What is next for Turkey?

What is next for Turkey?
“Istanbul” by szeke is licensed under CC BY-SA 2.0

With the Turkish lira at a record depreciation amid the economic fallout of the Covid-19 pandemic,Turkish leadership is struggling to deal with an economic impasse and a seismic foreign relations shift as a result of the US election. 

The Turkish lira has been suffering considerably from the economic fallout of the Covid-19 pandemic, losing around a third of its value against the US dollar in 2020 and deepening a currency crisis existent from 2018. According to a recent Reuters poll of 48 economists, the Turkish economy is predicted to shrink by 3.4% by the end of 2020, signifying a contraction for the first time since 2009. While Turkey has been enjoying steady economic growths for the last few years, largely due to the post-2008 recession construction boom, the 2020 pandemic-related shutdowns, loss of tourism revenues, a ban on travel and aforementioned currency crisis have unquestionably plunged the country into a state of economic turmoil. In addition, Turkish President Recep Tayyip Erdoğan’s increasingly aggressive foreign interventions in various conflicts in Libya, Syria and Iraq, as well as Erdoğan’s rapprochement with Russia continue to put the NATO member at odds with the West. To this extent, Turkey not only faces multiple domestic economic challenges, but the Turkish leadership is jointly confronted with an increasingly unfavourable international environment shaped by the incoming US administration.

An unexpected reshuffle at the heart of Turkey’s economic leadership

On top of a struggling economy, the Turkish government has been sustaining significant disruptions in its ranks. The Turkish financial market experienced a brief turmoil when the news broke in November 2020 that President Erdoğan had abruptly replaced the Governor of the Central Bank, Murat Uysal, with the former Finance Minister Naci Ağbal. To top this off, within a day, President Erdoğan’s son-in-law, Berat Albayrak, posted his surprise resignation as Finance Minister on social media. The Turkish lira briefly recovered from these two successive incidents when the government announced that Lütfi Elvan had been appointed the new Finance Minister a few days later. Elvan reportedly plans to use a series of smaller reforms to stabilise the economy, a welcome prospect for the much-plagued markets. In addition, newly appointed Ağbal stated that the Central Bank was making necessary monetary policy decisions to achieve price stability. 

However, the economic reshuffle exposed wider cracks evident among the Turkish leadership, which has been plagued by the ongoing economic instability. Albayrak’s sudden departure, explained simply with health reasons, further raised questions regarding the future of Erdoğan’s leadership, with rumours circulating that Albayrak, who was at one point seen as Erdoğan’s future replacement, had resigned after being kept out of the loop in the decision to fire Uysal. While Erdoğan’s abrupt decision to recalibrate the nation’s economic leadership can be explained by the downward-spiralling Turkish economy suffering a record 12% inflation, his manoeuvres also indicate a response to wider political developments. 

A Biden win changes Turkey’s Trump cards

In essence, Erdoğan is facing a twofold blow of waning domestic support over his handling of the Covid-19 pandemic and the economic fallout, as well as the changed American leadership which could further negatively impact Turkey’s economic future. With Joe Biden taking on the role of US President and Albayrak’s exit, existing ties to the White House, notably between Albayrak and current US President Donald Trump’s Middle East advisor Jared Kushner, have fallen away. President Trump himself has also been known to have resisted any political moves against Turkey, with a notable lack of intervention considering Turkey’s incursions into northern Syria, its recent confrontation at maritime EU boundaries as well as active interventions in the Libyan civil war. 

Trump Erdogan

President Trump and the First Lady Visit with the President of Turkey and Mrs. Emine Erdogan [The White House]

Source: Creative Commons

Furthermore, Turkey’s USD 2.5 billion purchase of S-400 defense missiles from Russia has steadily eroded US confidence in the NATO member as these systems hold the potential to compromise NATO’s defense systems if activated, and could open up US military hardware to Russian spying activities, having already triggered the US Countering America’s Adversaries Through Sanctions Act (CAATSA). However, Trump has thus far refused to act upon repeated calls to sanction Turkey, a position which could change considerably under a Biden administration. President-elect Biden is also known to have a firm stance on Turkey, having previously stated that “Turkey was the real problem”. 

Saving NATO remains key to Biden’s administration

In any case, Biden is likely to take on a more prominent role in redefining Turkey’s relationship with NATO and its wider allies, and he can be expected to undertake steps to help the Kurds in Syria, given that IS continue to be a threat in the region. An upcoming New York trial scheduled to go ahead in March 2021 in which the state-owned Halkbank faces charges for alleged large-scale sanction violations in Iran could also become a further incentive for Biden to put sanctions on Turkey. 

However, Biden is unlikely to go as far as to put Turkey under sanctions, considering the availability of other diplomatic means to achieve Turkey’s adherence to NATO. Turkey remains of strategic importance to Washington due to the US bases in the proximity of the Middle East. In addition, Biden’s overall priorities appear to be placed on countering the emerging threat of a Russia-Iran alliance against US interests in the region, which would necessitate reinforced relations with Ankara. As such, the most likely scenario is a threat of the Biden administration to impose sanctions on Turkey in order to force the Turkish leadership onto the negotiation table.  

Faced with a scrambling economy and the destabilising threat of billions worth of sanctions on Halkbank, Erdoğan’s stance in the international playground has already weakened considerably, leaving him little leeway to antagonise the US in this matter, especially considering the US being a crucial trading partner. As such, playing out the Moscow card against the US by pursuing further security deals with Russia will likely become the only move the Turkish leadership has left that portrays Erdoğan as a strongman, and it will likely remain the key component in Erdoğan’s strategy to secure a mutually beneficial outcome with the Biden administration. 

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