We offer continuous coverage in the form of a bi-monthly Newsletter (Sign up below!), Research Notes that expand the newsletter posts as well as an annual Country Risk Report and our Focus Reports on strategic industries like the Turkish construction, defense and tourism industry or industries like the jewelry industry, which officially ranks as the fifth largest industry in Turkey but is hardly more than an expensive way of buying gold for Turks (more about this in our upcoming Newsletter).
Our Newsletter: The Risk Briefing for Turkey
In each issue we take a single industry, product or risk dimension, like political or security risk, to paint a picture of the total risk environment. We will explore Turkey’s unreliable sources of forex and their seasonal patterns from tourism via remittances to foreign pensions. With reserves depleting as they did last year, even comparatively small money flows like remittances can be a lifesaver. We will look into Turkey’s money sinkholes like the decrepit tax system and its miniscule tax base as well as the blatant tax evasion of companies and citizens (on top of the tax avoidance of AKP clients). Speaking of clientelism, we will describe the system of give and take built by the AKP over two decades, seeking rents in every corner of the economy, particularly trying to capture the future rents of large infrastructure projects.
Countdowns
At this point almost any risk index for Turkey is going through the roof. A third of the population, half of production as well as one of the three nuclear plants being built are sitting on a tectonic fault line and the earth is already shaking in a countdown to the “Big One”.
Your chances of getting killed in an express train accident are probably higher than anywhere else (while Anatolian trains are often so slow, you can watch sheep graze). As a worker your chances of surviving a Turkish construction site are also slim, building the new Istanbul airport cost more lives than people die on all British construction sites in a whole year (55 official deaths, the real numbers are reported to be in the hundreds).
12-year-old Kurdish boys are plucking hazelnuts, while their 12- year-old sisters are married off and never see the inside of a school again. ESG compliance or any compliance as a matter of fact is a challenge.
Erasing the map
We will cover these and many more dimensions of risk in our upcoming research, but clearly geopolitical risk overshadows any domestic concerns, so let’s step back for a moment and state the obvious first:
Turkey is the most dangerous country in the world right now.
The usual suspect North Korea does not deserve this distinction, it is caught in a reassuring state of mutual assured destruction with South Korea (courtesy of US nuclear capability). Iran clearly can be contained, as its recent restraint after the killing of Qassem Soleimani showed. And the US probably did more damage under Bush jr. than any other country will manage for the remainder of this century. After all Americas’ two wars have literally wiped three countries off the world map (or two and half, since Afghanistan was hardly a country anymore in 2001). The ensuing refugee crisis destabilized many more countries (Lebanon!) and invigorated as well entrenched the power of populists, made Brexit succeed, pushed the EU towards breaking point and turned it into the victim of Turkish blackmail.
When your house is burning, and you lay fire to the neighborhood…
Turkey has threatened and aggravated most of its neighbors, almost all of his Western allies and many of its most important trading partners. Erdoğan threatened Germany, France and the US with violence as well threatened and insulted Macron and Merkel personally, the first as “mentally retarded”, the second as a “Nazi” (clearly the worst of all insults to a German). The Turkish government not only claims that the US instigated the 2016 coup, it actually believes it! It bought the S-400 system solely to protect the president in his palace against the attack of its NATO ally (one needs quite a few more to protect the whole country, plus satellites, AWACS etc. – an integrated air defense that only NATO can offer). This shouldn’t come as a surprise, since you can blame the US and Israel (or the Jews) for almost anything in Turkey across the political spectrum.
Turkey has fought an almost continuous civil war at home for nearly four decades. For nearly three decades it has also fought the PKK in Northern Iraq, where it’s now entrenched in dozens of bases, hosted by the Kurdish Peshmerga (whom they also trained). Having fully surveyed the PKK territory, there are now few caves left for the guerilla to hide in. Constant drone surveillance and a border wall and fence along its border with Syria and Iran have put enormous pressure on the guerilla. But then again the PKK has founded their own state(let) in the wide-open plains of North Eastern Syria, while sitting on the region’s largest oil field. Whereas Turkey is trying to strike a development deal for the exploration of a gas field, that is destined to be smaller than the official propaganda statement and might turn out to be uneconomical altogether.
Over the last two decades Turkey actually managed to turn the Kurdish Regional Government into a Turkish proxy, that relies on Turkey for foreign investment and the proceeds of oil sales, because it can only access the world market through the Turkish pipeline to Ceyhan. Now Turkey threatens the long-time peace in the region by blackmailing the KDP Peshmerga to join them into fighting the PKK again (as they did before in the mid-90s). Oil might actually help to keep the peace, since the PKK develops the oil field with the help of a US company which exports it via the KRG and will have to pump it through the Turkish pipeline! The company itself, Delta Crescent, is just a shell for some stealthy American investors and corrupt KRG officials to benefit when the oil fields changed owners from ISIS to the YPG.
