U.S. sanctions leave Turkey’s economy alone, but pressure defence industry

U.S. sanctions imposed on Turkey for its purchase of a Russian missile system will leave its fragile economy intact, but the measures could have a serious impact on its fast-developing defence industry, which requires imported parts to produce weapons and sell them abroad.

President Donald Trump approved the punitive measures on Monday, pre-empting a demand by Congress to punish Turkey under the Countering Americas Adversaries Through Sanctions Act (CAATSA). The steps target the Turkish Presidency of Defence Industries (SSB), prohibiting export licenses for any goods and services transferred to the organisation.

Turkey, which is a NATO member, took delivery of the S-400 air defence missiles last year and tested them in October. The United States, which says it offered it alternatives to the S-400s, and NATO allies say the Russian system threatens the alliance’s weapons systems, including the U.S. F-35 stealth fighter jet.

The impact on Turkey’s economy of the sanctions is set to be limited – Trump could have approved steps targeting the country’s banking industry and other more critical sectors. But they will hurt its defence industry. said Aaron Stein, director of the Middle East programme at the Washington-based Foreign Policy Research Institute, said on Twitter.

President Recep Tayyip Erdoğan is seeking to develop the industry as part of efforts to turn Turkey into a regional and global power independent of Western tutelage. The country also acquires weapons from several Western nations including Italy, Britain and Germany. The latter is due to supply its navy with a new fleet of submarines.

The penalties also block any assets that SSB chief İsmail Demir and three other senior officials may have in U.S. jurisdictions and bar their entry into the United States. The United States has already excluded Turkey from buying the F-35 in response to its purchase of the S-400s.

The Turkish lira, which has lost about a quarter of its value this year, rallied about 1 percent against the dollar on Monday following the U.S. announcement as investors bet that the sanctions would not hurt the wider economy. The currency traded up 0.2 percent at 7.83 per dollar on Tuesday.

Wider sanctions briefly imposed by the United States in 2018 for Turkey’s detention of a U.S. pastor on terrorism charges tipped the economy into a currency crisis and deep recession.

Shares of Halkbank, Turkey’s second-biggest state-run bank which is under U.S. investigation for allegedly helping neighbour Iran evade U.S. sanctions, rose 3.9 percent to 5.56 liras per share. Some investors had bet Halkbank would be punished as part of the punitive measures.

The SSB, which is Turkey’s military procurement agency, concludes purchase contracts and is responsible for more than 600 defence industry projects ranging from jet engine development to ammunition production.

The institution is a shareholder in companies including SSTEK, a holding firm for stakes in defence firms including defence contractor STM Savunma Teknolojileri. It also has a share in TUSAS, a jet engine developer and aircraft contractor that produces fuselage parts for the F-35, attack helicopters and drones, as well as aircraft components for Boeing and Airbus.

The sanctions mean the SSB’s weapons and parts procurement from non-U.S. suppliers would get more complicated, said Stein, from the Foreign Policy Research Institute.

“One weird outcome is that, in the short term, Turkey may be more dependent on the United States for things,” Stein said.

The U.S. decision to impose the sanctions has deeply shaken alliance values between the two countries, Turkish Defence Minister Hulusi Akar said.

“We condemn this decision, which does not comply with the alliance, current military, or political realities,” Akar told the state-run Anadolu news agency in an interview on Tuesday.