Turkish economy faces post-election turmoil as U.S., EU disputes rage
President Recep Tayyip Erdoğan is doubling down in political spats with the United States and European Union, risking further economic turmoil in the NATO member.
The political disagreements over Russian S-400 missiles and drilling off Cyprus threaten to unleash a sell-off in Turkey’s embattled lira following mayoral elections in Istanbul on Sunday.
The United States and the European Union are both threatening reprisals against the Erdoğan government – Washington has set a July 31 deadline for Ankara to drop plans to buy the Russian defence system, while Brussels says “targeted measures” may be taken should Turkey not halt what it termed as “Illegal action” in the eastern Mediterranean.
This week, Erdoğan said Turkey could take delivery of parts for the S-400s from Moscow on July 15, the anniversary of a failed military coup in 2016 that he partly blames on the West. Turkish soldiers are already receiving training for the systems in Russia.
Meanwhile, the Turkish president has sent a second drilling ship accompanied by a Turkish naval escort to intensify Turkey’s search for natural gas in the eastern Mediterranean, risking sanctions from Brussels.
The Turkish lira fell against the dollar on Friday, in what could be just a taster of an impending sell-off. The lira slumped to a record low in August after President Donald Trump imposed economic sanctions on Turkey for its detention of Andrew Brunson, a U.S. pastor, on terrorism charges.
Analysts say that any U.S. sanctions could have a devastating impact on the $750 billion economy. Even a set of more limited measures targeting Turkish defence firms under the Countering America’s Adversaries Through Sanctions Act (CAATSA) would prove highly damaging, according to Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London.
“I cannot believe people even think the Turkish economy can withstand these as remember the seismic hit last summer from minute sanctions lodged over Brunson?
“The Turkish economy currently is still very frail and any 5/12 of the sanctions list plus expectations of more to come would be devastating for the Turkish economy and markets,” Ash said in emailed comments to his clients.
The United States repeated on Thursday that it stood ready to impose the economic sanctions. There was no discord among U.S. officials or NATO members on the matter, it said.
“Seeking resolution is still within the realm of possible today, but imposition of sanctions remains a course of action and a very viable one at this point,” U.S. Assistant Secretary of State for Political-Military Affairs Clarke Cooper told reporters during a teleconference.
Erdoğan said this week that he believed the sanctions would not happen, citing his relations with U.S. President Donald Trump. The two are due to hold talks at a meeting of the G20 group of industrialised nations in Japan next week.
Turkey’s lira slid by 28 percent against the dollar last year and is down a further 10 percent in 2019. It dropped 1 percent to 5.82 per dollar in Istanbul on Friday. Turkey’s economy has reeled from the currency turmoil – inflation stands at almost 19 percent and imports have slumped – and ratings agencies, the International Monetary Fund and many economists are calling on the government to take adequate measures to stabilise it.
Just as Cooper made his comments, the European Council, the highest political body of the EU, issued a statement condemning Turkish drilling in the eastern Mediterranean and threatening its own actions in response.
“The European Council … deplores that Turkey has not yet responded to the EU's repeated calls to cease such activities,” it said in a statement late on Thursday. It said it had asked the European Commission, the EU’s executive arm, to “submit options for appropriate measures without delay, including targeted measures.”
The increased political tensions come just as Istanbul prepares to vote in its mayoral elections. The vote is being rerun after claims of irregularities made by Erdoğan’s Justice and Development Party (AKP) during an initial vote on March 31 were upheld by the election board. Ekrem İmamoğlu, the opposition’s candidate, is likely to beat AKP candidate Binali Yıldırım for a second time, according to recent opinion polls.
Speaking in campaign speeches this week Erdoğan repeated his view that Turkey has both the right to buy Russian S400s – he claims the United States has failed to match the Russian deal – and to drill for the natural gas.
Turkish Interior Minister Süleyman Soylu said earlier this month that the purchase of the S-400s was a symbol of Turkey’s new-found global independence and power. Erdoğan, who has sought to increase Turkey’s influence in the Middle East, North Africa and Balkans, has echoed those views.
On Cyprus, Erdoğan has called on the Greek Cypriot government to give Turkish Cypriots, who live in the north of the divided island, an immediate share in the natural gas wealth.
The views expressed in this article are those of the author and do not necessarily reflect those of Ahval.