Sanctions are powerful tools used by governments and international organizations to achieve foreign policy objectives, often targeting individuals, entities, sectors, or entire countries. They can include asset freezes, travel bans, trade restrictions, and financial prohibitions. Recent developments, such as U.S. sanctions on Gazprombank and secondary sanctions on entities engaging with sanctioned Russian firms, illustrate the far-reaching effects of these measures.

Stricter Financial Sanctions on Russia

On November 21, the United States imposed stricter financial sanctions on Russia. The measures included adding Gazprombank, its Swiss-based subsidiaries, and over 50 smaller Russian banks involved in foreign trade to the sanctions list. Over 40 Russian securities registries were also targeted. The U.S. cautioned foreign entities that collaborating with Russia’s SPFS interbank communication system (a SWIFT alternative) could result in secondary sanctions. Furthermore, individual sanctions were placed on 11 officials from the Central Bank of Russia (CBR) and four executives from Sberbank and VTB’s foreign subsidiaries.

These expanded sanctions are part of ongoing efforts to increase economic pressure on Russia. For more than a year, the U.S. has steadily introduced new measures targeting Russia’s financial sector to disrupt its international trade channels, weaken its military and defense capabilities, and close loopholes for sanctions evasion. The sanctioned banks will be cut off from the dollar-based financial system, and entities engaging with them risk secondary sanctions and similar restrictions.

The most notable element of the sanctions is the targeting of Gazprombank, Russia’s third-largest bank by assets. Gazprombank facilitates key international transactions, particularly for businesses in the gas, oil, nuclear energy, metallurgy, and defense industries. While the bank’s ownership structure lacks transparency, it is predominantly said to be associated with Yuri Kovalchuk, a close confidant and financial associate of Vladimir Putin.

Russian Gas Exports to Turkey

The U.S. decision is expected to impact Russian gas exports to Turkey. Since mid-2022, Gazprombank has been responsible for managing Gazprom’s gas contracts with Turkey and EU countries. These developments are likely to affect recipients of Russian gas via TurkStream, including Hungary and Turkey, as they explore temporary solutions to ensure supply continuity. In response to the sanctions, Turkey’s Energy Minister has urged the U.S. to reconsider the restrictions on Gazprombank. He stressed that without a special exemption, Turkey would be unable to make payments to Russia, which would, in turn, negatively impact the country’s ability to purchase gas. “We won’t be able to pay Russia” he explained. “If we can’t pay, we can’t buy the goods.”

Russia plays a pivotal role in Turkey’s energy supply as its largest provider of natural gas. In 2023, approximately 42% of Turkey’s total gas imports were sourced from Russia, highlighting the strategic importance of this energy partnership. This dependency underscores Turkey’s reliance on Russian gas to meet its domestic energy needs, power industries, and support its growing economy.

The supply is primarily delivered through two major pipelines: TurkStream, which directly connects Russia to Turkey via the Black Sea, and the Blue Stream pipeline, which has been operational since 2003. Together, these pipelines ensure a steady and reliable flow of natural gas to Turkey, making Russia an indispensable supplier in Turkey’s energy mix.

This significant dependency means that disruptions, such as those arising from sanctions on Gazprombank, could have far-reaching implications for Turkey’s energy security. It places additional pressure on Ankara to seek diplomatic solutions or alternative payment mechanisms to maintain the stability of these critical imports and avoid disruptions that could impact both energy supply and economic stability.

Implications for Turkey

U.S. sanctions on Gazprombank have significant implications for Turkey, given its reliance on Russian natural gas and the critical role Gazprombank plays in facilitating payments for energy imports. Here’s an analysis of how these sanctions could affect Turkey:

1. Disruption to Energy Trade

• Dependency on Russian Gas: Russia is Turkey’s largest gas supplier, providing around 42% of its imports in 2023. Payments for this gas are processed through Gazprombank, which has now been sanctioned by the U.S.
• Payment Complications: The sanctions create barriers to using traditional financial systems for gas payments, forcing Turkey to explore alternative mechanisms. These could include currency swaps, intermediary banks, or even barter arrangements, all of which are less efficient and more complex.

2. Impact on TurkStream

• Strategic Pipeline: The TurkStream pipeline, which supplies Russian gas to Turkey and Southeast Europe, relies on Gazprombank’s infrastructure for transaction settlements. The sanctions could complicate Turkey’s ability to fulfill its energy contracts and maintain steady gas flows.
• Regional Influence: TurkStream is a cornerstone of Turkey’s ambition to become an energy hub for Europe. Payment disruptions could undermine its credibility as a reliable transit route.

