Ceyda Ceyda, Can Sezer

ISTANBUL (Reuters – Russia’s incursion in Ukraine could undermine President Tayyip Erdogan’s new economic plan. It would reduce tourism revenues, which are vital for reducing the current account deficit. Inflation will also be increased by rising energy prices.

Investors were concerned about Erdogan’s plans to reduce the deficit, $14.9 billion in 2017, by increasing growth and exports while maintaining low interest rates despite inflation near 50%, which led to the lira falling more than 5% Thursday.

With 4.7 millions people, the Russians made up 19% of all foreign visitors to Turkey, while Ukraine was at 8.3% and had 2 million tourists.

Bulent Bulbuloglu (Deputy Head of the Turkish Hoteliers Federation) stated that bookings from Russia have fallen 70% within a single day following Thursday’s invasion.

This is a pleasing sign that there have not been any cancellations of bookings in Russia since the events. However, the flow of bookings has decreased,” he stated. He also said that no bookings had been made from Ukraine this year.

Bulbuloglu stated that the worst case scenario would see tourist revenues in both countries drop to $5-6 billion by 2022.

Turkey intends to make $34.5 billion revenue in the coming year. This is as tourism returns back to pre-pandemic levels.

COMMODITIES

On Thursday, commodity prices rose to new multi-year highs as investors expected tighter supplies due to Russian sanctions and disruptions to transport.

Nearly 80% of Turkey’s grain imports come from Russia and Ukraine, but Ankara said that the conflict does not cause shortages and it can turn to other sources.

We will be affected very severely by the developments. “The Black Sea was our inland ocean,” Rint Akyuz (chairman of Rotel), said referring to issues in Odessa and the Sea of Azov. He stated that imports will need to be funded at much greater levels than they are now, and added that transport costs would rise three to four fold.

Higher energy costs are also a problem: Turkey spent $51billion last year on energy and is heavily dependent on imports to supply its energy needs.

Prices for oil have increased by 8% over the past week and prices for gasoline have gone up by 45% in the same time period.

Economists estimate that every $10 increase in the price for raises Turkey’s energy import bill to $4.5-6 trillion.

Turkey saw a 22% increase in natural gas consumption last year due to the drought which increased electricity generation.