New low in US-Turkey ties raises fears for Turkish economy

US sanctions on ministers are 'indicators of what might come next'

Turkish Justice Minister Abdulhamit Gul, second right, and Interior Minister Suleyman Soylu, right, stand with President Recep Tayyip Erdogan, second left, during a ceremony at the mausoleum of Mustafa Kemal Ataturk in Ankara on August 2, 2018. AP PhotoShow less

Unprecedented US sanctions against two Turkish ministers have dragged relations between the Nato allies to their lowest level in decades and raised fears of a further deterioration, with painful consequences for Turkey's fragile economy.

Although the decision to impose economic restrictions on Justice Minister Abdulhamit Gul and Interior Minister Suleyman Soylu appeared largely symbolic, the news immediately saw the Turkish currency drop to a record low of five liras against the dollar.

Washington said sanctions were imposed on the ministers because of their involvement in the prosecution of American pastor Andrew Brunson. He is accused of espionage and support for the Kurdistan Workers’ Party (PKK) and the movement led by Fethullah Gulen, who Ankara accuses of masterminding a coup attempt in 2016.

Mr Brunson, 50, was placed under house arrest last week after nearly two years in prison. The move led to US President Donald Trump and Vice President Mike Pence threatening "large sanctions" unless the preacher was returned to the US immediately. Washington says the allegations against him are baseless.

The row over Mr Brunson, who has lived in Turkey for 23 years, has been closely tied to Ankara’s call for the US to extradite Pennsylvania-based Mr Gulen. Turkey’s President Recep Tayyip Erdogan previously called on the US to return Mr Gulen in exchange for the pastor, prompting allegations of hostage diplomacy.

Can Selcuki, a partner in Istanbul Economics Research, said the sanctions against the Turkish ministers were “indicators of what might come next”.

“These sanctions aren’t really devastating to Turkey but are signals from the US to Turkey saying they’re determined to take other measures because diplomacy isn’t working,” he said.

Further such developments could hurt an economy that is suffering inflation above 15 per cent and a widening current account deficit.

Ankara and Washington have been engaged in a series of disputes in recent years. As well as calling for the extradition of Mr Gulen, Turkey has also been alarmed at US support for the PKK-linked People’s Protection Units (YPG) in Syria.

Washington has backed the YPG in the fight against ISIS but Turkey lists it as a terrorist organisation because of its ties to the PKK, which has waged war on Turkey since 1984 and is considered a terror group by the US and European Union.

Meanwhile, the US is concerned about Turkish plans to buy the S-400 air defence system from Russia, a development that has seen the US Senate move to block the transfer of F-35 fighter jets to Turkey.

Hisyar Ozsoy, foreign affairs spokesman for the opposition Peoples’ Democratic Party (HDP), said the sanctions would undermine investor confidence in Turkey.

“There will be an impact on the economy because Turkey has been a member of Nato and a US ally for nearly 70 years,” he said. “We’ve come to a situation where the US is imposing sanctions on an ally.

“Many were expecting Turkey to normalise relations with the West after the June elections but that hasn’t happened and international capital will look for less risky areas to invest. The fall of the lira in terms of the real economy will have a serious effect because many people will move their capital out of Turkey in the medium to long term.”

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The crisis has been labelled the worst since Turkey refused to allow US troops to use its territory in the 2003 Iraq invasion or even an American arms embargo imposed following Turkey’s 1974 intervention in Cyprus.

Sedat Ergin, a veteran journalist and commentator for the Hurriyet newspaper, said that despite miscalculations by both Washington and Ankara in the past, common interests had seen them reconcile.

“There is currently a state of ‘anomaly’ between Ankara and Washington as things have already passed the bounds of rationality,” he said, adding that it would perhaps be best for the two nations to put their relationship “on ice”.

The language of senior Turkish officials has been relatively restrained following the imposition of sanctions. Finance Minister Berat Albayrak, who is also Mr Erdogan’s son-in-law, on Thursday called on the US to resolve its “mistake” through “diplomacy and constructive efforts appropriate for two countries and allies with a strong historical background”.

“Each side has to take it a notch down to find common ground,” Mr Selcuki said. “There’s a myriad issues between the US and Turkey. The US has already played its hand.”