Another Worry For Turkey Investors: A Potential NATO Split

As if a currency crisis alone wasn’t enough, now investors in Turkey could have another thing to worry over.

The country could split from NATO as soon as the end of the year, according to a recent report. NATO, or the North Atlantic Treaty Organization, is the U.S.-led military alliance based on mutual support for member countries.

A split would be bad news militarily but also an inauspicious sign for investors.

Recep Tayyip Erdogan, Turkey’s President. Pool Photo via AP

The Turkish lira took a dive last Friday after  President Trump imposed tariffs on U.S. imports of certain Turkish-made metals.  The knock to the lira was just the latest part of a sad depreciation of the country’s money over the last year which has seen the currency close to half in value relative to the U.S. dollar. Read more here.

While a currency crisis, which is what is happening, is bad in itself at least investors can feel relatively safe that Turkey is nominally an ally of the U.S.

Unfortunately, time may be running out on that front as well.

“Turkey as a NATO ally is no longer a given,” states a recent report from New York-based financial firm Academy Securities. It was written by General James ‘Spider’ Marks and Rachel Washburn, both of whom have vast military experience.

The report goes on to explain that there is likely potential for Turkey to leave NATO within a few months, based on a survey of Academy Securities so-called “Geopolitical Intelligence Group” made up of retired admirals and generals.

The reasons for the possible split are multi-faceted. Consider the following:

  • Growing Russian Meddling to Undermine Western Democracies. “Putin’s campaign to undermine Westernstyle democracies has been increasingly effective, especially as the U.S. seemingly takes a wrecking ball to the existing world order,” the Academy report states. In other words, Russia is taking advantage of a change in the world order to steer countries away from democracy. 
  • Turkey’s increasingly close relationship with Iran, a regime on which the U.S. just imposed restrictive sanctions.
  • The clash over U.S. support for Kurdish fighters. “Kurdish militias, [ …the YPG and PKK…] have been integral to the counterISIS operations in Iraq and Syria. Arguably, the YPG are the most effective regional fighters. However, Ankara [Turkey’s seat of government] recognizes both the YPG and the PKK as terrorist organizations,” the report says. This means that two NATO members are not aligned with exactly who is the enemy.
  • Russia getting cozy with Turkey. “Turkey continues to strengthen its relationship with Russia, raising red flags of NATO’s relevance in the region,” the report states. It is something that that contributes to the sagging relationship between the U.S. and Turkey. Turkey’s geography means that it acts an important NATO bulwark in the Middle East, at least currently.
  • Turkey, Russia, and Iran all trying to influence Syria. They “are all jostling for influence in Syria leading to unprecedented and unpredictable cooperation among the three nations,” the report states. Syria not only is home to a critical Russian warm-water naval base, but also neighbors key U.S. ally Israel.
  • Turkey leaning away from democracy. “No longer a secular Muslim democracy, Turkey is an increasingly religious and dangerously authoritarian regime, leaning east, cutting its own deals,” the Academy report says.

The last point is perhaps the most concerning for investors; the move to authoritarianism.

One of the significant benefits of investing in a democratic country is that investors have the freedom to take the government to court over civil disputes. In other words, if the U.S. government stiffs you, then you can sue them with more than a hope of winning. This happens all the time across the U.S., and in the Western democracies as well, such as U.K. Ireland, Germany, etc.

The same cannot be said of places like Iran, Syria, or China, which makes investing in those countries riskier it would be otherwise.

Perhaps Turkey may be added to that list of places where it is unwise to settle in the courts. At least that could happen soon as well if the move to authoritarianism continues apace.

If it does, then it will be bad news for investors in Turkey.

Comments are closed.