Turkish lira extends gains on Syria deal and lifting of US sanctions

By bne IntelliNews October 23, 2019

Turkey’s lira extended its gains on October 23 after US President Donald Trump lifted sanctions imposed on Ankara after it said it would end its offensive in northeast Syria.

However, it wasn’t all good news on the sanctions front for Turkey—the same day saw European Union lawmakers in Strasbourg condemn the offensive to carve out a “safe zone” in northeast Syria and prepare the way for new EU financial sanctions against the Turkish state. A draft resolution that EU legislators are set to adopt on October 24 has the backing of all political groups in the European assembly. It urges “appropriate and targeted economic measures against Turkey” and calls for the freezing of preferential treatment for Turkish agriculture exports to the European bloc, Reuters reported. As a last-resort sanction, it reportedly also urges the suspension of the EU customs union with Ankara. If brought in, that measure would hit the 200-billion-euro ($222.3bn) annual trade between the 28 EU nations and Turkey.

By the end of October 23 in Turkey, the Turkish lira (TRY) was trading at 5.73 against the dollar, having strengthened 1.3% from the close of 5.81 on the previous day. Turkey’s main share index was up 1.94% at the close, while the main banking index had gained 2.27%.

Turkish government dollar bonds also reached their best level in nine months on October 23 after Trump’s announcement. The 2045 issue US900123CG37=TE jumped 2.4 cents to 94.1 cents in the dollar, its biggest daily gain since mid-January, while the 2041 issue US900123BJ84=TE added 2.4 cents to 89.2 cents in the dollar, also its best daily gain since mid-January, Tradeweb data as cited by Reuters showed.

State lender Halkbank, under pressure after being indicted in New York for Iran sanctions evasion, saw its 2021 issue TR118807308= add 1.5 cents to reach 92.5 cents in the dollar, according to Refinitiv data relayed by the news agency.

Turkey’s consumer confidence index, meanwhile, moved up to 57.0 points in October from 55.8 points in September, data from Turkish Statistical Institute TUIK showed. It thus remained near its lowest point on record since the data series was started in 2004.

EU member states have protested to Ankara over its incursion into Syria, which Turkey claims is necessary to drive “terrorist” and insurgent Kurdish fighters away from its border, but they are divided over how to respond to it. EU lawmakers have no direct say on the bloc’s foreign policy decisions. However, they do have the power to curb important EU funding to Turkey and the row over Syria is another blow to Ankara’s longstanding application to join the EU, a process which is de facto frozen and shows no signs of thawing in the foreseeable future.

Ankara seeks a “safe zone”, or “buffer zone”, along 440 km (275 miles) of border with northeast Syria. It agreed on October 22 with Russia on steps to remove Kurdish YPG forces 30 km from the border and on joint patrols for 10 km of the area.

In announcing the lifting of sanctions on Turkey, Trump represented the outcome of his Syria strategy as a triumph of a complex foreign policy strategy that removed US troops from military clashes abroad that are of little consequence to Washington. "Let someone else fight over this long bloodstained sand," the president said in a TV address from the White House.

But opponents immediately pointed out that Turkey has only been able to march into Syria because Trump had “stabbed the Kurds in the back” by withdrawing US forces—the Kurdish militias lost around 11,000 soldiers while allied with the Americans in the battle to destroy the so-called Islamic State Caliphate in Syria. In retreating from the battle zone, Trump also made Russia the number one powerbroker in the Middle East and created an environment where Islamic State might regroup and in the future launch attacks on the West, they said.

Giving its latest assessment of the situation following the Turkish incursion, the Kremlin, which militarily and politically backs the Damascus regime, said on October 23 that the US had betrayed and abandoned the Syrian Kurds. It advised them to withdraw from the Syrian border as per the deal between Moscow and Ankara or be mauled by the Turkish army. “The United States has been the Kurds’ closest ally in recent years. In the end, it abandoned the Kurds and, in essence, betrayed them,” Peskov was cited as saying by Russian news agencies.

"The sanctions will be lifted unless something happens that we're not happy with," Trump added. He said Turkey had assured him that it would halt the fighting in the region and would make the recently agreed five-day pause in the offensive permanent.

The imposed sanctions were directed at the Turkish ministries of defence and energy and three senior officials, but they were largely regarded as ‘sanctions-lite’.

Trump added that he would keep a "small number" of troops in parts of Syria to protect oil installations.

Some 120 civilians have been killed in the battle, along with 259 Kurdish fighters, 196 Turkish-backed Syrian rebels and seven Turkish soldiers, according to UK-based Syrian Observatory for Human Rights (SOHR), a monitoring group. Twenty civilians have been killed in attacks on Turkish territory by the Kurdish YPG, Turkish officials say.

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