The
United States is shocked - shocked - to discover
that Turkey, a notional American ally, has done
more to help Iran skirt sanctions than any other
country. Turkey's precious metals exports, almost
all of which went directly or indirectly to Iran,
quintupled this year to US$14.3 billion. Iran uses
the precious metals to skirt restrictions on its
access to the banking system.
The Wall
Street Journal reported on November 30, "The
Senate on Friday approved a measure that would
tighten sanctions against Iran ... the new
legislation would ban the transfer of precious
metals to Iran, including gold. The sanctions are
expected to be approved by the House quickly. The
Senate's move comes after President Barack Obama
quietly empowered the Treasury over the summer to
sanction any foreign individual or firm that helps
Tehran acquire US
dollars or precious metals, according to US
officials."
Welcome to the post-American
Middle East. Turkey is asking the North Atlantic
Treaty Organization (NATO) to station Patriot
missiles on the Syrian border to help rebels fight
Iran's principal ally in the region, Syrian
President Basher al-Assad, while acting as Iran's
main financier. Turkish Prime Minister Recep
Tayyip Erdogan is the geopolitical cognate of the
Talented Mr Ripley, Patricia Highsmith's fictional
sociopath. How does he get away with it? Because
every one of the countries that might call him to
account worries that the region would be even
worse off without him.
Turkish exports,
with and without precious metals Source: Bloomberg, author's
calculations
Turkey's gold shipments
to Iran are big enough to make a significant dent
in the country's enormous current account deficit.
At an annual rate of $17 billion, Turkish gold
exports amount to 2.2% of Turkish gross domestic
product. Without them, the nominal improvement in
the country's bulging trade deficit (to "only"
7.5% of GDP as opposed to last year's 10%) would
disappear.
Turkish short-term external
debt, total and owed by banks Source: Central Bank of Turkey
How has Turkey managed to persuade the
world that it is an economic success when its
trade deficit is on a par with Greece before the
collapse of the latter's finances? Turkey's total
external debt is relatively low, for one thing,
although it is rising at an alarming rate. Even
more alarming is the way in which it is rising.
The country's short-term external debt has risen
two-and-a-half times since the 2008 crisis, and
two-thirds of its short-term debt is owed by
banks. Anecdotal evidence suggests that most of
the interbank money comes from Saudi Arabia and
the other Gulf States.
Erdogan is on a
short leash. If the Saudis decline to roll over
Turkish bank obligations, the country will
collapse within weeks.
Earlier this year,
I thought these structural flaws would scare
investors out of the Turkey stock market, as they
did during 2011 (see Recall
notice for the Turkish model, Asia Times
Online, January 10, 2012). But I underestimated
the world's response to Turkey's weakness. Money
kept pouring into Turkey (along with Iranian
hydrocarbons, probably at concessionary prices in
return for gold), and the stock market boomed.
Turkish MSCI Index Fund
(TUR) Source: Bloomberg
The Saudis, who
continue to paper over Turkey's enormous current
account deficit, have many small reasons to wish
ill on Mr Erdogan. He is keeping their adversary
Iran in business; he is promoting the Muslim
Brotherhood in Syria as an alternative to the
al-Assad regime (and the Saudis hate and fear the
Muslim Brotherhood, with good reason); and Erdogan
harbors neo-Ottoman ambitions that offend the
Saudis, who consider themselves the moral leader
of the Sunni world.
Nonetheless, the
Saudis have one big reason to continue supporting
Turkey. There are only three big Sunni armies in
the world that can stand up to Iran. One belongs
to a failed state, namely Pakistan; a second is
controlled by the Muslim Brotherhood in Egypt; and
the third, and most powerful is Turkey's. Whatever
side games Turkey might play with Iran, it does
not want Iran to become a regional hegemon. That
is why Saudi Arabia is paying protection to
Erdogan.
Russia, which has enormous
leverage over Turkey through its position as the
country's main energy supplier, finds itself on
the opposite side from Ankara in Syria's civil
war. The Patriot missiles that Erdogan has
requested from NATO are likely to shoot down
aircraft that Russia is supplying to the Syrian
regime.
Nonetheless, Russia has good
reason to hope for Turkey's stability. During the
past three months, Russia claims to have killed
over 300 Muslim terrorists in the Caucasus. Note
that Russia has not announced the capture or
imprisonment of any terrorists, only kills.
Despite its suspicions of the Turkish regime,
Russia continues to hope that Turkey will help
stabilize its southern border. And with more than
10 million guest workers from Turkey or the Turkic
republics now working in Russia, Moscow has a
stake in Turkey stability.
The Obama
administration continues to view Erdogan as
America's key ally in the region, despite
Erdogan's annoying support for Hamas. Despite
minor differences, Obama and Erdogan agree on a
fundamental point of strategy, namely that the
Muslim Brotherhood represents the future of the
Arab world.
Both are likely to be
disappointed.
As I observed in this space
on October 10, Syria's crackup threatens to
advance Kurdish hopes for independence by
mobilizing the country's 2 million Kurds (see The
horizon collapses in the Middle East). Turkey
hopes that a Sunni regime under the aegis of the
Muslim Brotherhood will suppress the centrifugal
forces that threaten to make the Kurds an
independent actor. I do not think this will
succeed for a number of reasons, foremost among
which is that Saudi Arabia does not want it to
succeed. The Muslim Brotherhood's signal victory
in Egypt, meanwhile, is turning bitter.
Whether or not Mohammed Morsi survives the
backlash to his assumption of dictatorial powers
last week, Egypt will remain unstable for the
indefinite future. A Muslim Brotherhood
dictatorship is likely to become something of a
North Korea on the Nile.
I continue to
believe that Turkey's economic bubble will pop -
eventually - but as long as the alternatives to
the talented Mr Erdogan seem so much worse, his
partners and adversaries will conspire to keep him
in business.
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