The viability of the Turkish government’s “new economic model” — a controversial policy to battle inflation without the central bank hiking rates — was already in doubt before Russia’s incursion into Ukraine. But it has clearly hit a deadlock now that the fallout of the war is undermining Ankara’s plans to bridge its current account deficit by promoting export-focused growth and steady its battered currency by safeguarding lira deposits.

With its annual consumer inflation already over 54%, Turkey stands to take some of the heaviest blows from the conflict as both Russia and Ukraine are among its major economic partners, with crucial links in tourism, agricultural trade, energy and even the defense industry. 

The impact is already tangible on various fronts. Chief among them is Turkey’s tourism industry, a vital source of hard-currency revenues, which was hoping to bounce back to pre-pandemic levels this year. Bookings from Russia and Ukraine have ground to a halt, and those from European countries have markedly dropped.

Russians were the largest group of foreign visitors to Turkey in 2021, numbering some 4.7 million or 19% of all tourists. Ukrainians ranked third after Germans, numbering about 2 million or 8%. Turkey was hoping for $35 billion in tourism revenues this year, up from $24.5 billion in 2021 and on par with its revenues in 2019 before the COVID-19 pandemic hit.