Markets nervous as S-400 row between Turkey, US enters crucial stage

Markets nervous as S-400 row between Turkey, US enters crucial stage
Nato does not want to see Turkey having the option of testing the S-400 against the F-35 fighter.
By bne IntelliNews March 11, 2019

Turkey’s markets will this week hope for an easing of the row between Ankara and Washington over the former’s plan to acquire the Russian S-400 advanced missile defence system, with the clock now loudly ticking on finding a way to resolve the spat between the two Nato members.

Traders said that anxiety over the disagreement creating a big rift between the US and Turkey was largely behind the 1.5% decline in the value of the Turkish lira (TRY) seen last week. On March 11 by around 18:30 local time, the TRY was weaker by 0.38% d/d against the dollar at 5.4516.

President Recep Tayyip Erdogan’s government has missed a ‘soft deadline’ set for a decision on whether to purchase an alternative $3.5bn Raytheon Co. Patriot missile shield system from the US, reports out of Washington indicate. The formal offer reportedly expires at the end of this month.

The last diplomatic crisis between the two countries was a big factor in pushing the TRY to an all-time low of 7.24 against the USD in August during the worst of Turkey’s currency crisis. Disputes over strategy in Syria, Iran sanctions, the legitimacy of the Maduro administration in Venezuela and the detention of US consular staff all remain unresolved, meaning markets fear another marked impact on the lira if the Americans and Turks do not soon start finding more common ground.

Under pressure to maintain image
Erdogan, under pressure to maintain his image as a no-nonsense leader ahead of his country’s March 31 elections, has repeatedly said that he will not pull out of the contract for Russia’s S-400, due to be installed in October.

But the US is making it clear that if Turkey deploys the missile system there is no prospect of it receiving delivery of Lockheed Martin F-35 stealth fighter jets that it has ordered. A refusal to back down could also mean Ankara facing sanctions under a US law known as Countering America’s Adversaries Through Sanctions Act (CAATSA). Owning the S-400 and F-35s at the same time could provide Turkey with the chance to obtain sensitive performance data on the fighter planes, US officials say. Nato chiefs remain determined not to allow that to happen given Erdogan’s reset relations with the Kremlin, which have been rather warm in the past year.

There is some discussion in the Turkish press that the US wants to pressure Erdogan on the S-400 matter now while he faces the heat of the election runup, while Erdogan wants to try to postpone the real decision time until after the polls.

The US Pentagon on March 8 referred to „grave consequences” in the military relationship between the US and Turkey if Ankara insists on acquiring the S-400.

“They would not have access to Patriot and the F-35,” acting Pentagon spokesman Charlie Summers said.

Turkish Defence Minister Hulusi Akar said on the same day that US officials have told Turkey it would be impossible for Congress to approve the sale of F-35 jets if Ankara buys the S-400, but that Turkey was working to overcome the difficulty.

Moscow ‘already part paid’
Turkey says it has already paid Moscow some of the bill for the S-400.

Defence analyst Can Kasapoglu told Reuters that the “diplomatic room for manoeuvre is narrow”.

If Washington imposes sanctions under CAATSA, it could affect the combat readiness of Turkey’s existing fleet of US F-16 jets, Kasapoglu wrote in a report in January. The jets have spearheaded Turkey’s air operations against Kurdish fighters in Iraq and Syria.

Retired Turkish diplomat Uluc Ozulker told the news agency Turkey now finds itself backed into a corner. “The United States on the one hand, Russia on the other... We are stuck between the two,” he said. “Turkey cannot exit this crisis.”