"We Have A Civil War": Inside Turkey's Descent Into Political, Social, And Economic Chaos

Deflecting criticism surrounding Ankara’s anti-terror air campaign, Turkey’s foreign minister Mevlut Cavusoglu last week told state television that strikes against ISIS targets would pick up once the US had its resources in place at Incirlik which will supposedly serve as a hub for a new "comprehensive battle."

Turkey has had a difficult time explaining why, after obtaining NATO support for a new offensive campaign to root out "terrorists", its efforts have concentrated almost solely on the PKK and not on ISIS. As we’ve discussed in great detail (here, here, and here), and as the entire world is now acutely aware, Ankara’s newfound zeal for eradicating ISIS is nothing more than a cover for its efforts to undermine support for the PKK ahead of snap elections where President Tayyip Erdogan hopes to win back AKP’s absolute majority in parliament which it lost last month for the first time in 12 years.

Cavusoglu was effectively suggesting that the reason it appears as though Ankara is overwhelmingly targeting the PKK at the possible expense of efforts to weaken ISIS is because Turkey must wait for the US to show up first, at which point the "real" fight will begin with the possible assistance of Saudi Arabia, Jordan, and Qatar. In the meantime, the country is descending into civil war and for many Kurds, the frontlines are all too familiar. Here’s Al Jazeera: 

Located on the Tigris River just upstream from Turkey's Iraqi and Syrian borders, Cizre has been shaken by nocturnal gun battles between police and residents in recent days.

Its streets remain deserted after sunset, while families sleep in the innermost rooms of Cizre's squat, cinderblock homes to protect themselves from gunfire.

Hostilities have smouldered here since Turkey's government and the Kurdistan Workers' Party (PKK) abruptly ended a two-year ceasefire in late July, imperilling the hard-won gains of Kurdish politicians and reversing prospects for a historic peace deal nearly achieved in March.

Since July 23, Ankara has launched hundreds of bombing missions against the PKK's strongholds in northern Iraq, while the PKK has killed at least 18 members of Turkey's security forces in guerrilla attacks throughout the country's east.

Those attacks have put Cizre, a long-defiant bastion of pro-Kurdish sentiment, back on the front lines of a conflict that has cost more than 30,000 lives since 1984.

"They say war is coming, but it's already here in Cizre," said Rasid Nerse, a 26-year-old construction worker.

The ending of the ceasefire came less than two months after Turkey's Kurdish-rooted People's Democracy Party (HDP) scored a historic victory in national elections.

Though Kurdish deputies usually run for parliament as independents, the HDP cleared a daunting 10 percent electoral threshold to become the first pro-Kurdish bloc to formally enter parliament under its own name. 

Though the HDP has called on both sides to end the subsequent hostilities, Turkish President Recep Tayyip Erdogan has attacked the political party, requesting last week that parliament strip Kurdish lawmakers of their legal immunity from prosecution.

Our citizens see the police as a threat to their security, not a provider of it said Kadir Kunur, HDP mayor of Cizre.

Ankara has ordered the detention of more than 1,000 HDP members in a national "anti-terror" probe that has focused on the PKK. 

The PKK is listed as a "terrorist group" by Turkey, the European Union and the US.

In Cizre, that crackdown has helped bring about the present security crisis.

As mourners returned to their homes after Nerse's funeral, many struggled past a series of makeshift walls and ditches that have recently been erected to encircle their neighbourhoods.

Armed members of the PKK youth wing (YDG-H) began setting up the improvised barriers on July 26, when 21-year-old resident Abdullah Ozdal was killed during a protest.

The vigilante youth group grew out of previous security crackdowns, which saw hundreds of Cizre youths radicalised while in Turkish prisons.

Operating at night and frequently armed, the YDG-H similarly encircled the town during anti-government riots across the region last year.

"Our citizens see the police as a threat to their security, not a provider of it," said Kadir Kunur, the town's HDP mayor. Kunur pointed to the dozens of bullet holes that pockmark the HDP's building in Cizre, remnants from one of many deadly raids police launched here in the early 1990s.

And more from Vice:

The trenches have been dug in Cizre. Several feet wide and paired with mounds of earth and torn-up building material, they appeared blocking roads in this Kurdish enclave in southeastern Turkey after Ankara launched an intensive air campaign against the banned Kurdistan Workers' Party (PKK) in July. 

Children play on them during daylight hours. But at night, when police move in, they're patrolled by groups of armed youths, who attempt to repel these official incursions in fierce clashes that have left at least one dead and many injured.

Cizre has spent years on the fringes of war. The unremarkable-looking town of just over 100,000 lies on the Tigris River, around 30 miles from the tripoint where Turkey meets conflict-ravaged Syria and Iraq, and violence regularly strays over the national boundaries. Now, the cycle of airstrikes and renewed PKK attacks on Turkish troops threaten a return to the three-decade-long struggle between the two sides that claimed more than 40,000 lives. And here, residents feel like they're at the heart of the fight.

