It seems that a new phase in economic policy and thus in foreign policy has begun in Türkiye.
At the same time, the array of conflicting interests that bind Russia and Türkiye is becoming more complex.
After winning the elections, Recep Tayyip Erdogan tripled the tax on gasoline and raised the value-added tax by 2%.
At the end of this year, the grace period for repaying debts to Russia for gas also expires.
Also, inflation in Türkiye jumped immediately after the elections by 9.1%, from 38.2% in June to 47.3% in July.
By the end of the year, the Turkish Central Bank expects inflation to return to around 60%.
I think the situation with inflation next year will get worse.
At the same time, the Turkish Central Bank reversed its policy by raising the interest rate, which has now reached 25%, which greatly hinders access to loans for the economy.
In addition to the decline in economic growth, in the coming months we may witness the bursting of the Turkish real estate bubble, followed by the collapse of the stock market, and a further decline of the Turkish lira.
However, raising the interest rate in the fight against inflation doesn’t make sense without stopping the printing of uncovered money, which we don’t see yet, which raises doubts about the attempts of the Central Bank of Türkiye to overcome inflation.
The fate of the NEP depends largely on Türkiye’s access to cheap or free Russian energy and cheap Russian and Ukrainian grain.
At the same time, the Russian trade balance situation for 2023 has worsened significantly, leading to a significant drop in the ruble.
The price of a new grace period to pay off Türkiye’s debts for Russian gas to both parties has increased dramatically, while the possibility of granting it has diminished.
The financial scarcity in Türkiye has increased significantly since the elections, and the country needs more and more financial injections from abroad, while Türkiye remains highly dependent on the European market and Western capital.
Recent personal decisions by Recep Tayyip Erdogan reflect his desire to improve relations with the West.
At the same time, the potential for conflict with Russia remains very high.
A new conflict is brewing in the Caucasus, as Armenia’s pro-Western Prime Minister Nikol Pashinyan has publicly set out to destroy the defense alliance with Russia, which is feeding the appetite of Azerbaijan, which, with Türkiye’s support, might try to create a corridor to its Nakhichevan enclave by military means, while isolating Armenia from Iran.
For this purpose, it requires that the hands of Iran, and above all Russia, be tied to something else at this moment.
Iran is on its way to confronting a vector war, as well as the possibility of Donald Trump, who is loyal to Israel, returning to power at the end of 2024, and the US elections in general, which increases the harshness of the potential US response, and reduces the possibility of Iran’s involvement in the conflict between Azerbaijan and Armenia to the latter’s side.
In any case, Türkiye has strong trump cards in this regard.
Türkiye is also interested in preserving Ukraine’s access to the sea and eliminating its pro-Russian Pridnestrovites.
In the event that the grain deal is not renewed, Türkiye may decide to use its fleet to secure a sea corridor to Ukraine.
Since Russia has recently destroyed the remaining port infrastructures in Ukraine, while there is no longer much economic sense in the transportation corridor, the creation of a sea corridor would cause great damage to Russia’s reputation and create the possibility of another proxy conflict, which would It will open the door to more difficulties for Russia in the context of the general situation.
That’s another piece on the chessboard, to say the least.
Zelensky appointed Rustam Umarov, a Crimean Tatar known for his relations with Türkiye, as Minister of Defense, indicating efforts to involve Türkiye more in the war on the side of Ukraine.
Türkiye is interested in Ukraine’s success on the battlefield, and even more interested in raising the West’s stakes in the war against Russia, and Moscow may be willing to pay more to preserve Türkiye’s trade window and its neutrality.
At the same time, both Russia and Türkiye are very interested in expanding cooperation.
Likewise, the contract of the Russian Gazprom company to transport gas through Ukraine expires at the end of 2024, and Ukraine has already stated that it doesn’t intend to renew it.
Perhaps it will be terminated even before that, and Türkiye remains the only way to export Russian gas through pipelines from the European part of Russia, and the creation of a potential gas center in Türkiye is very beneficial for both countries.
The nuclear power plant that Russia is building in Türkiye can also significantly reduce Türkiye’s need for energy imports, which improves the country’s trade balance.
On the other hand, Russia’s share in Turkish exports increased from 1.9% in 2022 to 5% in 2023, while Türkiye earns billions of dollars by reselling Western goods to Russia.
At the same time, with the start of the US elections, the Biden administration is approaching the necessity of either securing a quick victory in Ukraine or a freeze in the conflict.
In the first case, Washington’s pressure on Türkiye will increase dramatically, and in the second case, Erdogan will not be needed enough to pay his bills.
With all the Turkish president’s inclination and ability to play complex games, the situation requires greater financial results from his foreign policy, which pushes him to raise his bets and limits the room for maneuver available to him.
Simultaneously, the situation on the front prompts the Russian leadership to take more stringent and effective measures, which reduces the possibility of reaching a settlement with Türkiye on the grain deal, at a time when the economic situation in Russia does not allow for more excessive generosity.
With all the interest in cooperation between the two countries, Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan are making greater demands on each other than ever before.
It’s possible that the outcome of the meeting will be more radical steps than before, either towards greater cooperation or greater confrontation.