by instituDE, published on 26 June 2023


"The Era of Normalization: Turkey-Gulf Relations After al-Ula Summit" by Hasim Tekines, Institute for Diplomacy and Economy

Turkey and the Gulf countries have initiated a normalization process since the al-Ula Summit in late 2020. The leaders have mended fences through high-level visits, diplomatic overtures, promises of investments, and dozens of agreements.

Turkey's relations with Saudi Arabia, the United Arab Emirates, and Egypt still have a long way to go, but at least they have succeeded in ending, or at least freezing, the Middle Eastern Cold War. 

Turkey's economic troubles have been one of the driving forces of the normalization efforts. After al-Ula Summit, Turkey received a 469 million USD investment from the Emirates. Although it is far below UAE's 10 billion USD investment promise, the amount is expected to rise if both sides succeed in maintaining friendly relations. 

In terms of bilateral trade volume, there is a clear upward trend with Saudi Arabia, Egypt, and Bahrain. Particularly, the Turkish-Saudi export-import numbers have almost doubled since the al-Ula meeting. In the meantime, it should also be noted that the Turkish-Emirati trade does not seem to be influenced much by political crises.

Turkey has also succeeded in ending its diplomatic isolation in the region. Compared to the last decade, the number of high-level diplomatic visits between Turkey and the UAE has increased significantly. The UAE's increasing influence on regional issues has contributed to these numbers. After 2020, there is an improvement in diplomatic relations with Saudi Arabia too. On the other hand, Turkey maintains stronger ties with Qatar compared to Saudi Arabia or the UAE.

Political Islamism lost its popularity and transformative potential in the 2010s. Also, Ankara put a distance from the Muslim Brotherhood. Besides, Erdogan's authoritarian turn in domestic politics has decreased the importance of regional democratization for Turkish foreign policy. In this respect, as the ideology has lost its divisive role, future tensions do not have to occur between Turkey-Qatar versus Saudi Arabia-UAE-Egypt fault lines. Instead, alliances and conflicts are likely to be more fluid, permeable, and fast-paced.

“Bumps in the Road to an EU-Tunisia Migration Deal” by Mehmet Çelik, Institute for Diplomacy and Economy

About eight years after the migration deal with Turkey in 2016, the European Union seeks to make a similar agreement, this time with Tunisia. President of European Commission Ursula von der Leyen, Italian Prime Minister Giorgia Meloni and Dutch Prime Minister Mark Rutte paid a visit to Tunis on June 11 and had discussions with Tunisian President Kais Saied.

Tunisian political analyst Amine Snoussi is worried that the EU financial aid package may reinforce the autocratic regime in Tunisia as President Saied takes advantage of Europe’s migration fears. As Enes Esen points out in his analysis for INSTITUDE, migration is Europe’s Achilles’ heel. In this regard, it is highly likely that Tunisia's leader will emulate Turkey's Erdogan and exploit the issue of immigration as political leverage against Europe.

If Tunisia and the EU agree on a deal, financial assistance may bring short-term relief for Tunisia’s current financial crisis, delaying an immediate economic collapse. Nevertheless, it will not provide a solution to the country's persistent structural economic and social problems. Nor will it end illegal crossings to Europe.

"The EU's Soft Underbelly: Refugee Issue" by Mustafa Enes Esen, Institute for Diplomacy and Economy

After lengthy negotiations, European Union (EU) member states have achieved a qualified majority agreement on a new asylum and migration system. The finalization of negotiations between the EU Parliament and the Commission is anticipated before next year's EU parliamentary elections. The primary objective of this agreement is to enhance deterrence and prevent illegal migration into the EU.

The newly agreed asylum system largely upholds the principles of the existing Dublin Agreement. Key aspects, such as the assessment of asylum claims by the country of first arrival, remain unchanged. Notable provisions in the agreement include shorter liability periods for individuals whose asylum applications are rejected, a solidarity mechanism to alleviate the burden on countries receiving large numbers of migrants, simplified border procedures to facilitate prompt deportation, and a relaxation of the safe country concept.

To expedite the return of asylum seekers, the EU has broadened the scope of safe countries and is seeking to establish a return agreement with Tunisia, following agreements with Turkey, Libya, and Morocco. Consequently, this agreement can be seen as a victory for Europe's growing right-wing and anti-immigrant sentiments. Given Europe's domestic political landscape, strict immigration policies are likely to continue in the near future.

"Investors lament lost opportunity after unconvincing Turkish rate hike" by Libby George, Reuters

The 650 basis point hike - to 15% - was well below the median rate expectation in a Reuters poll of a rise to 21%, leaving some fretting that Erkan might have limited room to aggressively tackle inflation.

