaround for the sanctions against Russian citizens. Because not only has Turkey openly refused to enforce the NATO sanctions, but the Turkish foreign minister also went out of his way to specify that Russian oligarchs and regular citizens are welcome to travel to Turkey and do business in the country.

This was a message to the Russian elites, who were being targeted by international sanctions, to lure them into hiding or investing their assets in Turkey, and some Russian billionaires wasted no time in making use of this offer. Roman Abramovich, for instance, is known for owning Chelsea football in England and is one of Russia’s most famous oligarchs. He very quickly moved two of his superyachts to the waters of Turkey, since he was targeted specifically by the international sanctions. These two yachts alone have a combined value of $1.2 billion, which is a good start in a friendly port. Even if NATO allies had managed to seize his yachts, Abramovich wouldn’t have gone hungry anytime soon since he’s still worth around $13 billion, which is already down from the original $19 billion that he was worth last year.

But the friendliness of Turkey towards Russians looking to stash their assets abroad, while completely disregarding the NATO sanctions, goes much further than this. Because in the last few months, many Russians have brought trucks full of money, and when I say trucks, I mean real trucks. You see, when the Russian banks were cut off from the Swift system, it became pretty much impossible for most Russians to transfer money out or convert their rubles into other currencies. This meant that if you wanted to make a large purchase abroad, you had to bring money in, and that is exactly what some people did in Turkey. According to real estate agents in Turkey, dozens of Russians have recently bought real estate in cash.

Even though houses in Turkey are much cheaper than those in London or New York, you are still looking at hundreds of thousands of dollars, and in some cases even a couple of million dollars for large properties. So not only is this practice helping Russians to circumvent international sanctions, but it’s also a great day for Russian criminals because they no longer have to clean their money in complicated ways if even regular citizens are flying in stacks of cash into Turkey. They can simply blend in with the rest of them. This means that they can take the money off the streets, put it on a plane, and start buying real estate in Turkey the very next day. This is much faster than their current methods and saves them a nice 20% cleaning fee. So obviously, Turkey is catering to the Russians and supplying the Ukrainians, all to simply benefit Turkey and, more specifically, President Erdogan.

Even though Russia is not punishing Turkey for playing both sides, NATO was contemplating this and some Turkish banks were already preparing for the possibility of secondary sanctions. These secondary sanctions are usually applied to countries or individuals that assist the original sanctioned target, and Turkey is already familiar with how this works. Because for a long time, the Turkish bank, Halkbank, was allegedly helping Iran to evade international sanctions and this brought down the full might of the U.S. judicial system, going after the bank with a vengeance. Currently, it’s unlikely that NATO is going to take serious steps against Turkey, since they are indeed trying to mediate between Russia and Ukraine. However, going forward, individual banks could still be hit later on for helping Russians to evade sanctions. So this all shows that President Erdogan is trying to profit as much as he can from the war in Ukraine while not upsetting his lord and master, President Putin, who can destroy the Turkish economy in five seconds.