Turkish FM, US Secretary of State to Meet Amid Souring Relations

Turkish Foreign Minister Mevlut Cavusoglu is scheduled to meet with U.S. Secretary of State Mike Pompeo in Washington on Monday amid souring relations between the NATO allies and trading partners over economic and other issues.

The talks come as Turkish sectors, such as the major steel industry, reel from the higher tariffs imposed by the U.S. administration on Turkey and other nations.

“Huge, huge effect, steel producers are desperate, the psychology is terrible among producers,” said Tayfun Senturk, a Turkey-based international steel trader. “For the last three months, there have been no new U.S. orders, and the U.S. is a major market for Turkish producers, especially in piping. If it continues for a few years, there will be closures.”

In March, President Donald Trump introduced 25 percent tariffs on steel from several primary producers. Turkey didn’t enjoy an exemption given to the European Union, Canada and Mexico that ended Friday.

“This is mainly a dispute with China and secondly the European Union. Why was Turkey targeted? I don’t understand,” Senturk said.

Turkey is the eighth-largest steel producer in the world and second only to Germany in Europe. Last year, Turkey was the sixth-largest exporter to the United States.

There are growing suspicions among Turkish steel producers that politics rather than economics is behind the steel tariffs.

“There have been steps by the steel industry to try to build an understanding with the USA. As far as I know, it is not progressing, because of political reasons,” steel trader Senturk said. “They [steel producers] are saying this would not have happened if the situation [between the U.S. and Turkey] was all right like it was 10 years ago.”

In addition to the manufacturing industry, Turkey’s financial sector could be next to feel the repercussions from strained U.S. relations. U.S. regulatory authorities are considering a significant fine against Turkish state-owned Halkbank after one of its senior officials was convicted in a New York court in January of violating U.S. sanctions against Iran.

“Everybody is expecting a huge fine against Halkbank, but this is a political decision,” political scientist Cengiz Aktar said. Analysts predict the fine could exceed the $9 billion imposed on France-based BNP Paribas bank for breaking U.S. sanctions on Iran.

The fallout of such a fine could be considerable given international investors’ concerns about the Turkish economy.

“If we see major sanctions on Turkey, politically driven ones, the pressure on the currency could be substantial,” said economist Inan Demir of Nomura International, a Japan-based financial holding company.

This year the Turkish lira has already fallen more than 20 percent.

Worse could still be in store for Turkey, analysts say. Washington’s withdrawal from the international-brokered nuclear deal with Tehran could put Ankara and Turkish business in a tight spot. Trump has announced the introduction of trade sanctions against Iran. The U.S. has also warned that companies in violation of the measures could become targets themselves.

Ankara appears unfazed by Washington’s warnings.

“It is an opportunity for Turkey,” said Turkish Economy Minister Nihat Zeybekci. “We will continue to have trade with Iran while complying with the U.N. resolutions on nuclear activities. We believe in this: The stronger Iran gets in this region, the stronger Turkey becomes as well.”

Analysts suggest Zeybekci’s combative stance could be just political rhetoric, given Turkey is in the midst of campaigning for general and presidential elections set for June 24. Taking a tough stand against Washington is seen to play well with the ruling AKP nationalist voting base.

Complying with U.S. sanctions on Iran, however, could come at a substantial cost for Ankara.

“Turkey is in a difficult position. We have to remember Iran is one of the main actors, along with Russia, providing oil and gas to Turkey,” said former senior Turkish diplomat Aydin Selcen, who served in Iraq and Washington.

“It will be difficult for Turkish banks and Turkish companies to do business in Iran, but it will be difficult to find an alternative for natural gas and oil from Iran. So Turkey will have to tread carefully,” he added.

The prosecution in Turkey of U.S. pastor Andrew Brunson on terrorism charges threatens further measures by Washington against Ankara.

“It’s a show trial taking place, and it has already hurt the bilateral relationship,” U.S. Ambassador-at-Large Sam Brownback said Wednesday in a press briefing. “I think there will be more items to follow … from the United States towards Turkey if they continue to hold him.”

Ankara says Brunson’s trial is a matter for the courts, but, analysts warn, as U.S.-Turkish relations continue souring, the economic price Ankara will pay is likely to rise.

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