Spotlight: Turkish lira gets fragile as U.S.-Turkey ties risk crisis over Russia's S-400 deal

ANKARA, March 26 (Xinhua) -- Turkey and the U.S. have reached an impasse over Turkey's insistence to buy Russian S-400 defense system, which could weaken Turkish economy as the Turkish lira already shows fragility.

The lira surged about 2.4 percent on Friday increasing to 5.4597 against the U.S. dollar, from 5.5592, the latest punishing selloff since last year's crisis in which it lost about 30 percent of its value against the dollar, leading to a spike in inflation and prompting the central bank to hike its key interest rate to 24 percent.

The meltdown of the lira came few minutes after Turkish President Recep Tayyip Erdogan slammed U.S. President Donald Trump on Friday for suggesting that it was time to recognize Israeli control over the Golan Heights.

In August 2018, Turkish lira hit record lows against U.S. dollar when Washington imposed sanctions on Turkey, doubling steel and aluminum tariffs over the detention of an American pastor Andrew Brunson. The case saw the release of the pastor which then eased ties with a relative recovery of the lira.

International and domestic markets following Turkey's economy are focused on the barometer of relations between Turkey and the U.S. recently which has a direct influence on the value of Turkish lira against foreign currencies, Erdal Saglam, economic expert and columnist at daily Hurriyet said.

He stressed that the potential political tension between the two NATO allies over Turkey's decision to supply Russia's S-400 air defense missile systems will inflict lira and eventually Turkish economy in general, he added.

Elaborating on the recent fluctuations of lira, the expert said that Turkish investors sell lira due to weak revenue of its deposits, and turn to foreign currencies instead.

Serkan Demirtas, foreign relations expert and columnist of Hurriyet Daily News, warned against the footsteps of a potential crisis between the U.S. and Turkey as Washington mounts pressure on Ankara for the cancellation of the deal with Russia if it does not want to be imposed by American sanctions.

A recent offer by the U.S. to Turkey for selling Patriot missile defense systems to meet its NATO ally's security needs is in a deadlock at the moment, since the former's prerequisite to cancel its purchase of Russian S-400s is not accepted by Ankara so far.

Moreover, an American offer to Ankara to deliver a batch of Patriot systems in October, which was actually produced for another NATO country but was planned of deployment in Turkey for the country's urgent demand to air defense systems, is expired in February as Turkey has not responded to the proposal, a diplomatic source told Xinhua on condition of anonymity.

The U.S. officials asked Turkey to make a payment of nearly one billion U.S. dollars for the systems and the deal was conditional on the cancellation of Turkey's acquisition of S-400. Turkey has not officially responded to the proposal till the deadline on February 18, making it void, said the sources.

Therefore, the possible option on hand is the U.S. can supply new Patriot systems to Turkey only by 2024, making difficult to meet the country's immediate demand. Russia, on the other hand, pledged to deliver the first batch of S-400 missile defense systems in July 2019.

Even though reaching a consensus becomes more difficult given the late delivery option, Ankara and Washington continue talks for Turkey's possible procurement of Patriot systems as Washington works on a revised Letter of Offer and Acceptance (LOA) to submit Turkish side, the sources said.

U.S. officials reiterate warning about the consequences of Turkey's S-400 deal. The U.S. Congress mandated the Trump administration to impose sanctions on countries that conduct transactions with the Russian defense industry, according to a law ratified by the U.S. Congress in 2017, called CAATSA, or the Countering America's Adversaries Through Sanctions Act.

Washington also shows the stick of suspending delivery of F-35 jets to Turkey despite its participation in production programme in the case that the Turkish government deploys the S-400s on its territory.

On March 1, acting Defense Secretary Pat Shanahan said he's working to persuade Turkey to drop plans to buy a Russian missile defense system, saying that would imperil prospects to sell the NATO ally the next-generation F-35 jet it's helping to build.

He has spoken with his Turkish counterpart, Hulusi Akar, five times since becoming acting defense secretary on Jan. 1, Shanahan said. However, Turkey has not changed its narrative on the deal for Russian-made systems.

Turkish president said on March 14 that Turkey would not make a U-turn on its deal to purchase S-400 air defense systems. "We finished this business. For us, taking a step back here is out of the question," he said.

Ankara believes that Trump would impose a softer package by picking up five lightest sanctions out of 12 and therefore Turkey's economy will be affected at the minimum, Demirtas said.

However, last Friday's experience has made it once again clear that the fragile Turkish economy can hardly handle even a soft package, according to the expert.