Russia has received another financial blow, with the last Turkish banks ending their support of the Russian Mir payment scheme, as the West steps up its efforts to isolate Moscow over its invasion of Ukraine.
The decision of three Turkish state banks to pull out of the Russian Mir payment system follows two private Turkish banks suspending Mir transactions earlier this month.
Moscow uses Mir to circumvent Russian exclusion from international credit cards as part of western sanctions over its Ukrainian invasion.
Maria Shagina, a specialist on international sanctions at the Institute for Strategic Studies, said Washington is stepping up its efforts to tighten sanctions against Russia.
"For the West, it's important that the enforcement of the existing sanctions is as watertight as possible," she said. "So, any tolerance vis-a-vis those countries helped to bust sanctions. This is where the West can change its policy towards Ankara and consider imposing sanctions threat."
The Kremlin condemned Washington on Wednesday, accusing it of putting unprecedented pressure on Turkish banks to withdraw from Mir.
The U.S. Treasury last week warned that Turkish banks working with the Mir payment system "risk supporting Russia's efforts to evade U.S. sanctions."
Evading U.S. sanctions could potentially open Turkish banks to secondary sanctions, which include being banned from using U.S. dollars.
Atilla Yesilada of Global Source Partners said even the threat of such sanctions could have severe consequences for Turkish banks, which depend on borrowing dollars from international lenders.
"Turkish banks have a very heavy schedule ahead in the next months, rolling over probably, something like $40 billion. And I think the reputation damage there could be tremendous," Yesilada said. "I'm not accusing any Turkish bank of being a party to sanctions violation. But I think the general attitude of any compliance officer would be just don't do business with them, it's dangerous we don't want to get into trouble."
Turkish President Recep Tayyip Erdogan, who has close ties with Russian President Vladimir Putin, has refused to enforce sanctions against Russia. Erdogan argues such measures are counterproductive and would hinder his efforts to play an honest broker between the Russian and Ukrainian leaders, with whom he also has good relations.
Turkish Russian trade has boomed since the start of the Ukrainian conflict.
Timothy Ash, a senior strategist with Bluebay Asset Management, said with presidential elections next year and a crisis-ridden economy, Erdogan sees Russian trade as key to his political survival.
"Turkey is increasingly dependent on Russia for capital flows, money that they potentially can use to intervene to defend the currency. I mean, this is essentially why Erdogan is so interested in this relationship with Russia. He wants to win an election short of cash," Ash said. "The pressure point is inflation. The weakness is the exchange rate because of the balance of payments problem, and he needs to defend it. And obviously, foreign exchange reserves are the way to do it."
With Erdogan meeting with Putin in September, the third encounter in as many months, and bilateral trade a crucial part of the talks, few analysts predict Turkey's ending of its support of the Mir will be the end of Turkey deepening Russian trading ties.