Turkey’s wars
A civil war at home doesn’t seem to be enough, Turkey also had to meddle in several other theaters of war with little to show for. The sea border agreement with Libya, while not binding to any neighbors, tries to upset the existing border agreements in the region, but most importantly shortchanges the Libyan people. A new democratic or authoritarian government might simply not find it binding. And Turkey certainly has a good shot at rebuilding the country anyway, after all Turkish construction companies have realized large infrastructure projects in Libya since the 1970s (and apparently left many projects unfinished, while AKP client companies pocketed the money). In the confrontation with Greece Turkey gained nothing but instead lost the last good will left on the part of its Western allies. Ironically, Turkey indeed has a point here, the definition of what constitutes a continental shelf (and therefore mining rights) overly disadvantages Turkey.
Is Northern Syria a success story? Parts of it indeed feel like a Turkish colony with price tags in lira and Erdoğan’s portrait looking down on Syrian schoolchildren. But that suggests a false reality, Turkish gains in Syria are anything but secure and its military campaigns have further destabilized the region.
Only the Turkish-engineered victory of Azerbaijan against Armenia seems to have been decisive enough to create a new status quo. More importantly this victory should have substantially lowered Turkey’s gas bill, the gas delivery contract was up for renegotiation and the terms will be very favorable for Turkey. The Turkish defense industry will also benefit, Turkey has armed Azerbaijan for many years, now the order books will be even fuller.
Between strategy and paranoia
It is tempting to consider all this part of a new aggressive foreign policy, but instead it just follows the demands of political survival at home. Any mid- or long-term foreign policy goal is sabotaged by this paranoid style of politics as well as by the reality that Turkey is now facing a hostile environment that it helped to create more than anybody else. And as any psychologist knows, the paranoid who has reason to be paranoid is mostly incurable.
It seems to have been large forgotten, that Turkey made a militarized attempt of breaching EU borders last March, by having refugees overrun the border to Greece at the risk of getting them killed. The fact that Turkish border guards shot at German and Greek Frontex guards with live ammunition at least five times since March, doesn’t even seem to have registered with the public.
The EU wants to avoid another refugee crisis at all cost (except by shooting at refugees and there are certainly enough populists ready to do so). If it sanctions or otherwise corners Turkey, its borders will be flooded with refugees and this time tens of thousands of young Turks will join them. A recent opinion poll showed that 62.5% of Turkish youth (15-25) want to leave the country, almost half(!) of young AKP voters (47.3%) and a breathtaking two thirds(!!) of MHP voters (68.6%). The great majority is already either unemployed or working way below minimum wage and only seasonally. Erdoğan promises Turks that their country will rise like a star (or at least to the moon) but towards the EU he behaves like a suicide bomber with his own country strapped to his body, screaming “Try to stop me and I will pull everybody down with me”. This valid threat gives Erdoğan more protection than any S-400 battery ever could.
Until death do us part?
In case his own countrymen should fail him, Draconian laws are already in place to silence any protest. Even if the loyalty of the police or military should waver, Erdoğan can still command a shadow army of paramilitary forces on top of millions of armed followers.
By now most Turks and probably most observers will agree:
They will be no peaceful transfer of power.
If Erdoğan enjoys the same good health as his parents, he will not leave office in a casket before 2039 or later. Considering the advances of modern medicine, you might want to round that up to 2045!
Ready to rumble?
No matter if you are invested in Turkey or feel lucky and want to invest (there sure is plenty of opportunity to buy into infrastructure rents at a bargain for example) – we want to help you forecast the trajectory and velocity of the risks and threats that will hit you with every turn of the road.
While the risk of contagion to emerging markets is probably low by now, geopolitically the destinies of Turkey and Europe are joint. We all ignore Turkey at our own risk!
We want to help you navigate the chaos that is Turkey for many years to come!
Upcoming Newsletters and Research Reports
This newsletter will hit your mailbox every two weeks. Amongst others, look forward to these newsletter posts and research reports in the upcoming weeks and months:
The Great Heist
Or what is the Sovereign Wealth Fund up to?
Turkish drones and warmongering
The Turkish Defense Industry and the economics of war in an age of dual-use technology
Concrete Economy
Coating the country and its ancient relics in concrete