Russian Prime Minister Dmitry Medvedev announced last week that he would introduce a set of economic sanctions on Turkey in response to its "act of aggression" in shooting down a Russian Su-24 bomber in Syria. The government followed through on Saturday as Russian President Vladimir Putin signed a decree on "… measures to ensure Russian national security and to protect Russian citizens from criminal and other unlawful actions and the application of special economic measures with respect to the Turkish Republic."

The statement issued by the Kremlin press office, indicated that the Russian government will, on January 1st, 2016, implement a series of temporary bans and restrictions on imports of certain types of goods whose country of origin is Turkey. The decree also bans or restricts organizations which fall under the Turkish jurisdiction from providing certain types of services in Russia. In addition, employers and contractors of services which are not specified in the list determined by the Russian government are banned, starting from January 1, 2016, from employing Turkish citizens who were not employed or contracted by such employers and contractors as at December 31, 2015.

Turkish nationals travelling to Russia would require visas from January 1st, as Putin warned citizens not to travel to Turkey, a hugely popular destination for Russians, and asked Russian travel agencies to refrain from selling trips to Turkey.

Turkey-Russia Partnership

Turkey is one of Russia’s biggest trade partners and any economic sanction will affect both the Turkish and Russian economies and will impact international trade in the long run.

According to HSBC analysts, energy cooperation has been the most significant field of cooperation between Russia and Turkey. Russia’s gas-producing giant Gazprom exported 23.7 billion cubic meters of gas in 2014, 5.3 percent of its overall output. Moreover, Turkey buys Russian-produced crude oil and coal.

The restrictions on contractors will affect the Akkuyu Nuclear Power Plant, Turkey’s first nuclear power plant, which is currently being built by Russia’s Rosatom Company in the southern province of Mersin. $3 billion has already been invested in the project and its total cost is estimated at $22 billion. Russia and Turkey signed the deal to construct and operate the plant at the Akkuyu site in 2010.

In addition, construction of the Turkish Stream gas pipeline which was scheduled to begin in June would also fall under the sanctions. According the Russian Energy Ministry, Russia and Turkey were expected to sign the pipeline agreement by December 2015.

Turkish construction companies doing business in Russia will be severely affected by the sanctions. As for the end of 2013, Turkish construction firms were engaged in Russian projects worth $5.7 billion. The Russian market will not be seriously hit if Turkish developers leave, as Russian companies are ready to replace them.

Besides the new gas pipeline, the two countries are tied heavily by strong trade in food and tourism and the rift in relations between the two major economic countries threatens billions of dollars of international trade which doesn’t bode well for either country. Even before the downing of the Russian plane, the International Monetary Fund predicted that Russia's economy would shrink by 3.8 percent this year, and despite the decision by the Central Bank (CBRT) to keep all its main policy rates unchanged for the ninth consecutive month, the Turkish currency has already slumped in value in 2015.

Wheat Surplus

Globally, according to economists, the Russian-Turkish dispute will primarily affect wheat markets. Russia is the biggest supplier of wheat to Turkey and is the world’s third-largest wheat exporter. Turkey is Russia’s second-largest buyer of wheat after Egypt, buying around 1.6 million metric tons of Russian wheat in three months through October. Turkey could be facing higher wheat prices if it needs to find alternative sources.

As part of its sanctions, Russian wheat exports are now on hold, with ships moored at Russian ports with wheat bound for Ankara awaiting a final decision about what to do. This may have negative repercussions for Turkey but any disruption in wheat exports could come as a boon to the stressed grain industry in U.S. and elsewhere in Europe, offering producers a chance to sell some of the millions of tons of grain piling up in silos around the world.

GLOBALLY, ACCORDING TO ECONOMISTS, THE RUSSIAN-TURKISH DISPUTE WILL PRIMARILY AFFECT WHEAT MARKETS.

European wheat prices have been down 12% this year, and according to the International Grains Council, this marketing year will end with stocks of around 209 million tons of wheat stockpiled following three consecutive big harvests.

European wheat futures showed contracts for March 2016 delivery in March 2016 falling under 1% to €181.50 ($192.25) a ton on Friday. Russia is one of world's largest oil producers and according to analysts if the current encounter with Turkey worsens, the situation will contribute significantly to the premium on oil.