Prime Minister Ahmet Davutoglu will step down at the end of this month after losing a power struggle with President Recep Tayyip Erdogan. Davutoglu’s decision will allow Erdogan to further consolidate his powers but will plunge Turkey into political uncertainty at a time when the country is facing an escalating Kurdish insurgency, threats from the Islamic State, economic headwinds and has to implement a key migrant deal with the EU.

The ruling Justice and Development Party (AKP) will hold an extraordinary congress on May 22 to elect a new leader and Davutoglu said he will not stand again.

“Following consultations, I came to the conclusion that a change in the partly leadership would be better,” Davutoglu said, stressing that he will remain loyal to the president.

Erdogan and Davutoglu had what local media described as “a crucial meeting” on May 4 at Erdogan’s presidential place in Ankara amid reports of rising tension between the president and his prime minister. No official statement was released after the meeting that lasted more than an hour but Davutoglu announced later that the AKP is set to elect a new leader.

Hand-picked PM

Erdogan hand-picked Davutoglu to succeed him as the PM and the head of the ruling party after he was elected president in 2014. Under Turkey’s parliamentary system, his role as president should have been largely ceremonial, but Erdogan has continued to intervene in the affairs of the government and of the AKP.

Davutoglu, who lacks Erdogan’s charisma, never challenged Erdogan’s powers, at least not publicly. Davutoglu, a former academic and foreign minister, has never had a real power base in the AKP, which was founded by Erdogan who is the most powerful politician since Ataturk, the founder of the republic.

Local media report that differences have emerged and widened between the two leaders in key issues, such as the drafting of a new constitution including the all-powerful executive presidential system Erdogan envisions for Turkey. Davutoglu has also been, reportedly, troubled with the repression of the press, jailing of journalists and academics. It is also said that the PM did not properly consult with Erdogan when he was negotiating the migrant deal with the European Union.

Last week, the AKP’s top decision-making body took the authority to appoint local party officials away from Davutoglu, in a move widely seen as a clear sign of tensions between the two. But AKP officials repeatedly dismissed any suggestion of infighting.

Erdogan has been arguing that a presidential system is what Turkey needs if the nation wants a better, stronger economy, and a more respected place in world politics. Erdogan is seeking to change the country’s constitution to give him more executive powers. But his critics fear that an executive presidential system would provide him with too much, unchecked power.

Apparently when he chose Davutoglu as his successor Erdogan expected him to be all obedient, to be a PM who would never dare to stand against him. But, the revelations in the media show that Erdogan miscalculated: Davutoglu was seeking to carve out a more independent place, and to assert his authority.

Davutoglu’s dramatic departure is a stark reminder that nobody - at least at the moment- can stand in Erdogan’s way and Erdogan never hesitates to crush anyone who dares to try to share power with him. His rule is absolute.

Davutoglu’s successors

Erdogan,  who has run Turkey since 2002 and is very popular among AKP supporters, will remain the main actor in Turkish politics, until at least someone -within the AKP - emerges to challenge him.

Taking lessons from the Davutoglu experience, Erdogan will pick a successor who will be more willing than Davutoglu to back his plans to change the constitution and to move Turkey towards the executive presidential system.

Among those tipped as successors are Transport Minister Binali Yildirim, who is Erdogan’s right-hand man, Energy Minister Berat Albayrak, who is the president's son in law, Deputy PM Numan Kurtulmus and Justice Minister Bekir Bozdag.

The congress will not be a smooth one since Davutoglu has clout over some 120 deputies, sources told the Hurriyet Daily News. It is, however, questionable if Davutoglu has that many supporters within AKP ranks. 

Market turmoil

“Despite the fact that some party members and MPs have significant misgivings about Erdogan’s management style and agenda, Davutoglu’s departure is unlikely to trigger any meaningful reaction within the ruling party,” Wolfango Piccoli at Teneo Intelligence commented.

For investors, the key concern is what the new economy management will look like and whether Finance Minister Mehmet Simsek, said to be close to Davutoglu, will keep his post. Investors are also worried that the new government, to be led by a close ally of Erdogan, will increase pressure on the central bank to cut its rates to boost economic growth.

“Concerns centre on the fact that the relatively moderate, conciliatory and well-respected Davutoglu is being pushed aside, probably to be replaced by someone more malleable by increasingly-authoritarian President Erdogan”, William Jackson at Capital Economics writes in a note.

It is also speculated that the new government may call early elections. But Cemil Ertem, Erdogan’s economic advisor, ruled out such a possibility, saying that parliamentary elections will be held in 2019 as planned. He also said in an interview with NTV news channel on May 5 that he did not expect a change in the economic management of the country.

“We think that the replacement of Davutoglu will mark a new chapter in Turkish politics and speed up the transition to the executive presidential system. The likelihood of another snap election is high, which will increase political uncertainty,” DenizInvest, a local brokerage firm, said in an emailed report.  Markets will fret over any potential change in the top economy post and that a new political agenda will undermine recent efforts toward structural reform in the government, according to DenizInvest analysts.

The brokerage house noted that the timing of such a seismic political shift is quite unfortunate: “as it coincides with a turning of the tide in global risk appetite, marked by a major selloff in global markets due to growth concerns and a recovering US dollar.”

Turkey’s main stock exchange index, the BIST-100, that fell as much as 7% between April 29 and May 4 pared some of its losses on Thursday after Davutoglu’s comments. The index rose 0.15%. The lira that traded at 2.9505 per dollar early today gained some ground to trade at 2.9022 at 3:30 pm local time on May 5. Apparently investors are now digesting the news flows and they think that the rift between Davutoglu and Erdogan would not lead to a turmoil within the ruling party.

“Turkey’s political trajectory was, is and will remain negative regardless of Davutoglu’s booting. The episode highlights once more that Erdogan’s dominance over the party (and the executive branch of government) remains supreme,” Jackson says. A snap poll will depend on a variety of factors including the popularity of the AKP and the main opposition parties, a possible change of leadership in the [opposition nationalist] MHP and the evolution of the economy, the analyst adds.