Turkey’s Self-Made Nightmare
Under the leadership of President Recep Tayyip Erdogan, Turkey has charted an independent path in foreign and security policies. Despite being a longtime Nato member, Turkey has entered strategically important energy deals with Russia involving both gas and nuclear power and has aligned its interests with Russia and Iran when it comes to resolving the Syrian crisis. But the arrival of the coronavirus pandemic has pushed economic issues out ahead of geopolitical gamesmanship, forcing Turkey to realign itself with the West to forestall economic collapse. Turkey may have burned one too many bridges with its old allies, however, leaving it isolated and without the economic lifeline it now needs to survive.
As recently as last fall, Turkey looked as if it were tilting decisively away from its decades-long relationship with the West, and toward a future where economic and social interaction with nations such as Russia and Iran would dominate. Turkish foreign and security policy decisions, including offensive military operations in northern Syria against US-aligned Kurds, the purchase of Russian-made S-400 air defense systems, and the redrawing of maritime boundaries in the eastern Mediterranean, all seemed part of a Turkish master plan for a strategic shift away from the US and Nato and toward Russia. Closer ties with Russia in turn were part of a larger geopolitical shift to the east.
What a difference a few months can make. As 2019 transitioned into 2020, Turkey found itself facing off against the Russian Air Force in Syria and Russian mercenaries in Libya without the recourse of calling upon its allies in the West for assistance. While Turkey and Russia still cooperated on several major energy-related projects, such as the Turk Stream gas pipeline and the Akkuyu nuclear power plant, the benefits of these energy ties with Russia were not sufficient to prevent Turkey’s economy from sliding off a cliff.
As this geopolitical and economic storm raged, Turkey was hit by the coronavirus pandemic. The global economic shutdown exacerbated an already difficult situation, threatening Turkey’s economy with total collapse. Turkey cannot find the solution to its economic misfortune in its new Russian relationship. The answer lies rather with its spurned Western allies, forcing Turkey to undergo a radical and dramatic change of heart. During a recent presentation at the Heritage Foundation in Washington, Turkey’s former defense minister, Fikri Isik, publicly stated that Turkey’s relations with Russia were of a tactical, rather than strategic, nature, and that Turkey’s path forward was in lockstep with Nato and the US — a complete retreat from the policies of last autumn.
”We know Russia very well,” Isik noted. “Having close relations, especially in the economic field, does not mean that these relations are strategic relations … these relations are not strategic relations, they are tactical,” he said. “Turkey will continue to be a loyal member of Nato. But Russia is also our neighbor. You can choose your friends and allies, but not your neighbors. You should have good relationships with your neighbors,” Isik said.
Isik’s comments coincided with the arrival of two Turkish Air Force planes loaded with medical aid to the US, accompanied by a personal letter from Erdogan to US President Donald Trump praising the latter’s “spirit of solidarity” regarding the coronavirus pandemic. While addressed to Trump, Erdogan’s letter was geared toward fixing Turkey’s relations with the US Congress, which has threatened to impose economic sanctions on Turkey due to the purchase of the S-400 system. “I hope that in the upcoming period,” Erdogan wrote, “with the spirit of solidarity we have displayed during the pandemic, Congress and the US media will better understand the strategic importance of our relations.” The Turkish president said he hoped that they acted “in a way that our common fight against our common problems necessitates.”
Erdogan’s letter comes on the heels of a decision by Turkey to postpone activating the S-400 air defense system, citing delays brought on by the onset of the pandemic. According to a senior Turkish defense official, this delay did not represent a reversal of Turkey’s commitment to put the S-400 into operation. “There is no going back on the decision to activate the S-400s [but] due to [the coronavirus pandemic] … the plan for them to be ready in April will be delayed,” the senior official said. According to this official, the delay might last “several months.”
This delay is no trivial matter. The US maintains that the S-400s, which Russia delivered to Turkey in July 2019, are not only incompatible with Nato air defense systems, but they also jeopardize advanced US F-35 stealth fighters. As a result, the US canceled Turkey’s planned acquisition of that aircraft. If Turkey goes ahead with activating the S-400, it will likely face US sanctions under legislation intended to punish those nations that purchase Russian-made military equipment.
Seen in this light, Turkey’s outreach to Trump appears to be more tactical than strategic, a ploy to buy time while it negotiates much-needed economic relief in the form of a currency swap deal with the US Federal Reserve. Erdogan is desperate for the kind of financial assistance that can only be found in the West, and forestalling a political confrontation with the US Congress is a prerequisite for any future aid package. But Erdogan is facing an uphill struggle — even before the pandemic struck, Turkey’s sluggish economy was having difficulty securing international financing to deal with its current account deficits. Turkey’s pre-pandemic debt load ranked as the world’s fourth riskiest, behind Venezuela, Argentina and Ukraine. In the aftermath of the pandemic, Turkey’s situation has only worsened, with a plunge in the value of the Turkish lira combined with a precipitous decline in foreign revenues compelling the country to desperately look for an economic lifeline to avoid economic default.
As of April 2020, the Turkish central bank’s net international reserves fell to $27.14 billion, down from $43 billion at the end of February. This level is expected to fall further as Turkey struggles with its deficit. To slow down this loss of foreign exchange reserves, Turkey has sought currency swaps, financial agreements in which two central banks exchange currencies to improve liquidity conditions and provide foreign currency funding to domestic banks during periods of market stress. In the past Turkey has engaged in such swaps with China, securing a $1 billion swap last year, and just recently with Qatar, which tripled a previous 2018 swap line of $5 billion to $15 billion.
Swap agreements, however, are geared toward facilitating bilateral trade between the two countries involved using their respective currencies. Given that the bulk of Turkey’s international trade is with EU nations and the US, currency swaps with China and Qatar have limited impact. The Turkish economy desperately needs currency swap agreements with the EU and US to avoid burning through its shrinking foreign reserves.
Erdogan is placing high hopes in his personal relationship with Trump to secure a currency swap with the US. Erdogan first broached the idea with Trump back on Mar. 31, prior to the dispatch of medical aid. But even if Trump were sympathetic to Turkey’s plight, a currency swap deal with the Federal Reserve would be tough to sell. Politics aside, the Federal Reserve is hesitant to get involved with what it views as the overly politicized nature of the Turkish central bank.
But the highest hurdle remains the issue of the Russian S-400 air defense system. The Trump administration has made it clear that there can be no currency swap so long as Turkey plans on going forward with that system. Turkey’s pandemic-induced delay does not meet that threshold, meaning a US dollar lifeline will most likely not be extended. Erdogan has become tangled up in a web of his own making by playing Russia off against the US and Nato. Regardless if one labels his moves as strategic or tactical, they leave Turkey trapped in a geopolitical no-man’s land.
Relations with Russia are only going to become more strained in the months ahead as Turkey squares off against Russian interests in Syria and Libya. And Turkey’s insistence on activating the S-400 air defense system leaves it fundamentally at odds with the US and Nato. In the meantime, Turkey’s economy continues to be ravaged by the global economic recession triggered by the coronavirus pandemic. Without a major change in policy by either the US or Turkey regarding the status of the S-400 air defense system, Turkey is headed toward an economic disaster that looks likely take Erdogan down with it.