"They lost one perfect chance to demonstrate that they mean business," said Viktor Szabo, emerging markets investment director with Abrdn. "Whether it's because they have political constraints, or they're afraid for the banking system, it's not great. It's not a great message."

Analysts said that after Thursday's decision, Erkan and Simsek would need to work even harder to prove the country had indeed shifted course.

"They look less credible now," Eric Fine, portfolio manager of emerging market debt at VanEck, said of the central bank, adding: "They need to hike rates to whatever level prevents the need for currency interventions using reserves."

"I think investor disappointment should be tempered," said Dan Wood, portfolio manager at William Blair, adding that the bank also signalled that it will keep hiking rates until inflation improved. 

"Sanctioned Russian Bank to Begin Money Transfers to Turkey", by Sinan Ciddi, The Foundation for Defense of Democracies 

VTB Bank, Russia's second-largest lender, announced last week that it would more than double the number of countries to which retail clients can transfer funds, with Turkey as one of the key new destinations. Moscow and Ankara are poised to deepen their financial relationship by facilitating the flow of Russian money into the Turkish financial system, undermining the effectiveness of international sanctions against the Putin regime. 

Although Ankara has supplied military equipment to Ukraine, Erdogan is keen to maintain strong economic ties with Russia. Erdogan does not want to jeopardize this important economic relationship by imposing sanctions. As a result, Turkey has emerged as a top destination for Russian oligarchs and companies looking to evade Western sanctions. VTB Bank's announcement signals that Ankara is preparing to allow further inflows of Russian capital into the Turkish banking system. This could provide an avenue for Russian companies and oligarchs to evade sanctions. 

The United States must preemptively communicate clearly to Turkey that helping Russia evade sanctions puts those banks at risk of US secondary sanctions. Washington should also stress that, with congress already angry with Ankara over its continued delay in ratifying Sweden's accession to NATO, further Turkish connivance in Russian sanctions evasion will jeopardize Ankara's efforts to purchase F-16 fighter jets.

"NATO expansion reaches 3-way standoff between Sweden, Turkey, US" by Barin Kayaoglu, Al-Monitor

Sweden's pending NATO membership appears to be stuck between the uncompromising positions of Ankara, Stockholm and Washington, according to experts and Turkish bureaucratic sources.

All three parties have a good reason to hold their positions. 

For the Swedes, there is clearly a point beyond which they could not accommodate the Turks without compromising their own democratic and legal values. The Swedish authorities can't also afford to risk the country's domestic security by going after the members of the PYD, the PKK or Gulenists. 

Furthermore, given how the war against Ukraine has weakened Russia and how Finland has already assumed the role of bulwark against Moscow by joining the alliance, Sweden's sense of urgency to join may dissipate.

For the Turkish side, ratifying Sweden's application will not a guaranteed way to prevent the US Congress from imposing new conditions regarding the F-16 sale. Some members of congress are already pressing for more by demanding Ankara restrict its military activities in the Aegean Sea over contested territorial claims between Turkey and Greece. There is an additional risk of the US Congress imposing new sanctions on Turkey even after the approval of the sale.

For the US side, the concern is what would happen if the administration and congress approve the F-16 sales to Turkey but Ankara fails to approve Swedish accession.

"Turkish property prices are soaring", The Economist

These days, even ordinary Istanbul properties are beyond the reach of most Turks. In the two years to May, the price of a square metre of real estate in the city has shot up by over 480%, according to Endeksa, a consultancy. Even after adjusting for inflation, which peaked at 86% year-on-year last autumn before slowing to a mere 40% in May, housing prices in Turkey as a whole increased by 51% last year, more than in any other major economy, according to a study by the Bank for International Settlements. 

The leading causes are reckless interest-rate cuts, imposed as a result of the misguided policies of Turkey's president, Recep Tayyip Erdogan, and a resulting surge in inflation. The combination of these developments has encouraged those Turks with access to sufficient credit to protect their wealth by investing in property. Foreign buyers, especially Russians, have also helped drive up prices in Istanbul and along the Mediterranean riviera.

The earthquakes that destroyed large swathes of Turkey's south earlier this year, killing over 50,000 people, have had an impact as well. 

Analysts expect prices to keep growing, though at a less meteoric pace than before, so long as expectations of inflation remain high.


CHP Leader: Imamoglu to be a candidate again for Istanbul mayorship 

In response to growing calls for Imamoglu to assume the leadership of the Republican People's Party (CHP), party chair Kemal Kilicdaroglu made it clear that Imamoglu will remain in his capacity as Istanbul's mayor.

Kilicdaroglu stressed the significance of preventing the Istanbul municipality from being controlled by the ruling Justice and Development Party (AKP), asserting that he would never hand over a city secured by the votes of Istanbul residents to the AKP. 

