09.06.2020 – Special Report. If Turkey were still a great empire, we would currently speak of an “imperial overstretch” – in other words, an over-expansion of the empire. Ankara is simply fighting on too many fronts at once: open war in Syria. Undercover war in Libya. The Corona crisis has killed tourism. In addition, the country provokes its neighbours with oil ambitions and the unilateral expansion of its territorial claims in the Mediterranean. This cannot end well for the lira.
A corridor across the Mediterranean
Osmanisches Großwesir-Gehabe In the Mediterranean an interesting trial of strength is currently taking place in politics and on the energy market.
However, this is likely to have consequences for foreign exchange trading in particular.
In November 2019, Ankara unilaterally redefined its economic area in a bilateral deal with Libya – and laid a corridor across the Mediterranean. In December 2019, Turkey declared a large part of the Mediterranean Sea off its coast its Mavi Vatan – the blue home.
However, the 1994 International Convention on the Law of the Sea drew other maritime boundaries – and calculated the 200-mile zone from the coast and islands in favour of Greece, Cyprus and Egypt.
Türkische Lizenzen in griechischen und zyprischen Gewässern
Finally, in January 2020, Turkey began test drilling near the coast of Crete – and thus, according to international law, in Greek waters. And now the next affront: As the news site Oilprice.com and also the news agency Anadolu reported, Ankara’s Foreign Ministry has just published the plan for the awarding of production licenses to the state-owned energy company Turkish Petroleum. Earlier, Ankara had already issued the schedule to drill for oil and gas in controversial waters within three to four months.
Athens reacted indignantly on Monday. Foreign Minister Nikos Dendias stated that Greece was ready to respond to the provocation. The plan violated Greek sovereignty, he said. Josep Borell, EU High Representative for Foreign Affairs and Security Policy, condemned the Turkish plan because the waters belonged to Greece and Greek Cyprus. The island republic is literally encircled by Turkish licences, and northern Cypriot triplet claims even lie off its coast.
Turbulence for the Turkish Lira
Enough material for violent conflicts. And now the link to the foreign exchange market: new, perhaps even military conflicts are likely to completely sink the ailing Turkish national budget. This threatens a similar scenario to the one at the beginning of May, when the Turkish currency slid to a record low. At 7.25 Turkish Lira, one Dollar cost more than ever before.
No dollars from the Fed
The Turkish central bank had asked the Federal Reserve and other central banks for funding. The reason was the decline in net foreign exchange reserves, which had fallen from 40 billion dollars to around 28 billion dollars. But Fed member Thomas Barkin refused to expand swap credit lines, which give flabby states like Turkey access to fresh dollars. The funds of the US central bank were only meant to stabilize the markets, he said.
Turkish Finance Minister Berat Albayrak tried to reassure international investors by describing Turkey’s currency reserves as “more than sufficient”. Ankara, of course, blamed foreign banks for the fall of the lira: speculators had bought foreign currencies on a large scale and had not serviced subsequent lira obligations in order to deliberately weaken the lira. The financial supervisory authority prohibited the banks BNP Paribas, Citi and UBS from trading in lira.
Too many conflicts at once
Our conclusion: Turkey’s energy ambitions could in the worst case lead to war with Greece, Cyprus and Israel. The European Union is also potentially a player and could impose sanctions, but Turkey could open the gates and let millions of migrants into Europe.
If Turkey gets away with its grip on oil and gas in the Mediterranean, the petrodollars should soon be bubbling. And stabilize the Turkish lira. But if there is resistance from local residents, this would be a new blow to the currency. The state treasury is empty, the economy is down, investors are avoiding the country. In addition, Turkey has not made friends with its various campaigns in Europe and America – financial support is not to be expected.
So let’s wait and see – the Bernstein-Bank keeps you up to date and wishes you successful trades and investments!
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