On Thursday evening, Donald Trump delivered some bad news to detained Christian pastor Andrew Brunson.
Specifically, the President said Brunson is going to need to (and this is a quote) “represent our Country as a great patriot hostage”, which is Trump for “you’re going to need to stay on house arrest in Turkey”.
The President continued, insisting that the U.S. “will pay nothing for the release of an innocent man.”
That came hours after Steve Mnuchin confirmed that the U.S. is ready with more sanctions for Turkey in the event Brunson isn’t immediately released and it also came after three straight days of gains for the lira, which is fighting desperately to recover after being waylaid last week as the diplomatic row with Washington finally woke the world up to just how precarious the situation in Turkey is, both economically, financially and politically.
On Friday, Turkey vowed to respond to any further tariffs. “We’ve already responded based on the WTO rules and will continue to do so,” said Ruhsar Pekcan, Turkey’s Minister of Trade. Earlier this week, Erdogan slapped additional tariffs on U.S. imports including liquor, rice and cars and threatened to boycott iPhones.
Of course Turkey isn’t really looking to get “paid” for Brunson’s release. Rather, they’re looking for some progress on the Gulen extradition front or, barring that, some clarity on Halkbank and the return of jailed banker Mehmet Hakan Atilla.
Last week, a delegation dispatched to Washington ostensibly to mend ties refused to negotiate for Brunson and instead used the meeting to talk about Halkbank, which has been living under the cloud of the Reza Zarrab drama for months on end.
According to reports, there was a deal in place for Brunson that would have called for Atilla to be shipped back to Turkey from a U.S. jail. Atilla was convicted earlier this year for his role in a plot to avoid American sanctions on Iran and was sentenced to 32 months in prison in May. As part of the deal for Brunson, Halkbank would get off with a “lenient fine” for its role in the oil-for-gold scheme. Long story short, that fell apart.
On Thursday, Berat Albayrak told investors on a conference call that Turkey is “not expecting any fines on Halkbank” but did add that if necessary, the government “should stand by” the bank. In the meantime, the recent turmoil in Turkish assets and the fact that Halkbank is at the center of the dispute hasn’t been good news for the bank’s bond holders. Yields have exploded on the bank’s debt.
Well on Friday, Middle East Eye is out with an “exclusive“, in which they quote a “high-level Turkish diplomatic source” as indicating that Ankara expressed its willingness to free Brunson in exchange for leniency on Halkbank.
“Turkish diplomats have told the US government they are close to releasing Andrew Brunson, the imprisoned American pastor at the heart of the diplomatic row between the two countries,” MEE says in the article, adding that “during the trip to Washington last week, the Turks offered a plan which would have seen Brunson released in exchange for leniency in two US government investigations into the Turkish state lender Halkbank.”
To be clear, that’s not actually new information. Bloomberg reported the same thing a week ago, but MEE has some actual quotes from an anonymous “Turkish diplomatic source”, and here they are:
Technically, it’s possible for us to release Brunson.
But we need something in return after all those challenging comments between the US and Turkey.
We want to see some goodwill about the fate of these investigations. But the Trump administration said that their judiciary was independent and couldn’t promise anything.
Imagine that, Donald Trump said the U.S. judiciary is “independent” – Turkey might well have asked him why he can’t just use the same strongman tactics he’s used for the better part of a year to encroach on judicial branch independence in America.
In any event, Turkey wants Atilla back. Here are a couple of additional quotes from MEE’s source:
We told them that at least we have to see some goodwill, you have to promise us something. We asked for some time to find a win-win solution.
But they were so clear about their stance. They told us to release Brunson immediately, they want him back in the US without any bargain. Otherwise, they would impose more sanctions on Turkey. So the delegation turned back to Ankara, but the communication never stopped.
The two important takeaways here are simply that negotiations for Brunson have never actually stopped and that Ankara sees the pastor’s release as a possible pressure valve on the lira. “We know we have to solve the crisis at least for the sake of our economy”, MEE’s source said.
I still contend Erdogan would sooner release Brunson than resort to rate hikes when it comes to shoring up the lira. It looks like Ankara’s success in securing an investment from Qatar along with tentative support from Angela Merkel and a crackdown on swaps are allowing Turkey to take a wait and see approach.
If the lira starts to dive again (which it did on Friday), then Erdogan can always release Brunson and use the inevitable rally in the lira his release would trigger to play for even more time and see if perhaps a Fed pause or some other risk-on trigger alleviates the pressure on Turkey.