During a televised broadcast on June 22, Kilicdaroglu expressed his confidence in Imamoglu's competence as a successful mayor and his belief that Imamoglu will also emerge victorious in the forthcoming municipal elections scheduled for March 2024.

Aksener re-elected as Good Party leader, made harsh criticisms

Meral Aksener secured her position as the leader of the Good Party following her re-election at the party's 3rd Ordinary Congress. Out of the 1151 delegates, she received an overwhelming 1127 votes in favor. In her address during the congress held in Ankara on June 24, Aksener made strong remarks aimed at both internal opposition within the party and the discussions surrounding the National Alliance.

Notably, Aksener expressed deep regret over her previous request for 15 deputies from the main opposition CHP, which played a pivotal role in initiating the Nation Alliance. She referred to it as "the biggest regret of her life." Furthermore, she strongly criticized the internal opposition within the party, stating that it is a day for settling accounts and seeking accountability. Aksener emphasized the need to end, rudeness, and disrespect, asserting that everyone should know their place within the party.

DEVA Party rejects joint group model with Future and Felicity Parties

The Democracy and Progress Party (DEVA) rejected proposals suggesting forming a joint group or establishing an umbrella party with the Future and Felicity Parties within the Turkish Grand National Assembly.

The DEVA Party stated that they rejected the proposed merger model because they were concerned about having two leaders, potential confusion in conveying their messages within the party administration, and the long-term sustainability of such an arrangement.


Government raises minimum wage by 34 percent

The Turkish government announced on June 20 that the monthly minimum wage would be increased by 34% starting from July 1. The net minimum wage for the year's second half will be set at 11,402 lira ($483).

The decision reached through an agreement between workers and employers in the minimum wage assessment commission aims to tackle the high inflation rate. 

The central bank increases key interest rate to 15%

Turkish central bank raised its key interest rate by 650 basis points to 15% on June 22, signaling a reversal of President Erdogan's previous policy. However, the rate hike fell short of expectations, causing the lira to decline sharply. 

The decision came in the first meeting under new Governor Hafize Gaye Erkan, who shifted the bank's approach after years of monetary easing. The central bank stated that it would continue to tighten its policy gradually until there was a significant improvement in the inflation outlook. 

Following the rate hike, the lira experienced a significant drop, reaching an all-time low against the dollar. Analysts suggested that the limited room for aggressive inflation control under Erdogan's leadership could be a factor for the 650 basis point rate hike. 

Conversely, Barclays analysts still anticipate further interest rate hikes but acknowledge the downside risks. JPMorgan also did not change its year-end rate forecast of 30 percent.

On June 23, the Turkish lira reached a new record low, dropping by 3.3%. The lira's value against the dollar stood at 25.74, marking a 27.3% decrease for the year.

Rent cap extended for another year 

Turkish Justice Minister Yılmaz Tunç announced on June 22 that the regulation capping rent increases at a maximum of 25 percent will be extended for another year until July 2, 2024. Tunç mentioned that the regulation would be discussed in the Turkish Grand National Assembly shortly. 

The Turkish parliament passed the initial regulation in June 2022, setting the cap on rent increases for a year until July 2023 in response to high inflation.

Central bank introduces new measures to enhance market functionality

The Turkish central bank announced on June 25 that it had taken further steps to enhance market functionality and strengthen financial stability. The bank simplified the securities maintenance regulation, aiming to streamline market mechanisms. 

According to an announcement in the Official Gazette, the required securities allocation for foreign currency deposits by Turkish banks has been reduced from 10% to 5%. The regulation also adjusted the range of securities banks must maintain for lira deposits, now ranging from 3% to 12% instead of the previous range of 3% to 17%. 

Additionally, banks with less than 57% lira deposits must hold an additional seven percentage points of securities.


Further discussions needed to restart Iraq's northern oil exports

According to two officials who participated in a meeting between Turkish energy technical delegates and Iraqi oil officials in Baghdad on June 19, additional discussions will be required to resume Iraq's northern oil exports. The officials, speaking anonymously, stated that technical aspects related to restarting oil exports were being discussed, but a decision was not expected to be made immediately.

One oil official mentioned that Turkey was seeking negotiations regarding the size of damages it was ordered to pay in the arbitration ruling, as well as seeking clarification on other ongoing arbitration cases. Another oil official highlighted that political talks at higher levels would be necessary to decide on restarting oil flow. They also emphasized that the challenges hindering the resumption of oil exports were primarily political rather than technical.

