A Ceasefire That Never Will

Libyan Civil War has grounded to a halt after the long-awaited ceasefire in October 2020. However, the delicate balance between the sides does not seem sustainable, as points of conflict still remain. Turkey, the key ally of Tripoli-based Government of National Accord (GNA), is uneasy with the ceasefire conditions, and was known to encourage Fayez al-Sarraj to push for a military solution with its strategic support of UAV’s and key military personnel. The latest news on the fricative ceasefire reported that last week a Turkish ship was detained by Libyan National Army (LNA) authorities. Such points of disagreement still reign supreme in Libya, as each side suspects that the other end of the deal might break the ceasefire. This tension was resolved this week by what seemed like a mutual hostage swap, as LNA released the Turkish vessel on the same day that GNA released two Russian detainees. 

The ceasefire so far has only achieved a stop to the violence, but has not produced a constructive process to develop dialogue to discuss power sharing options, or how to form a government. The inaction over starting such processes makes one think that this ceasefire is merely a regroupment opportunity for both sides, as demonstrated by LNA detaining a Turkish vessel, suspected of carrying arms to Tripoli. Under such circumstances, expecting this ceasefire to break should be within the limits of logic.

Sanctions loom little

Plans of sanctioning Turkey have been on the table since Turkey purchased S-400 ground-to-air defense systems from Russia. The Pentagon and the US Senate have been divided over whether to impose punitive measures under CAATSA bill, however no concrete steps were taken thus far. Yet, with the transition to the Biden Administration, the stance of the US seems to be crystallizing. Eyes were set at the expected inauguration of Joe Biden in January, but an unexpected push came from the Trump Administration in its final days. Nevertheless, the scope of measures proved much weaker than expected. Head of Turkish Government’s Defense Industries Directorate, Ismail Demir, will be targeted with the sanctions, which amounts to almost no pressure. Two questions present themselves at this point:

1. Why did the Trump Administration opt for sanctions in its last days in office?
2. Will harder measures follow during the Biden presidency?

Where does the EU stand?

EU presidents held a meeting on December 10 with an agenda including possible sanctions to Turkey. European officials seem to be in favor of imposing softer measures, but are weighing the stance of Joe Biden in the White House. Such soft measures will be helping members like France and Greece to assuage their domestic electorate, while maintaining Turkey’s cooperation with the Union. European Commission President Jean Michel announced that the Union is ready to be more cooperative with Turkey over migration. These comments came after Hungarian Minister of Foreign Affairs Szijjarto said that the EU’s security depends heavily on Turkey. These point to a shift towards more constructive dialogue from the EU.

Change in tone from Turkey

Ankara has been maintaining a much more conciliatory tone after Biden’s win in the US elections. President Erdogan has made some plans public to improve human rights in Turkey, along with messages of improved cooperation between the West and Ankara. Will Erdogan be able to convince EU and US officials that it will follow a path of mutual benefit? In my opinion such paths will be highly profitable to both sides, as Turkey’s interests diverge from Russia’s day by day, and Russia seems to be on the path of becoming the arch-enemy of Biden’s America. However, Turkey’s actions during the Trump Presidency have deteriorated the view towards Ankara, which might be irreparable. All depend on Biden’s stance, which will be seen after the former vice president takes office in Washington, D.C.

Will CBRT continue with rate hikes?

Central Bank of the Republic of Turkey (CBRT), has undergone a change in management, along with major policy shifts during last month. The minister of economy and Erdogan’s son-in-law, Berat Albayrak, resigned from the office, along with the Governor of the CBRT. Following this change, CBRT increased the political interest rate by 475 basis points from 10.25% to 15%. This increase was seen in line with Turkey’s decision to follow a more orthodox monetary policy, however the trust in the persistence of such policies has not ossified, in the light of subsequent falls in the value of much-battered Turkish Lira. The question that many investors are asking is whether Ankara will follow with more hikes to ensure global markets that it will be implementing a tight monetary policy. The monetary council will be meeting on December 24 , and our prediction ranges on a second, smaller interest rate hike in the range of 75-150 basis points. Erdogan has signaled that austerity measures might be on the horizon by saying that Turkey might need to swallow “a bitter pill” to ensure economic stability. However, the government does not have much flexibility as the economy is already under great strain with the COVID-19 pandemic and years of economic and political instability. Ankara will be forced to play a tight hide-and-seek game with the global markets as they will try to rebalance growth, unemployment and currency stability.

Social media legislation is still in effect

Turkey has been asking social media giants like Facebook, Twitter and Instagram to hire local representatives, which would mean legal liability in Turkey over the content shared on the mediums. Last year, there was a similar movement from the government to oblige internet enterprises to pay taxes, and sites like Booking.com being banned in Turkey due to noncompliance. The second step in this vein takes its base from the proposed social media law, and foresees a timeline and punitive measures to the websites. To this end, two rounds of fines were issued, first being 1.2 million, and the second 3.8 million USD. The next step for the noncompliant firms will be a ban on Turkish advertisers to post ads on the platforms. Apart from the question that if the social media giants will bow to Ankara over its request, it is unclear how such a ban would affect the already fragile Turkish economy. Social media penetration in Turkey is quite high, and by far dominated by major US-based networks. If such an advertising ban takes effect, internet marketing will become difficult for many businesses in Turkey, including the newly emergent online commerce platforms and countless SME’s depending on social media platforms to make revenue. 

The efficacy of the new law could be ensured by making one social media platform comply, and thus acquire an advantage over the others, then the others would follow suit. Which one of the Silicon Valley stars would break ranks and comply? Or will they cooperate to make Ankara back down? Check our detailed analysis by Sarp Duyar to learn more about what is at stake for both sides. LINK

Saudi Embargo and the Gulf Connection

Relations with the Gulf have been deteriorating since the Arab Spring, as the interests of Ankara diverged from the affluent monarchies’ of the region. Then on, local power play dominated the scene until 2020. This year, Saudi officials started with an unofficial boycott, followed by an official one. Looking at the economic boycott from the end of 2020, it doesn’t seem clear if Riyadh will be maintaining its stance towards Turkey during the Biden presidency, but we looked at the track record of the boycott thus far. You can further visit the analysis of our colleague Melisa Erol the get a grasp of the recent developments in Turkish-Saudi relations LINK

Author: Erkin Ergüney currently works at a VC fund investing in startups in Turkey. He is known to be a master juggler of time when it comes to new projects. When he is not onto a new pursuit, Erkin spends his time learning about the intricacies of home-brewed beers. LinkedIn