Turkey Lashes Out At US Pressure Over Russian Missile Deal, Lira Slides

After two weeks of torrid gains with the market now expecting a dip in the country's double-digit inflation, the Turkish lira is again lower on Tuesday, after Ankara lashed out at Washington, saying a U.S. House of Representatives’ resolution condemning Turkey's purchase of Russian defense systems and urging potential sanctions was "unacceptably threatening."

The resolution, introduced in May and entitled “Expressing concern for the United States-Turkey alliance”, was agreed in the House on Monday according to Reuters.  It urges Turkey to cancel the S-400 purchase and calls for sanctions if it accepts their delivery, which may come as soon as July. That would undermine the U.S.-led transatlantic defense alliance, according to the resolution.

A S-400 "Triumph" surface-to-air missile system

In response, Turkey’s Foreign Ministry said in a statement that its foreign policy and judicial system were being maligned by “unfair” and “unfounded” allegations in the resolution.

"It is unacceptable to take decisions which do not serve to increase mutual trust, to continue to keep the language of threats and sanctions on the agenda and to set various artificial deadlines," it added.

On Monday, U.S. officials said the training of Turkish pilots on F-35 fighter jets had come to a faster-than-expected halt at an air base in Arizona, as Ankara’s involvement was wound down over the S-400 controversy.

President Erdogan’s government faces a balancing act in its ties with the West and Russia, with which it has close energy ties and is also cooperating in neighboring Syria. The United States has also been pressuring Turkey and other nations to isolate Iran, including blocking oil exports.

As has been thoroughly documented here and elsewhere, relations between the two NATO members have been strained on several fronts including Ankara’s plans to buy Russia’s S-400 air defense systems, the detention of U.S. consular staff in Turkey, and conflicting strategy over Syria and Iran which precipitated a crisis in Turkey's economy in the summer of 2018, sparking runaway inflation and a crash in the lira.

The United States has claimed that Turkey’s acquisition of Russia’s S-400 air defenses poses a threat to Lockheed Martin Corp’s F-35 stealth fighters, which Turkey also plans to buy.

“We rarely see it in foreign affairs, but this is a black and white issue. There is no middle ground. Either Mr. Erdogan cancels the Russian deal, or he doesn’t,” Eliot Engel, chairman of the House Committee on Foreign Affairs, said on the House floor on Monday. “There is no future for Turkey having both Russian weapons and American F-35s. There’s no third option.”

Regardless of the U.S. warnings, Turkey appeared to be moving ahead with the S-400 purchase. Erdogan said last week it was “out of the question” for Turkey to back away from its deal with Moscow. And so, with the two nations set on collision course in a repeat of last summer, the selling in the lira appears to have resumed, with the USdTRY jumping from 5.76 to as high as 5.82...

... amid trader concerns Trump may flex his tariff muscles again, this time in the direction of Ankara.