Turkish lira drops on report Trump considering economic sanctions

(Story was updated with comments from Erdoğan from the ninth paragraph.)

Turkey’s lira weakened after Bloomberg reported that the Trump administration is considering a package of economic sanctions against the country.

The lira declined by 0.7 percent to 5.86 per dollar at 12:50 p.m. in Istanbul.

U.S. officials are discussing three sanctions packages to punish Turkey for buying S-400 air defence missiles from Russia, Bloomberg said on Wednesday, citing people familiar with the matter. The most severe measures would all but cripple Turkey’s economy, the people said.

The United States and Turkey are embroiled in a political spat over President Recep Tayyip Erdoğan’s plans to take delivery of the weapons. The United States, which says the missiles threaten NATO’s defences, has reportedly set a deadline of the end of July for Erdoğan to reverse course.

Erdoğan says the Russian deal is already done. His government, which says the purchase of the S-400s is a symbol of Turkey’s new-found independence from Western tutelage, has vowed to implement reciprocal measures should Washington follow through on its threats.

The lira slumped to a record low of 7.23 per dollar in August after Trump imposed sanctions on Turkey’s steel products and several of its ministers for the detention of a U.S. pastor on terrorism charges. The U.S. action helped spark an economic recession, which lasted throughout the remainder of the year.

The option with the most political support is currently to target Turkish defence companies under the Countering America’s Adversaries Through Sanctions Act (CAATSA), Bloomberg reported. The CAATSA sanctions, which would bar the firms from the U.S. financial system, are mandatory because Turkey is buying weapons from banned Russian companies, congressional leaders argue.

Erdoğan repeated that there was no going back on the S-400 deal in a speech late on Tuesday.

"This work is already done. The file is closed and, God willing, we will receive what we've ordered very shortly," he said in Istanbul.

“If America wants to give us Patriots then let them. Anyway they are giving them to terrorists for free."

Trump is reluctant to decide on any measures against Turkey until he holds talks with Erdoğan at a meeting of the G-20 group of industrialised nations in Japan next week, Bloomberg said.