Investors’ relief at ‘mild’ Turkey sanctions masks deeper trouble with US ties

After years of fretting that Turkey would face crippling economic measures for its decision to buy the Russian-made S-400 air defence system, foreign investors reacted with relief to this week’s US sanctions on its defence procurement agency and four senior officials.

“The sanctions are very mild,” said Gilles Seurat, a fund manager at La Française, a Paris-based asset manager. Investors can “at last put this S-400 issue behind us with no economic cost for the country”.

Yet the decision to impose punitive measures on a Nato ally underlines the deep strain between Turkey and its western partners — and serves as a reminder of a thorny foreign policy challenge that Joe Biden will inherit when he takes office as US president next month.

“The Biden administration will still have to deal with the S-400 crisis,” said Asli Aydintasbas, a senior policy fellow at the European Council on Foreign Relations. “It’s a fairly significant thing for a Nato country to be sanctioned by the US . . . Getting to a place where the S-400s are no longer an issue between Turkey and the US will be tough.”

Even if the immediate financial impact of the sanctions was limited, with the embattled Turkish lira enjoying a calm day of trading on Tuesday, the measures risk striking a blow to the burgeoning defence sector that Turkey’s president Recep Tayyip Erdogan has taken great pride in expanding. 

While the country now produces armoured vehicles, tanks, helicopters and armed drones at home, they require foreign parts, such as electronic components and sensors.

Defence analysts warn that western companies may be hesitant about signing new contracts with Turkish companies for fear of falling foul of US sanctions.

“While the Turkish defence industry isn’t going to collapse, it will be inconvenienced,” said Aaron Stein, a Turkey expert at the Foreign Policy Research Institute in Philadelphia. “It will cause some pain.”

That means that Turkey — which had already been suspended from the US-led F-35 fighter jet programme in punishment for the S-400 purchase — was likely to be eager to “get these sanctions lifted”, he added.

There are signs that Turkey is open to negotiation. Mr Erdogan, who has often used harsh language to attack the US, has toned down his rhetoric following Mr Biden’s victory in last month’s presidential election — as well as the prospect of further sanctions from Europe.

Speaking last week, he stressed Turkey’s “deep-rooted political and economic relations with both the United States and the European Union”, adding: “There is no issue that cannot be solved through dialogue and co-operation.”

Yet it remains unclear whether the Turkish president is willing to make the compromises that will be demanded of him in return for the lifting of sanctions and a broader normalisation of US-Turkey ties.

Daniel Fried, a former senior state department official who covered Turkey, said the incoming Biden administration needed to craft a “reset” with the country. “[But] Erdogan’s got to want to do this,” he said, adding that the Trump administration’s sanctions were “designed to push the Turks, but not trash things”.

A clause in this year’s National Defense Authorization Act — a US defence spending bill that was passed by both chambers of Congress last week with a veto-proof majority, but which has yet to be signed into law — stipulates that S-400 sanctions can be lifted only if Turkey “no longer possesses” the Russian-made system.

“That’s never going to happen,” said Mr Stein. “So the Biden administration is going to have to make the case for Turkey. To compromise, Turkey is going to have to do something.”

Mr Stein said that Ankara’s proposals to establish a working group fell far short of what would be necessary for sanctions to be lifted. Turkey could commit never to use the Russian system, which US officials argue poses a serious security threat to Nato technology, but he warned: “If the Turks are going to be intransigent and unwilling to compromise, then even people who want to lift [these measures] . . . are going to have problems.”

There are other obstacles to a reset in relations. The two nations remain profoundly at odds over Syria, where Washington continues to support Kurdish fighters who Turkey view as an existential national security threat. 

In March, Turkey’s state-owned bank Halkbank will go on trial amid accusations that it facilitated an oil-for-gold scheme that violated US sanctions on Iran. A guilty verdict could lead to a multibillion-dollar fine.

Mr Biden, who told the New York Times in 2019 that Mr Erdogan was an “autocrat”, has vowed to prioritise human rights, putting him on a possible collision course with Turkey’s president over his harsh tactics towards domestic political opponents.

The incoming US president will also have to reckon with a Congress that is hostile to the Turkish leader.

Still, advocates of rebuilding the relationship argue that there is much to be gained from strengthening ties with Turkey, which remains a strategically important western partner, and pulling Mr Erdogan away from the orbit of Russian president Vladimir Putin.

Many analysts think that the pragmatic Turkish president will at least embark on the Biden era seeking better relations.

“Erdogan is an astute student of US politics,” said Soner Cagaptay, a senior fellow at the Washington Institute for Near East Policy. “I think the first year will be quite positive.” But he said that irreconcilable disagreements between the two sides were likely to lead to an eventual breakdown. “If the past offers any lessons, I think it will start well but it won’t end well.”

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