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Lira Erases Entirety Of August Panic As U.S. Lifts Sanctions, Erdogan Rides Hot Streak

"So much winning."

Turkish President Recep Tayyip Erdogan is on a roll.

Three months ago, NATO’s “favorite” ruthless dictator was struggling with a collapsing currency and staring down the prospect of an outright economic crisis after a disastrous move to install his son-in-law as economic czar and an equally ill-advised decision to hold off on hiking rates, conspired with U.S. sanctions tied to the detention of Pastor Andrew Brunson to push the lira over the edge.

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Fast forward to November and the tide has turned – decisively.

Say what you will about Erdogan – and there’s a lot you can say – but he is not a man who is easily deterred, nor is he a guy who is prone to rolling over in the face of international pressure.

Since the lira scare, Erdogan has executed a series of deft geopolitical maneuvers to retake control of the narrative and now looks to be on the verge of forcing a shift in the regional power balance.

After securing a financial lifeline from Qatar in August, Erdogan allowed CBT to move ahead with what counts as a “convincing” rate hike for Turkey on September 13, helping to shore up sentiment in the lira. But despite enormous pressure from Donald Trump – who authorized a doubling of tariffs on Turkey on August 10, a move essentially designed to enhance the effectiveness of the Brunson-related sanctions –  Erdogan refused to release Brunson, opting instead to hold out for a court date scheduled for October 12.

Well, as “luck” would have it, Saudi Arabia decided to murder a dissident journalist in the Kingdom’s Istanbul consulate on October 2. Needless to say, one doesn’t just murder someone in Istanbul without Erdogan knowing about it, especially not in a consulate that’s likely crawling with Turkish intelligence bugs.

Once it became apparent that the international community cared – a lot – about Jamal Khashoggi, Erdogan seized on the issue to effectively try and orchestrate a reshuffle in Riyadh.

That effort is ongoing, and one of the things that was immediately apparent when Turkey first began to leak information about Khashoggi’s death, was that Erdogan intended to contrast that episode with his own willingness to free Andrew Brunson. That was a genius move, as it effectively cornered the Trump administration, which has of course maintained extremely close relations with Crown Prince bin Salman.

Effectively, Erdogan asked the international community why it is that Washington continues to adopt an adversarial stance towards a NATO ally even after the release of Brunson on October 12, while steadfastly supporting bin Salman, who quite clearly ordered the murder and dismemberment of a Washington Post columnist.

Good question, no?

Remember, when it comes to the Saudis (and especially the Crown Prince), Erdogan has an axe to grind. This isn’t just about Ankara making it clear that if anyone is going to chop up a journalist in Istanbul, it’s going to be Turkish intelligence, not some silver-spoon-fed amateurs that flew in on private jets from Riyadh. This is about the Muslim Brotherhood, revenge for the quashing of the Arab Spring and also about scoring one for Ankara’s ally in Doha, following the Saudi-led blockade that threatened to spark an economic crisis in Qatar in the summer of 2017.

Oh, and it’s also about securing leverage in Syria, where Erdogan is determined to wipe out the YPG, who he has always equated with the PKK. Of course the U.S. arms the YPG, a long-standing point of contention between Washington and Ankara.

Long story short, Erdogan went from holding the weakest hand imaginable three months ago, to having all the cards thanks in no small part to the Saudis’ ham-handed assassination plot and the stark contrast between the Khashoggi killing and Turkey’s release of Pastor Brunson, who promptly showed up at the White House for a photo op with Trump.

Well, sure enough, the U.S. lifted some sanctions on Turkey on Friday, in what amounts to a (probably begrudging) acknowledgement of the bad optics behind sticking with a contentious attitude towards Ankara at a time when the rest of the world is wondering why Trump is so reluctant to sanction the Saudis.

Specifically, Mnuchin removed Turkey’s Minister of Justice Abdulhamit Gul and Minister of Interior Suleyman Soylu, from Treasury’s sanctions list early this morning.

The decision comes a day after Erdogan and Trump spoke over the phone. That call, according to Sarah Huckabee Sanders, revolved around “a desire to work together, particularly on coordination in Syria”, but you have to know everything noted above not only came up, but likely dominated the discussion.

Predictably, the lira rallied on the news and is now sitting at a three-month high against the dollar. It has now erased the entirety of the mid-August panic selling.

Lira

Erdogan is obviously still insane, and there is no scenario under which he will give up on his unorthodox theory of economics wherein higher rates cause inflation. So, as noted on Wednesday, you probably should not trust this rally.

But what this does underscore is the fact that Erdogan is an incorrigible, resilient bastard and it’s going to take a whole lot more than six months worth of lira weakness to keep him at bay.

As far as the situation in the Mideast is concerned, the monarchy in Riyadh better figure out a way to improve the optics around the Khashoggi debacle, because right now, Erdogan’s got the “hot hand in the dice game, baby girl” – “two months straight, talkin’ bout clakekty, clakekty, clack.

 

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