Erdoğan’s regional reset may not get him re-elected, but benefits Turkey

Turkish President Recep Tayyip Erdoğan welcomed Saudi Prince and de-facto leader, Mohammed Bin Salman (MBS), to Ankara on June 22 with a grand formal ceremony that demonstrated the importance of this visit for Turkey.

The next day, Turkish Foreign Minister Mevlut Cavusoglu welcomed his Israeli counterpart, Yair Lapid. These visits are the latest steps in Erdoğan’s new foreign policy strategy, which is designed to repair Turkey’s relations with several countries. These relations had deteriorated severely in recent years.

The rapprochement is primarily focused on four important Middle Eastern countries: Egypt, Israel, the United Arab Emirates (UAE), and Saudi Arabia. Based on Turkey’s postures toward these countries in the past twelve months, it is clear that Erdoğan and his foreign policy team are interested in improving these ties as quickly as possible. This is best demonstrated by the fact that Erdoğan visited Saudi Arabia only seven weeks earlier than MBS’s June 22 visit, on April 28. A similar urgency is visible in recent high-level diplomatic visits between Turkey and the UAE, which began last year. Abu Dhabi Crown Prince Sheik Mohammed Bin Zayed al-Nahyan visited Turkey in November and Erdoğan visited Abu Dhabi in February 2022.

Turkey’s relations with these four nations and many other countries, such as the United States and Russia, have experienced considerable fluctuations in recent years. Turkey was successful in expanding its economic and diplomatic relations with all Middle Eastern countries in the first nine years of Erdoğan’s rule, from 2003 to 2011, as it followed Foreign Minister Ahmet Davutoglu’s “zero problem” foreign policy strategy, which called for resolving tensions with neighboring countries and focused on the expansion of economic ties. The departure of Davutoglu and Turkey’s response to the Arab Spring uprisings led to new tensions with several Arab countries. Erdoğan’s support for political groups that were affiliated with the Muslim Brotherhood (MB) infuriated the leaders of Saudi Arabia, the UAE, and the el-Sisi government that took power in Egypt after 2013. His support for Qatar in its 2017 dispute with Saudi Arabia and the UAE, as well as his aggressive condemnation of the Saudi government for the 2018 killing of dissident Saudi journalist Jamal Khashoggi in Istanbul, led to further setbacks with these countries. Similarly, Turkey’s relations with Israel, which had improved during the “zero problem” era, suffered a severe setback after the Israeli military killed nine Turkish nationals during the MV Mavi Marmara incident in 2010.

In light of these unprecedented tensions, what motivated Erdoğan to reverse course and urgently work toward repairing Turkey’s relations with these countries, was the steady worsening of an economic crisis that began in 2018. After more than fifteen years of rising economic standards and moderate inflation, economic conditions have steadily deteriorated ever since. The exchange rate increased from 3.1 liras per U.S. dollar in July 2017 to 17.3 liras per dollar in June this year. Since the Turkish economy has strong import and export linkages to the global economy, this rapid devaluation has resulted in a sharp increase in inflation, which reached a record level of 78.6 percent year-on-year in June. Since the wages and incomes of most Turkish citizens have not kept pace with this rapid inflation, many people have experienced a sharp decline in their purchasing power and standard of living.

The current economic crisis is partly a result of unorthodox economic policies of Erdoğan, who has prevented the central bank from using high interest rates to fight the inflationary pressures. He believes that under all circumstances low interest rates are good for the Turkish economy. As a result, the central bank has depleted most of its international currency reserves in an unsuccessful effort to support the lira without raising interest rates. 

This unprecedented economic crisis has reduced the popularity of Erdoğan and his party’s political support. If the situation does not improve soon, he might lose the presidential election next year. So, it is primarily because of this worsening economic crisis ahead of the upcoming presidential elections that he has been trying so hard to improve Turkey’s relations with these four countries. Erdoğan hopes that Saudi Arabia and the UAE, whose oil revenues have increased sharply in recent months, will inject sizable amounts of investment and loans into the Turkish economy. Furthermore, he hopes that improving relations with Israel will encourage them and the Israeli lobby to push the U.S. government to adopt more friendly policies toward Turkey (such as lifting some economic and arms sales sanctions).