"There's a saying, 'if there's peace, it will start from Cizre, and if there's war, it will start from here as well,'" the town's co-mayor Leyla Imret, 28, told VICE News recently. "And we can say we have a civil war in Turkey." 

While the most tragic consequence of the renewed violence will unquestionably be the human toll, there are real implications for the country's economy and indeed, the political uncertaintly (and the war that's come with it) threaten to undermine Turkey's investment grade credit rating. Although Moody's took no action on Friday, the risk of downgrade is very real indeed. Here's Goldman:

Turkey's rating outlook has been "negative" since early 2014, which means there is a real (and arguably increasing) risk of a formal downgrade within the coming 6 months.

Our previous research on the impact of rating changes (from junk to IG status) suggest that a potential downgrade could result in a material widening in Turkey's CDS spreads, by as much as 60bp cumulatively (20-100bp range for +/- 1 standard deviation; Exhibit 1-2), with the first downgrade instantly prompting a c. 20bp widening. Of course, this estimate is based on a stylised econometric model, and it is possible that the downgrade could lead to a more significant market impact given that it is not widely anticipated by market participants.

 

And Barclays has more on the intersection of war, politics, and financial conditions in Turkey:

Heightened geopolitical risk arising from the terror attack in Suruc is no accompanied by rising domestic risks from the renewed terror attacks by the PKK. These have inflamed political rhetoric and already tense coalition talks between the AKP and CHP, raising significantly the risks of a snap election and political instability. It remains to be seen whether the heightened tension will push the AKP and CHP further apart or bring together the AKP and MHP.

Escalating security risks may work in favour of the AKP in a snap election: The argument is that the perception of rising internal and external threats (PKK and ISIS) could increase the electorate’s preference for strong leadership and hence a singleparty government. It is also possible that AKP may attract some votes from MHP as a result of adopting a tougher stance against PKK (including the use of military force), ramping up the rhetoric against HDP and abandoning the Kurdish peace process.

 

Risk of HDP remaining below 10% is low for now: We do not see a significant likelihood that the HDP would score below the 10% national threshold in the event of a snap election, barring possible turbulence in the party caused by a potential ban on prominent politicians or party closure. The migration of votes from AKP to HDP appears to be a structural shift and unlikely to reverse in the near term, considering AKP’s increasingly nationalistic rhetoric and its stance on the Kurds in Syria.

 

 

Economic implications of recent developments are negative: We think: 1) the risks to the sovereign rating outlook have risen; 2) downside risks to growth are higher; 3) the perception of higher rising political/geopolitical risks could increase dollarization; and 4) corporate sector’s FX mismatches will be exposed.

Risks to the sovereign rating outlook have increased: Turkey’s gross external financing requirement remains large at c.USD200bn (or 25% of GDP), regardless of the improvement in the current account deficit. Needless to say, any rollover of this debt and/or the extent of re-pricing not only depend on global financial conditions but also investors’ perceptions of Turkey-specific risks. This naturally ties into the sovereign ratings outlook and associated risks to Turkey’s IG status, which moved back into focus during the election. The rating outlook revolves around whether political risks, policy uncertainties and government effectiveness could discourage capital inflows, thereby exposing Turkey’s external vulnerabilities. Rating agency commentary has generally been negative since the elections, highlighting rising political uncertainty and likely delay in structural reforms.

As for what happens next, expect Washington and Ankara (who, you're reminded, both want Assad out of Damascus) to begin launching joint strikes against ISIS targets. Tragically, the plight of the Kurds in Turkey will fade into the background and Erdogan will be free to exterminate his political opposition with NATO's blessing. Once US missions from Incirlik become a regular occurrence, expect Saudi Arabia (which was hit with another suicide bombing this week) and Qatar to enter the fray and from there, the excuses to put American (and Saudi) boots on the ground will mount until eventually, a full scale invasion will be undertaken on the excuse that it's the only way to neutralize the ISIS threat.

On cue, Fox News reported on Friday that the US army is sending F-16s to Turkey, but perhaps more telling is the postioning of "a search-and-rescue team of elite Air Force pararescuemen, with their support helicopters and crews" which will stand ready to assist the Pentagon's "elite" troop of Syrian freedom fighters in case they, like their commander and deputy, are prompty captured by militants the second they set foot on Syria's (formerly) sovereign soil:

The U.S. Air Force is planning to send six F-16s from an undisclosed location in Europe to Turkey after the Turks agreed to allow manned flights from Incirlik Air Base and others last week. This would put U.S. jets only a 30-minute flight from ISIS targets in Syria.

The new jets are expected to arrive in the next few days. Strike missions against ISIS will begin shortly after their maintenance crews can get set up. Part of the mission of the new jets will be to support the fledgling U.S.-trained Syrian fighters.

Additionally, a search-and-rescue team of elite Air Force pararescuemen, also known as "PJs," with their support helicopters and crews will be moved into position after the fighters arrive.