Turkish assets boosted after Trump tweets on Syria withdrawal

Turkish assets boosted after Trump tweets on Syria withdrawal
The conflict zones across the border from Turkey in Syria are a complex affair that Ankara says contain clear and present Kurdish terrorist threats when it comes to its own natonal security. Image Source: IHS Markit
By Akin Nazli in Belgrade and Will Conroy in Prague December 19, 2018

The sudden news that Donald Trump on December 19 had ordered a full, rapid withdrawal of US troops from Syria sent the Turkish lira (TRY) on a surge where it tested 5.21 against the USD.

But as US officials put out more nuanced statements over what exactly will happen with the 2,000 US troops or more still in the conflict-torn country, the TRY sank back to 5.30. It stood at 5.29 as of 23:20 local time. The embattled currency has fluctuated between 5.30 and 5.40 since the beginning of December.

“We have defeated ISIS [Islamic State] in Syria, my only reason for being there during the Trump Presidency,” the US president wrote on Twitter.

However, Trump’s order for a withdrawal has taken both allies and his own advisers by surprise and may even be at odds with policy on Syria as understood by the Commander-in-chief’s own national security team.

In August this year, the Pentagon assessed there were still as many as 14,500 Isis fighters still in Syria. Moreover, an abrupt US withdrawal would mean abandoning Washington’s closest ally inside Syria, the Kurdish-led Syrian Democratic Forces (SDF). It has carried out most of the fighting in clearing Isis out of its strongholds and while a decision to leave the array of Arab and Kurdish militias in the lurch might please Turkish President Recep Erdogan—who has invested much political capital in accusing the SDF of harbouring Kurdish “terrorist” elements which his armed forces have every right to eradicate from any locations anywhere near the Turkish border—it is likely to infuriate their American fighting comrades.

A fast and complete pullout of US troops stationed in Syria would boost Turkey’s markets in that they would see that as a big sign that the multi-faceted diplomatic rift that has this year very much hindered relations between the Turks and Americans was unmistakably on the mend. But things look to be a bit more complicated than that. What exactly is happening with the US forces is still open to question.

“Next phase”
White House spokeswoman Sarah Sanders put out a statement saying that troop withdrawal marked the start of the “next phase” in the battle with Isis, and implied that the soldiers could return if necessary. “Five years ago, Isis was a very powerful and dangerous force in the Middle East, and now the United States has defeated the territorial caliphate,” Sanders said. “These victories over Isis in Syria do not signal the end of the Global Coalition or its campaign. We have started returning United States troops home as we transition to the next phase of this campaign.”

After the Trump tweet and the White House statement, the US State Department scrapped a scheduled press briefing. The Pentagon then released its own statement echoing the White House language about the “next phase of the campaign” against Isis, but clarifying that it had only “started the process” of withdrawal. It gave no timetable.

Reuters cited a US official as saying the troop pullout would take between 60 and 100 days. Behind the scenes, the Pentagon leadership was still trying to persuade Trump to accept a managed, more gradual withdrawal, according to sources familiar with the discussions cited by the Guardian. It quoted Nicholas Heras, a fellow at the Centre for a New American Security, as saying: “This is a chaotic decision, hastily made with no consultation with anyone responsible for the actual nuts and bolts of withdrawal. Everyone feels like they are caught in a moment of chaos. They have been caught with their pants down.”

“Obama-like mistake”
Lindsey Graham, a senior Republican senator, denounced the decision to withdraw. He described it as “an Obama-like mistake made by the Trump administration”, adding that the US troops in Syria were “vital to our national security interests” and that  “an American withdrawal at this time would be a big win for ISIS, Iran, Bashar al Assad of Syria, and Russia”.

“There will be much resentment and feeling of abandonment that will be directed toward American personnel,” Graham said in a later tweet. “The confusion surrounding our Syria policy is making life much more difficult and dangerous for Americans in the region.”

Trump has lately given ground to Erdogan on several other contentious issues. Sanders said on December 18 that he had told the Turkish president he would “take a look” at Ankara’s demand for the extradition of preacher Fethullah Gulen, a former ally of Erdogan whom the Turkish government blames for the attempted coup in July 2016. Gulen, who lives in rural Pennsylvania, has always strenuously denied playing any role in the attempt at toppling Erdogan and US officials have rebuffed Turkey’s extradition requests citing a lack of evidence.

Another concession to Turkey came on December 18 when the US State Department gave clearance for Ankara to potentially purchase a $3.5bn package of Patriot missile systems.

The US moves have come in the wake of a Turkish court’s mid-October decision to allow US pastor Andrew Brunson, who was accused of espionage and terrorism-related offences that the White House and American Christian Right maintained were contrived, to return home.

On December 17, with his eye again focused on pursuing Kurdish forces, Erdogan said Turkey may begin a new military operation in Syria at any moment. At the same time, he claimed Trump was relatively receptive to Ankara’s plans to push its armed forces east of the Euphrates river in the country.

“Turkish assets… loving this”
In a reaction to the Turkish markets’ initial response to the Trump announcement on Syria, Timothy Ash at BlueBay Asset Management said in a note to investors: “Turkish assets loving this latest news... signals an easing of tensions with the US. [Turkey’s 10-year domestic bond yield] rallying [71bp to 16.87%], lira @ 5.27, 5Y CDS tighter by 17bps [from 364.16 on December 18]. Perhaps seeing some light at the end of the tunnel on the Turkey story—seeing more coherent policy response, and [economic] rebalancing is occurring. Turkey escaped a Fitch downgrade this week.”

The Turkey 5-year sovereign CDS has this year reached a maximum value of 566.38 (4 September 2018) and a minimum yield of 152.28 (5 January 2018), according to data from World Government Bonds.

Turkey, which appears to have entered a recession following its currency crisis, will hold local elections on March 31. Erdogan will be eager for some regional policy victories to persuade nationalist voters to vote for his AKP party.

Ash also said in his note: “Turks seems to have got what they wanted: Patriots at a good price, and US troops out of N. Syria. Win for Erdogan. Only issue now is what to tell Vlad [Putin]. Guess the line will be yeah, we still want to buy S400s [the Russian missile defence systems Ankara has signed a contract for], but making it clear they will let the Yanks take a good look at them, might just persuade Vlad to pull the whole deal. Win all around for Turkey...”

Turkey is planning to buy both the Russian and U.S.-made missile defence systems if both are available, two Turkish government officials familiar with the country’s defence policy told Reuters on December 19.

“[Turkey’s Patriot and S-400 purchases] are not connected processes. In this case, we are fulfilling agreements that we have with our Turkish colleagues. You know that the contract is being fulfilled. This will be continued,” Kremlin spokesman Dmitry Peskov told reporters on a conference call on December 19.

“There is a 90 percent chance that the Russian contract on the S-400s will be implemented,” Konstantin Makienko of the Moscow-based Centre for Analysis of Strategies and Technologies, told Bloomberg, adding: “They also may buy Patriots in the future.”

“If the U.S. aim is to persuade Turkey to drop the purchase of S-400s, then that could lead to a new crisis,” Kilic Bugra Kanat of Ankara-based SETA said on December 19.

An ex-business partner of Michael Flynn, Trump’s former national security advisor, has been charged with undisclosed lobbying on behalf of Turkey aimed at securing the extradition of Gulen, news agencies reported on December 17.

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