How can Turkey handle US pressure on S-400?

How can Turkey handle US pressure on S-400?

March 22 observed yet another painful day for the Turkish Lira, which lost around five percent against the U.S. dollar in around less than six hours, reviving bad memories from August last year when a diplomatic crisis with the United States resulted in serious economic turbulence in Turkey.

Over the weekend, the Turkish government blamed some banks and speculators for manipulating the markets and pushing the Turks into buying foreign cash, while the Banking Regulation and Supervision Agency (BDDK) launched a probe against these institutions, as well as JP Morgan, over a “manipulative report” on the state of the Turkish economy. The Capital Markets Board (SPK) kicked off a separate investigation into JP Morgan as well.

A more important factor in regards to the plunge in the Turkish Lira, however, is very much related to unstable diplomatic relations with the U.S. as many believe those market movements began on March 22 after President Recep Tayyip Erdoğan slammed U.S. President Donald Trump for suggesting that it was time to recognize Israeli control over the occupied Golan Heights of Syria.

In fact, Erdoğan’s criticism against Trump was right and pertinent. Moreover, he was not alone in doing so: Almost all countries and international organizations, including the European Union, have lashed out at Washington’s unlawful move on concerns that it could bring about new fault lines in an already fragile Middle East.

But it’s obvious that international and national markets and creditors and bankers are not very much interested in the context. They are solely focused on the potential escalation of diplomatic tension between Turkey and the U.S., particularly with regard to a looming crisis between the two countries over the former’s decision to
supply Russia’s S-400 air defense missile systems.

The footsteps of a potential crisis have begun to be heard in the last three weeks as senior diplomatic and military officials from the U.S. mounted their pressure on Turkey for the cancellation of the deal with Moscow if it does not want to face sanctions by Washington and problems at NATO. At the same time, it renewed an offer for the sale of its own Patriot air defense systems to Turkey although negotiations so far have not yielded a breakthrough.

U.S. threats against Turkey cover three main areas:

Congress: Enacted in early August 2017, the Countering America’s Adversaries Through Sanctions Act, or CAATSA, states that the U.S. president shall impose at least five out of 12 sanctions listed in the congressional act against those who engage in a significant transaction with the defense or intelligence sectors of the Russian Federation. Prohibiting the U.S. and international financial institutions from making loans or providing credits to the sanctioned person, imposing restrictions on export-import activities are among 12 sanctions described by the act.

There are those in Ankara who believe that President Trump would impose a softer package by picking up five lightest sanctions out of 12 and therefore Turkey’s economy would be affected at the minimum. However, last Friday’s experience has made it once again clear that a weak and fragile Turkish economy can hardly handle even a soft package.

Plus, at a moment when Trump is being accused of his undercover links with Russians before the 2016 elections, it would be difficult for the president to underrate the situation with Turkey.

F-35: The U.S. made it clear that Turkey’s participation in the F-35 program would be canceled in the event that the Turkish government deploys the S-400s on its soils. A Pentagon report late 2018 unveiled that Turkish exclusion would result in additional costs and delays in the production chain but Washington seems to prioritize the “national security.” It’s also believed that this could hamper bilateral cooperation in the other fields of the defense industry.

NATO: Recent messages from Washington have been interpreted in a fashion that Turkey’s procurement of S-400s from Russia would have consequences at NATO as well. U.S. underlines that this is not just a bilateral issue between Turkey and the U.S., but also a problem widely discussed among allied countries, particularly at the 70th anniversary of the alliance which designates Russia as the main threat to the security of the North Atlantic Council.

Turkish officials see that Washington is waiting for the completion of the local elections in Turkey before stepping into action. In this regard and in the immediate post-election era, two important meetings will take place: The first one in Washington and the second in Moscow.

Foreign Minister Mevlüt Çavuşoğlu will fly to the U.S. to attend the U.N. General Assembly on April 2 and then NATO foreign ministerial on April 3 and 4 where he would see U.S. Secretary of State Mike Pompeo. On April 8, President Recep Tayyip Erdoğan is announced to fly to Moscow to watch the Troy Opera at Bolshoi with Russia President Vladimir Putin, after bilateral meetings at Kremlin.

Erdoğan’s meeting with Putin at such a critical period would provide a very good opportunity for two leaders to discuss the main issues on the agenda including Syria and the S-400s. The questions are blatant: Would Erdoğan change his mind on the S-400s although he has long been underlining that it is a “done deal”? What would be the reaction of Putin?

Although the ball is in Turkey’s court, and therefore in Erdoğan’s court, it will be equally interesting to observe the policy Putin will follow in this process which could lead to an extraordinary tension between Turkey and the U.S. and therefore a major crack at NATO.

 

Turkey, United States, S-400, Turkish economy, Turkish banks, JP Morgan, BDDK