3. Contract Renegotiations and Uncertainty

• Renegotiation Risks: The need to establish alternative payment channels may lead to the renegotiation of existing gas supply contracts. This could result in changes to terms, pricing, and delivery schedules, creating uncertainty for Turkish energy planning.
• Reduced Imports: Renegotiation could also lead to a reduction in gas purchase volumes, potentially impacting Turkey’s energy security and its ability to meet domestic demand.

4. Economic Repercussions

• Higher Costs: Establishing new financial pathways or settlement mechanisms could increase transaction costs, which may be passed on to Turkish businesses and consumers.
• Energy Price Volatility: Uncertainty surrounding payment systems and supply stability could contribute to fluctuations in energy prices, affecting Turkey’s economy.

5. Diplomatic Challenges

• Appeals for Exemptions: Turkey’s Energy Minister, Alparslan Bayraktar, has already appealed to the U.S. to reconsider the restrictions on Gazprombank. However, securing exemptions or waivers will require delicate diplomatic negotiations.
• Balancing Relationships: Turkey faces the challenge of maintaining its strategic partnership with Russia while complying with Western allies’ sanctions regimes, a balancing act that may strain its foreign policy.

6. Opportunities for Alternative Solutions

• Diversification of Energy Sources: The sanctions may accelerate Turkey’s efforts to diversify its energy supply through increased imports from Azerbaijan, Iran, or LNG from the U.S. and Qatar.
• Local Currency Settlements: Turkey and Russia might strengthen local currency trade (e.g., payments in rubles or lira), reducing reliance on Western financial systems.

The U.S. sanctions on Gazprombank place Turkey in a challenging position, as it must navigate between maintaining critical energy imports and managing the broader implications of Western-imposed financial restrictions. These sanctions could spur Turkey to adopt creative solutions, but they also highlight the vulnerabilities of its energy dependency on a single supplier. Balancing geopolitical relationships while ensuring energy security will be key for Ankara in the months ahead.

Expert Legal Services for Navigating Sanctions in Turkey

In today’s interconnected global economy, businesses and financial institutions must navigate increasingly complex international sanctions regimes. The evolving geopolitical landscape has made compliance with these sanctions a critical priority for organizations engaged in cross-border transactions. Turkey, as a strategic hub bridging Europe, Asia, and the Middle East, is at the center of these challenges. At Bicak Law Firm, we offer comprehensive legal services to help businesses effectively address sanctions-related issues, safeguard operations, and ensure compliance with international regulations.

Our team at Bicak Law Firm specializes in providing tailored legal solutions to address sanctions-related challenges. With a deep understanding of international and Turkish laws, we offer a range of services to protect your business interests.

1. Sanctions Compliance and Risk Assessment

• Comprehensive analysis of your business operations to identify exposure to sanctions risks.
• Guidance on U.S., EU, and United Nations sanctions regimes, as well as Turkey’s legal framework.
• Developing and implementing robust compliance programs to mitigate risks.

2. Advisory on Secondary Sanctions

• Strategic advice on managing relationships with sanctioned entities while minimizing exposure to secondary sanctions.
• Support in navigating sectoral sanctions, particularly in energy, defense, and finance.

3. Contract and Transaction Structuring

• Assisting in structuring contracts, trade agreements, and financial transactions to align with sanctions requirements.
• Advising on alternative payment channels and lawful trade mechanisms to maintain business continuity.

4. Export Controls and Licensing

• Guidance on Turkey’s export control regime and international regulations governing dual-use items and sensitive goods.
• Assistance in securing licenses for permissible exports and transactions.

5. Representation in Legal Proceedings

• Representing clients in disputes related to sanctions enforcement, compliance investigations, and regulatory actions.
• Advocating on behalf of businesses facing challenges with Turkish or international authorities

Our firm has a proven track record of advising Turkish and international clients on sanctions, export controls, and financial compliance issues. We understand the unique position of Turkish businesses in global trade and offer solutions tailored to Turkey’s economic and legal environment. With a strong network of international legal partners, we provide cross-border support to address the multifaceted nature of sanctions compliance. At Bicak Law Firm, we prioritize our clients’ needs by delivering practical, business-focused solutions.

Navigating the complexities of international sanctions requires experienced legal guidance. At Bicak Law Firm, we are committed to helping businesses overcome these challenges with confidence. Contact us to learn how we can assist you in developing effective compliance strategies, structuring lawful transactions, and safeguarding your business from the risks associated with sanctions.