Turkey to face US sanctions for buying from Russia

(Bloomberg) – Recep Tayyip Erdogan may be expecting more from Donald Trump than he’s ready to deliver as the Turkish president tries to defuse his biggest diplomatic spat yet and prevent the economy from unraveling.

Erdogan dispatched top aides, including his son-in-law and now finance minister, to persuade US officials this week that Turkey shouldn’t be a target for American sanctions over its planned purchase of an air defense system from Russia. The goal was also to calm US investors concerned about the Middle East’s largest economy and the prospect of more political turmoil.

The Trump-Erdogan channel has been used by both leaders to iron out frequent differences over policy toward Syria, views on trade and NATO. The problem now facing Erdogan is that regardless of Trump’s affinity for him – he once said the Turkish leader gets “very high marks” – it may be a dead end.

“Turkey has very few friends left in Washington,” said Gonul Tol, director of the Center for Turkish Studies at the Middle East Institute in Washington. Trump can’t “deliver despite the promises he made to the Turks because there are other players in Washington who refuse to tolerate Erdogan’s increasingly aggressive policies,” she said.

Turkey looks progressively isolated as Erdogan struggles to contain a series of events that threaten to undermine the country more than at any time since taking power in 2003.

Economic slump

The economy entered its first recession in a decade following a currency crash last year, and the International Monetary Fund predicts it will contract by more than 2% in 2019. Erdogan’s position as leader is intact, but his governing AK Party unexpectedly lost control of Turkey’s largest cities in local elections on March 31.

On Tuesday, AKP officially demanded a rerun of the mayoral election in Istanbul after claiming the narrow victory for the opposition was fraudulent. Recounting in some districts is still underway, and it’s unclear when Turkey’s election board will make a ruling.

“It is a mix of hubris, poor understanding and unwillingness to recognise that problems are mounting,” said Wolfango Piccoli, co-president of Teneo Intelligence in London.

Erdogan’s most pressing problem is that the US is threatening to cut off Turkey from buying and helping to produce Lockheed Martin Corp.’s F-35 fighter if he goes through with plans to buy the S-400 air defense system from Russia.

One option would be to abandon the S-400 deal – which was finalised as Turkey made up with Russia following a row that erupted after Turkey shot down a Russian jet over Syria – but Erdogan vowed not to go back on his promise to President Vladimir Putin.

Sanctions

Indeed, a back-door solution to the missile row would bolster the Turkish economy. It entered its first recession last year after a currency crash that was touched off by another round of American sanctions over the continued detention of the American pastor Andrew Brunson in Turkey.

Trump has taken Erdogan’s side before, only to back off. After a talk with Erdogan in December, Trump announced he’d be pulling all US forces out of Syria as the Turkish president urged. Eventually, Trump acquiesced to pleas from his advisers and European allies and agreed to keep about 400 troops.

“Erdogan is clearly hoping that Trump will intervene to prevent the dispute over Turkey’s procurement of the Russian S-400 missile defense system from triggering sanctions,” said Anthony Skinner, Middle East and North Africa director at Verisk Maplecroft in the UK “We have seen Turkish-US relations on the precipice before only for some last-minute concession to save the day, but things could get increasingly ugly if Turkey completes the purchase.”

On his visit to the US, Finance Minister Berat Albayrak said Turkey took its case for buying the Russian air-defense system directly to Trump. He told reporters on Monday there was “quite positive feedback.” The White House didn’t immediately respond to inquiries about such a meeting.

The Pentagon confirmed that Acting Defense Secretary Patrick Shanahan met with Turkish Defense Minister Hulusi Akar on Tuesday, saying in a statement only that they “met as strategic partners” and discussed “interests, rather than positions.”

Damage limitation

Albayrak also tried to bolster confidence in the economy, saying it’s probably emerged from its first recession in a decade. “We’ve come out of a difficult period with a minimum amount of damage,” he said. “We’ll take whatever steps necessary to meet our targets because there are no elections ahead of us. We will take those steps with great ease.”

The Turkish economy is tanking since the lira lost nearly a third of its value against the dollar last year, setting the stage for what could be the worst contraction since 2001. That financial crisis wiped out Turkey’s political establishment and enabled Erdogan’s rise to the center of national politics.

The slowdown in activity, coupled with the highest inflation rate and worst jobless figures in about 15 years, debased Erdogan’s support in cities, resulting in an unexpected loss of major cities in March 31 municipal elections.

Among those that fell was Istanbul, where Erdogan made his political career in the 1990s. The AKP has refused to concede, submitting an “extraordinary objection” and raising the specter of another vote.

Way out

Then there’s the prospect of US action resulting in another run on the currency and a wave of bankruptcies that could cripple the economy, weighing on Erdogan’s popularity.

Getting Trump to go light on sanctions when Turkey receives the Russian air-defense systems is now the obvious policy path Turkish officials are following, but the US president and the State Department have limited say over their scope.

Their final shape must be approved by Congress – a message that was delivered to Erdogan as recently as January when Senator Lindsey Graham visited the Turkish leader to warn him that Congress was unlikely to give Turkey a pass over the S-400 purchase.

In an attempt to find a compromise between the two, Turkish officials are mulling whether to deploy the missile system in a third country such as Azerbaijan or Qatar, according to pro-government columnist Okan Muderrisoglu writing in the Sabah newspaper on Tuesday. When asked about the possibility, Akar, the defense minister, refrained from rejecting the idea and instead said focus should be on the “process ahead.”

“Despite all the statements made, I still think Turkey will step back on S-400 issue and refrain from escalating the tension,” Sinan Ulgen, chairman of the Istanbul think tank Edam, said. “Selling S-400 to a third party country may be one of the solutions.”