Erdogan and Barzani meet in Ankara amid oil dispute

Masrour Barzani, the Prime Minister of the Kurdistan Region of Iraq, paid an official visit to Turkish President Recep Tayyip Erdogan in Ankara on June 20. This visit marked Barzani as the first foreign leader to meet with Erdogan after his re-election in May.

Barzani tweeted that he congratulated Erdogan on his re-election and stated that they discussed strengthening the bilateral relations between the Kurdistan Region and Turkey and the latest developments in Iraq and the surrounding region.

The visit comes at a time when the exportation of Iraqi and Kurdistan Regional Government (KRG) crude through a pipeline to Turkey's Mediterranean terminals remains at a standstill. A recent meeting between a Turkish energy delegation and Iraqi officials in Baghdad did not produce a conclusive outcome.

The KRG relies heavily on oil revenue to support its state employee wages. Unfortunately, a halt in oil sales has caused significant financial losses for the Kurdistan Regional Government (KRG), exceeding $2.2 billion.

What's concerning is that Turkey seems to be deliberately prolonging the suspension of oil exports. It appears to be a strategic move aimed at extracting concessions from Baghdad, the capital of Iraq. Diplomatic insiders have revealed that Turkey is particularly worried about an ongoing arbitration case initiated by Iraq, which focuses on oil sales from 2018 to the beginning of this year. Turkey is pressuring Iraq to drop the arbitration case as a condition for resuming oil exports.

However, the situation is complicated by the uncooperative stance of some Iran-backed militias in Baghdad. Despite behind-the-scenes efforts by the United States to facilitate dialogue between the involved parties, there has been limited success in resolving the impasse.

Turkish drone attack kills a senior YPG figure

Kurdish authorities in Syria's northeast reported that two local civilian officials and their driver were killed in a Turkish drone strike on June 20. The victims were identified as Yusra Darwish, the Qamishli canton's administrative council co-chair, and Liman Shawish, an adviser to the Kurdish-led autonomous administration. Gabriel Chamoun, the Syriac co-chair of the Qamishli council, was injured. Sources confirmed that a Turkish drone targeted their car in the village of Tal Shaeer.

Turkish state media also reported the attack as Turkey's MIT intelligence agency had "neutralized" a senior figure in the Kurdish YPG (People's Protection Units) in Tal Rifaat, located approximately 27 kilometers northwest of Tal Shaeer. The figure was identified as Ridvan Ulugana, reportedly involved in operations targeting the Turkish military. However, the Turkish media did not mention any civilian casualties or refer to the village of Tal Shaeer, where the drone strike occurred.

Syria talks in Astana end for now

Kazakhstan, the usual host of Syria peace talks involving Russia, Turkey, and Iran, surprisingly proposed ending the process on June 21. However, Russia stated that the meetings could continue at a different location. 

The diplomats from the three countries had gathered on June 21 in Astana for the 20th round of talks to address various issues, including the situation on the ground, Turkey-Syria relations, and Israeli attacks. Despite the unexpected proposal by Kazakh Deputy Foreign Minister Kanat Tumysh, the three negotiating parties released a joint statement affirming that the next meeting would be scheduled for later this year.

Fidan and Blinken meet in London with a specific focus on Sweden's NATO membership

During a meeting with new Turkish Foreign Minister Hakan Fidan on June 21, US Secretary of State Antony Blinken strongly encouraged Turkey to back Sweden's NATO membership bid, according to a spokesperson from the State Department. 

The meeting happened in London during the Ukraine Recovery Summit, where Blinken drew attention to the importance of NATO's unity. He specifically encouraged Turkey to support Sweden's NATO bid. Blinken and Fidan attended the summit, which aimed to secure economic and reconstruction aid for Ukraine. Fidan expressed Turkey's support for Ukraine during the meeting.

Erdogan and Putin hold a phone call after Wagner's mutiny

Turkish President Tayyip Erdogan and Russian President Vladimir Putin spoke on the phone on June 24, with Erdogan urging Putin to act sensibly following an armed mutiny involving Russian mercenary fighters. Putin condemned the actions of the Wagner Group as treason and vowed to punish those involved. 

Erdogan was one of the first leaders to contact Putin after his address. They discussed recent events in Russia, and Erdogan expressed Turkey's willingness to contribute to a peaceful resolution. Both leaders emphasized that no one should take unilateral action in response to the situation. Then the Kremlin also stated that Erdogan supported the Russian government's handling of the mutiny during their conversation.

Main opposition leader Kemal Kilicdaroglu commented on the rebel Russian mercenary group Wagner's incursion into Russian territory. He emphasized the importance of learning from this incident as he compared Russia's Wagner to Turkey's SADAT, an international defense consultancy. Kilicdaroglu reiterated his firm stance against any paramilitary organization that poses a threat to the people, emphasizing that they will not be tolerated.