The AKP motto of “zero problems with neighbours” was a prominent slogan defining Turkey’s foreign policy in the early 2000s. Erdoğan’s early years leaned towards the EU, reforming Turkey’s politics and economy to match EU standards with tangible hopes of eventual EU accession. In this era, Turkey adopted policies of democratisation, to deepen trade ties, and to bolster human rights. Turkey and Israel also collaborated closely on intelligence and security matters and Israel viewed Turkey as a good-faith peace broker in the Middle East. However, Erdoğan’s next foreign policy era tilted towards the Middle East and the Muslim Brotherhood. After 2011, In a definitive shift from the “zero problems with neighbours” policies of the previous decade, Turkey intervened militarily in Iraq, Libya, and Syria and in recent years, Ankara’s aggressive foreign policy in the eastern Mediterranean has created a bloc of countries opposing Turkey including Egypt, the Republic of Cyprus, Greece, and Israel. Erdoğan openly positioned himself as a pro-Palestinian leader and after the MV Mavi Marmara incident in 2010, ties with Israel collapsed.

Turkey’s strong support for the Muslim Brotherhood strained its relationship with Egypt and in more recent years, Turkey’s support for Qatar and the Muslim Brotherhood led to further isolation by the UAE and Saudi Arabia. They perceived Turkey as a threat with greater regional aspirations and MBS deemed Turkey and Iran as part of a “triangle of evil” with Islamist groups. As Turkey’s foreign policy grew increasingly aggressive and militarised in the late 2010’s, the murder of journalist Jamal Khashoggi presented a true breaking point in Saudi-Turkish relations.

One key reason behind the instability that many see in Turkey’s foreign policy is that it is closely linked to domestic politics. The 2013 Gezi Park protests saw violent pushback from the AKP and the 2016 coup echoed the same aggressive reactions. After these points, Turkey’s foreign policy became increasingly assertive and expansionist. Erdoğan has frequently altered Turkey’s volatile foreign policy to align with domestic political needs. Some experts, claiming Turkey under Erdoğan is a “fundamentally untrustworthy” partner, say that Turkey’s foreign policy is “two-faced” towards the West, citing that their security interests are in no way aligned with NATO’s.

In light of these recent changes in Turkey’s foreign policy, two important questions about the rapprochement policy of Erdoğan must be addressed. First, will these countries respond positively and improve their diplomatic relations with Turkey significantly? Second, even if Turkey’s relations with these countries improve substantially, will they provide sufficient financial support to save the Turkish economy before the elections?   

We anticipate that while all four target countries have responded positively to Turkey’s reset initiative, they will proceed with caution. They are likely to remain skeptical and cautious because of the increasing instability of Turkish foreign policy over the past decade. This cautious approach is already evident in the reluctance of Saudi and UAE leaders to offer significant economic commitments during their respective visits to Turkey. During the same diplomatic tour that brought MBS to Turkey he also visited Egypt. As noticed by many critics, MBS signed multiple investment projects and economic support packages worth nearly $30 billion. In contrast, the documents that he signed during his visit to Turkey were pledges of long-term broad economic cooperation rather than hard and specific financial commitments. Despite these reservations, both the UAE and Saudi Arabia are likely to improve their economic ties with Turkey more than Israel and Egypt in the long run. The UAE and Turkey, for example,  recently began talks on a Comprehensive Economic Partnership Agreement (CEPA) which is expected to double trade between them. 

Israel remains cautious of leaping back into a closer relationship with Turkey too quickly. Gallia Lindenstrauss, an analyst at the Institute for National Security Studies in Tel Aviv, mentioned that Israel would be careful proceeding towards rapprochement and called Turkey a “revisionist actor” in the Middle East, speaking to its unreliable foreign policy. Some analysts point to Turkey’s hopes to break up the Israel-Cyprus-Greece bloc in the eastern Mediterranean as a reason to be cautious of Turkey’s initiative. They also say that Israel is aware that Erdoğan might not stay in power for much longer and is therefore treading carefully.

Egypt remains similarly wary of rapprochement with Turkey. Egyptian analysts have noted a deep distrust of Turkey that still holds weight in Cairo. In October 2021, the Egyptian Foreign Minister said that "Cairo is waiting for satisfactory resolutions of the outstanding issues with Ankara." While some gestures of goodwill, such as taking TV programs that have critiqued the Egyptian government off the air, have been received positively by Egypt, they are not viewed as sufficient.

The investments and economic support that these countries are willing to offer Turkey will depend on several factors: First, it will depend on how confident they are in the stability and reliability of Turkish foreign policy under Erdoğan if he is reelected. If, based on the instability of Turkish foreign policy in recent years, they remain skeptical, the amount of investment and financial support that they are willing to provide is likely to be small in the short run. Policymakers in these countries are well aware of the current crisis in Turkey and its ramifications for Erdoğan’s chances for reelection. One factor that might influence their decision with regard to offering him an economic lifeline is whether they would like to see him get reelected or not. Since he has shown a tendency to reverse his position frequently and play Turkey’s economic partners against each other, they are likely to remain cautious initially.

