In the ever-changing geopolitical landscape of the Middle East , Turkey’s President Recep Tayyip Erdogan has doubled down on his challenge to the United States by strengthening relations with Russia , Iran , and China , despite the crippling economic sanctions that have plunged the Turkish lira to its worst level against the dollar in nearly 20 years.
The rapid deterioration of ties between Ankara and Washington over the detention of the American Protestant pastor Andrew Brunson can be seen as the high point of a more profound conflict that goes back to the coup attempt against Erdogan in 2016 , recently aggravated by the US support to the Kurdish rebels in Syria.
Sharing the goal of regime change in Damascus , a risky policy which reached its own limit for Turkey when its air force shot down a Russian aircraft in the Syrian border in 2015 , the bilateral differences surfaced due to Erdogan’s conviction that the U.S. knew in advance the military plans to overthrow him and did nothing to prevent it.
After the failed coup, which left 251 dead people , the Turkish government blamed the organization of its former ally Fethullah Gulen , a Muslim preacher exiled in Pennsylvania since 1999 and demanded his extradition .
Later, the American decision to train and equip the militias of the Democratic Union Party ( PYD ) in the campaign against the Islamic State alarmed Ankara, which considers the PYD the Syrian branch of the separatist Kurdish Workers Party ( PKK ) in Turkey and prompted its military intervention to capture the northern Syrian city of Afrin .
Last week, the refusal to release Brunson, accused of being a member of the Gulen movement —he also met with PYD leaders—was responded by the Trump administration with tariffs on imports from Turkey of 50% on steel and 20% on aluminium , precipitating the collapse of the lira to a record low, dropping as much as 18% at one point, the biggest one-day fall since the 2001 financial crisis in the Euroasiatic nation.
The lira, U.S. President Donald Trump noted on Twitter , “slides rapidly downward against our very strong dollar!. Our relations with Turkey are not good at this time!”
Blatant threats
Erdogan reacted by writing an opinion article in The New York Times on Friday, regretting the “ blatant threats ” of Washington and the sanctions imposed to his Justice and Interior ministers, instead of respecting the judicial process, as he urged Trump.
He warned that unilateral sanctions “will only serve to undermine American interests and security”, stressing that the U.S. “must give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives.”
The failure to reverse this trend of unilateralism and disrespect “will require us to start looking for new friends and allies ,” said Erdogan in obvious reference to Russia and Iran , themselves targeted by the U.S. with a fresh round of sanctions that in the long term can be counterproductive to Washington’s strategy.
Indeed, Turkey not only has the key to regulate the illegal influx of immigrants and refugees to the European Union , since the eradication of the Islamic State largely depends on its cooperation—at least 20 US and North Atlantic Treaty Organization ( NATO ) bases are located in the country—, as well as the allied plans to “contain” Iran, after Trump virtually recognized the new Russian sphere of influence in the Middle East.
While Erdogan called the Turkish people to boycott US electronic products the row is having a terrible impact in the country’s economy, despite the measures announced by the central bank.
Inflation
is at 15% and climbing amid fears of recession and a debt repayment crisis .
Yet the roots of the current problems date back to the boom fostered by Erdogan and his Justice and Development Party ( AK ) through massive domestic credit supported, as the economist David P. Goldman highlights, by massive foreign borrowing.
Turkish companies and banks have borrowed USD $350 billion in foreign currency and now have to repay it in devalued lira. Most of the debt was issued when the lira traded at less than 2 to the dollar; last week traded at more than 6 to the dollar, so the cost of debt service has tripled for Turkish borrowers with local-currency earnings.
Erdogan is complicating things due to his policy constrained by Islamic beliefs .
In the world of conservative AK, interest rates are the equivalent of usury and the central bank has declined to increase interest rates to slow the country’s spiraling inflation.
High rates would also encourage savers to put their money into Turkish banks , preventing a run on its central bank and a wider collapse.
According to the authoritarian president, who has tightened his grip over the Central Bank of the Republic of Turkey and other institutions after winning his re-election in June, a rate hike would raise inflation and kill construction-fueled growth, which has favored his cronies.
Perhaps it is too early to predict if the Turkish debacle will end up affecting the international economy.
So far, emerging markets as India , South Africa , and Argentina have been hit, although Spanish , French , and Italian banks are owed close to USD$140 billion by Turkish borrowers.
However, the recovery in one of the world´s top 20 economies will come with a price from Erdogan’s “new friends”, while the Kremlin has long been advocating for trade with all countries in their national currencies rather than the dollar as Ankara is proposing now, there is little that Russia can offer to ease its problems .
China
is a different story. Beijing is eager to expand its presence in the bridge between Europe and Asia as a crucial element of its Belt and Road Initiative and it is actively investing on Turkish transportation infrastructure .
In addition, China’s giants Huawei and Alibaba are working with its Turkish counterparts on 5G Internet in projects covering cloud computing , the Internet of Things , e-commerce , and public security .
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