The Turkish lira (TRY) has extended its gains in the past day and a half, strengthening around 1.5% against the dollar to reach around 5.79 by the early afternoon of October 16, with analysts citing the ‘Brunson’ and ‘Khashoggi’ events as driving sentiment.

The ongoing recovery of the currency—the end-of-trade figure meant the TRY’s decline vs the USD in the year to date stood at around 34% compared to the 40%-levels it has struggled to break away from in recent weeks—was much attributed to geopolitical events running in Turkey’s favour. Some analysts even noted an outside chance that Ankara might be able to use the circumstances to secure a Saudi capital bailout to help it at least partially fight off its financial crisis.

The first improvement in Turkey’s prospects came with the release of US pastor Andrew Brunson by a Turkish court on October 12. That has led to an instant warming of previously icy relations between Ankara and Washington, with the Turks and Americans looking to disentangle a many-sided rift. Support from the US is at the very least psychologically important to the markets as Turkey attempts to fight its way out of its currency meltdown and spreading economic turmoil.

Secondly, all the signs were pointing to Turkey, the US and Saudi Arabia as coming together to try and arrange something towards a palatable exit for Riyadh from the Jamal Khashoggi affair. Turkish officials have persistently and anonymously briefed the media that they have audio and video recordings of Khashoggi, a veteran journalist and critic of the present Saudi regime, being tortured and murdered in Saudi Arabia’s Istanbul consulate on October 2. If that really is the case, Turkish President Recep Tayyip Erdogan will have plenty of leverage to extract concessions from both Washington and Riyadh as the three countries attempt to resolve the scandal with the minimum of embarrassment and negative economic consequences, the latter of which might be rather serious if enough US senators push for the imposition of sanctions against the Saudis.

‘Deep state did it’ option
Reports last week indicated that the Saudis were addressing a Turkish suggestion that they blame a ‘deep state’ for the murder and that may very well turn out to be the case.

Soner Cagaptay, director of the Turkish Research Program at the Washington Institute for Near East Policy, was quoted by Bloomberg as saying on October 16: “Erdogan’s ideal scenario is not drawn-out conflict with the Saudis, it’s to help the Saudis dig out of this with a graceful exit. Erdogan knows Turkey is completely isolated in the Middle East and he can’t press against one more country in a region where he has so many problems without securing the backing of the US. He wants to make sure he has [US President Donald] Trump’s ear.”

If Turkey were minded to irreversibly expose Saudi officials it perhaps would have released some of the graphic taped evidence it says it has by now.

Trump—who tweeted after Brunson’s release that the move “will lead to good, perhaps great relations between the United States and Turkey!”—will be wary of attempting to punish Saudi Arabia with severe economic penalties given the importance of the kingdom in his fight to isolate Iran and the worry that a retaliation from Riyadh could drive up oil prices in the run-up to the US mid-term elections on November 6. And, on October 15, speaking to reporters after a phone call with Saudi King Salman, Trump suggested “rogue killers” might be behind the suspected killing of Khashoggi.

“The king firmly denied any knowledge of it,” Trump said. “He didn’t really know, maybe—I don’t want to get into his mind but it sounded to me—maybe these could have been rogue killers. Who knows?”

The next stage in addressing the diplomatic crisis should take place during US Secretary of State Mike Pompeo’s visits to Saudi Arabia and Turkey, announced by Trump.

Pompeo was reportedly meeting King Salman on the morning of October 16 and was set to journey to Turkey later in the day.

Meanwhile, unconfirmed US media reports suggested Saudi Arabia was preparing to admit Khashoggi died as a result of an interrogation that went wrong and that the original intention had been to abduct him.

‘Bungled operation’
The New York Times, citing a person familiar with the Saudi plans to explain the Khashoggi disappearance, reported that officials would say Crown Prince Mohammed bin Salman had approved an interrogation or rendition of Khashoggi back to Saudi Arabia. The Saudi government, it added, would shield the prince by blaming an intelligence official for the bungling of the operation.

Meanwhile, Democratic US Senator Chris Murphy tweeted: “Been hearing the ridiculous ‘rogue killers’ theory was where the Saudis would go with this. Absolutely extraordinary they were able to enlist the President of the United States as their PR agent to float it.”

For its part, the European Union has joined calls for a transparent investigation into the alleged murder. EU foreign policy chief Federica Mogherini briefed reporters on Europe’s position after a meeting of the 28 foreign ministers.