The second factor that will matter for these countries, particularly Saudi Arabia and the UAE, is Turkey’s business and investment climate. They might be concerned about several risk factors in Turkey’s current economic policies and the government’s policy responses. So far, Erdoğan’s economic policies have not proven effective and some of them have been criticised for making the situation worse.

Erdoğan’s reluctance to raise interest rates has forced the government to take alternative measures to protect the lira. After a sudden decline in the value of the lira last December,  the government tried to discourage the public from converting their savings into foreign currencies (primarily dollar and euro) by offering to compensate the depositors who held their savings in lira-denominated bank accounts for any exchange rate losses.

In other words, if the value of a three-month savings deposit in a Turkish bank was equivalent to $100, the government promised to compensate the depositor to make sure the nominal value of his/her deposit was at least equivalent to $100 after three months. This measure restored confidence in the lira temporarily but the exchange rate decline has continued. The net effect of this policy so far is that since the lira has depreciated in the past six months, the government is now obligated to pay a large amount of exchange rate compensation to depositors. This compensation has to be financed by the treasury and hence it will be an added fiscal burden, which will increase the budget deficit.

As the inflation and exchange rate pressures continued, the government took another extreme measure last month by imposing a maximum limit, equivalent to 900,000 liras, on foreign currency holdings of firms, as a condition for bank loans. This is very restrictive and will have an adverse effect on Turkish firms that are active in foreign trade. As many experts have pointed out, this policy is equivalent to implicit capital flow control, which will reduce the confidence of foreign investors.

In light of these concerns, the oil-exporting countries that Erdoğan is courting so persistently, are likely to be cautious in their economic engagements with Turkey as long as the current crisis continues. In recent high-level diplomatic visits, the leaders of Saudi Arabia and the UAE have signed multiple economic cooperation agreements but very few of these deals will inject substantial amounts of hard currency into the Turkish economy in the short run.

As explained above, the primary motive of Erdoğan for these diplomatic reset initiatives is to receive financial and economic support. So far, there is no indication that these countries are willing to provide the substantial financial investments that are required to stabilise the economy in the short run-and fast enough to improve the economy ahead of the 2023 presidential election. However, even if Erdoğan’s  expectations for short-term assistance do not materialise, these reset initiatives will have important benefits for Turkey in the long run.

During the “zero problems” period when Turkey enjoyed good relations with its Arab neighbours and Israel, economic relations improved substantially. This era played an important role in Turkey’s economic progress, with Turkey’s economy growing about 7.5 percent annually. The reduction of tensions will allow Turkey to restore those relationships again and rebuild trade ties gradually. Furthermore, the rapprochement with the UAE and Saudi Arabia could lead to increased opportunities for Turkish firms to participate in Saudi Arabia’s Vision 2030 projects and the UAE’s post-covid economic boom. Similarly, rapprochement with Egypt and Israel could bring enhanced partnerships in the eastern Mediterranean, on security, and in acquiring advanced fighter jets from the United States.

A number of emerging security and economic agreements among several nations in the region make this reset even more significant for Turkey. In recent years many countries in MENA have been trying to resolve their differences and increase regional cooperation. Saudi Arabia and the UAE have taken steps to improve their relations with Qatar after their major rift in 2017. Egypt is cooperating with Israel, Greece, and Cyprus for production of natural gas in the eastern Mediterranean, and at the same time, several Arab countries have normalised their relations with Israel through the Abraham Accords. The reset will allow Turkey to join these new arrangements instead of being isolated. Consequently, if Turkey’s initiatives to repair ties with these countries are unsuccessful, her regional isolation could intensify due to the deepening links among other regional players as a result of these new multinational agreements. 

After several years of supporting the opponents of Bashar Assad in the Syrian Civil war, Egypt, Saudi Arabia, the UAE, and many other Middle Eastern countries are gradually coming to terms with the survival of the Assad regime and normalising their relations with that country. Since Syria sits between Turkey and the rest of the Middle East, and it is the main transit route for Turkish land trade with the Arab world, Erdoğan’s rapprochement with the Arab world might demand a revision in Turkey’s Syria policy as well.

Overall, It will take a while for Turkey to regain the trust of these countries to the levels that prevailed during the “zero problems” era, but Erdoğan’s initiative is an important step in the right direction for the country, even if it proves to be too little, too late to save his own political skin.


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