Erdoğan fails to secure Saudi cash windfall in visit by Prince Mohammed

Turkish President Recep Tayyip Erdoğan failed to secure capital from Saudi Arabia to help defend the troubled lira and help him get re-elected next year during talks with Crown Prince Mohammed bin Salman in Ankara on Wednesday.

Erdoğan was hoping that the visit by Saudi Arabia’s de-facto leader to Turkey, the first since the murder of journalist Jamal Khashoggi at the Saudi consulate in Istanbul in 2018, would result in the announcement that Riyadh would provide billions of dollars in currency swaps to Turkey’s central bank, just as regional ally the United Arab Emirates had done in January.

A joint written statement made by the two leaders following their talks made no mention of any currency swap agreement or closer cooperation between the two countries' central banks. Erdoğan and Prince Mohammed, who became political enemies over the Khashoggi murder after Erdoğan all but accused Prince Mohammed of ordering the killing, said they were seeking to fully normalise ties, deepen regional cooperation and carry out possible investments in sectors such as energy and defence.

"A total and utter climb down from Erdoğan," said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London. "In the end his financial rope ran out and he desperately needs a $$ bailout by MBS to cling to power. Does MBS want him to win next election though?"

A Turkish official told Reuters before the discussions at the presidential palace in Ankara that negotiations on a possible currency swap line were not moving "as fast as desired" and would be discussed privately between Erdoğan and Prince Mohammed at the meeting.

Erdoğan has been accused by his political opponents of engaging in an immoral climbdown over Khashoggi’s death as he chases funds to help Turkey’s maligned economy ahead of presidential and parliamentary elections, which must be held by June next year. The Turkish lira has lost almost a quarter of its value against the dollar this year, adding to declines of 44 percent in 2021, and inflation has soared to more than 70 percent, sending many people into poverty and hurting the president’s popularity.

The lira was trading down 0.1 percent at 17.35 per dollar in Istanbul on Thursday.

Erdoğan gave Prince Mohammed the full treatment befitting a head of state, including a guard of honour to welcome him to the presidential palace and a state banquet. He also accompanied him to the airport upon his departure on Thursday, a highly unusual move that goes beyond protocol. Television pictures showed the two embracing on the tarmac of Ankara airport and Erdoğan waving goodbye.

"The Saudis are clearly rubbing it in here," Ash said. "They are loving the climb down by Erdoğan - which is close to total capitulation in reality. Any cash yet? Erdogan needs tens of billions in $$ to survive now and win elections."

The Turkish central bank’s official net foreign currency reserves probably dwindled to about $7 billion last week, according to preliminary data, Reuters reported earlier this week. That was the lowest level in 20 years. The bank has spent well over $100 billion of its reserves since a bout of lira volatility first erupted in 2018. Its net reserves, when subtracting currency swaps conducted with state-run banks, are deeply in negative territory, data shows.

The UAE provided almost $5 billion to Turkey’s central bank in January as part of efforts to normalise the two countries’ relations. Ties between Turkey and regional powers have been hurt by Turkey’s support for opposition Islamist groups and differences over key issues such as Libya and natural gas resources. The accord with the UAE followed a visit by Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan to Turkey in November, when initial talks on the swap deal took place.

Erdoğan and Prince Mohammed also did not announce any agreement for Saudi Arabia to acquire stakes in state-run companies controlled by the Turkey Wealth Fund or in other firms. The Turkish media had flagged that such deals could be reached.

Ahead of the visit, Saudi Arabia lifted a ban on travel to Turkey and on the airing of its soap operas in the kingdom.

Many Turks are opposed to the rapprochement with Saudi Arabia and were shocked when Erdoğan visited Riyadh in April and embraced Prince Mohammed. Just prior to Erdoğan’s trip, a Turkish court ended the trial of several murder suspects in absentia and transferred the case to Saudi Arabia, sparking condemnation from human rights groups.  

Sixty percent of Turks look negatively on the rapprochement with Saudi Arabia, while 29.7 percent see the initiative as positive, according to a nationwide survey conducted last month by Ankara-based research company Metropoll. Özer Sencar, Metropoll’s founder, published the survey’s results on Twitter this week.

Main opposition Republican People's Party (CHP) leader Kemal Kılıçdaroğlu said earlier this week that Erdoğan would “embrace the man who ordered the killing" of Khashoggi. Prince Mohammed strongly denies involvement in the crime.

(This story was updated with analyst comments in the fourth and ninth paragraphs.)

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