Amid sanction fears, Turkish economy under stress

Economists told Arab News that the economic impact of the sanctions package would depend on the final decision by Trump and on the strength of the Turkish economy. (Shutterstock)
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Updated 12 December 2019

Amid sanction fears, Turkish economy under stress

  • In Ankara, there is a growing concern that the green light for the implementation of CAATSA sanctions may be given in a few months

ANKARA: Following intense debates in the US Senate, economists and investors held their collective breath to watch possible signs about the determination of the White House to apply Countering America’s Adversaries Through Sanctions Act (CAATSA) sanctions against Turkey.

On Wednesday, a sanctions bill against Turkey passed in the Senate Foreign Relations Committee with a 18-4 vote, and it is now up to Senate Majority Leader Mitch McConnell to bring it to the Senate. The bill, among other measures, aims to accelerate the implementation of  CAATSA within 180 days.

If the bill passes, then it will be brought to the House of Representatives for a vote. And if it gets the green light there, US President Donald Trump would have to either sign or veto it.

There is also a possibility to override a veto. For this to happen, each chamber of Congress votes on a bill vetoed by the president, with a two-thirds majority in both negating the veto.

In Ankara, there is a growing concern that the green light for the implementation of CAATSA sanctions may be given in a few months.

Economists told Arab News that the economic impact of the sanctions package would depend on the final decision by Trump and on the strength of the Turkish economy.

If Trump chooses the least damaging five items on the 12-item sanctions menu, the economy is expected to withstand the pressure to a certain extent. However, sanctions such as prohibitions on banking transactions would significantly harm the economy’s fragile dynamics. A harsher set of sanctions could stop access to the SWIFT international banking system.

CAATSA requires US banks to deny services from foreign banks that do business with blacklisted individuals or entities, even if the transactions do not enter into the US jurisdiction.

The Turkish economy grew 0.9 percent year-on-year in the third quarter, overcoming the period of recession which followed last year’s currency crisis in August with a 30 percent slide in the lira, increasing inflation and interest rates. The currency crisis was mainly triggered by the tension between Ankara and Washington.

But amid this rosy picture of economic recovery, economists underline that there is still need for reforms to restore confidence among investors, with many warning that 2020 could be challenging.

In recent months, the mass suicides of three families drew attention to the severe financial problems in many households.

Timothy Ash, a London-based senior emerging markets strategist at Bluebay Asset Management, pointed out two options regarding impending CAATSA sanctions: Either sanctions will be light or stalled by Trump, or the economy is much more resilient and able to withstand them.

“But I am not sure this is entirely correct,” he told Arab News, adding: “The weak spot is external financing and banks. Anything which limits banks’ access to dollar markets will be very painful. Less external financing means higher borrowing costs and lower growth, it might also need a weaker currency.”

According to Ash, Halkbank looks vulnerable as it seems to be mentioned in all the various sanctions bills and is also subject of the Southern District of New York’s legal case.

“The question is whether sanctions on Halkbank cause concern about knock on effects to other banks,” he said.

State-run Halkbank was charged by US prosecutors with being part of a scheme to help Iran evade US sanctions.

But, Wolfango Piccoli, co-president of Teneo Intelligence in London, thinks that the risk of enacting CAATSA sanctions will increase when Turkey activates the S-400s.

As a law ratified by the US Congress two years ago, CAATSA mandates the Trump administration to bring sanctions on countries that have transactions with the Russian defense industry. Turkey began receiving the parts of the S-400 systems in July and in late November it tested radar-detection equipment in Ankara.

“As for the possible impact on the Turkish economy, this will depend on multiple factors, including the type of sanctions that will be selected among 12 possible measures, the reaction of Turkey and prevailing market conditions at that time,” Piccoli told Arab News.

How the FSO Safer is an impending danger to the Red Sea and Yemen

Updated 21 September 2020

How the FSO Safer is an impending danger to the Red Sea and Yemen

  • Houthi refusal of passage to experts to carry out repairs has raised specter of a floating time bomb
  • Saudi Arabia has called for a meeting for Arab environment ministers to discuss ways to avoid a catastrophe

AL-MUKALLA, Yemen: Until the Iran-backed Houthi militia seized Yemen’s western port city of Hodeidah in late 2014, foreign and local experts had been regularly visiting a 45-year-old oil tanker moored in the Red Sea.

It was a practice that ensured that the FSO Safer, abandoned just a few kilometers off Yemen’s coast, did not touch off a disaster by exploding or sinking and spilling oil. But having witnessed the devastation caused by the Aug. 4 blast in Beirut and taken its lessons to heart, the Arab world cannot afford to ignore the imminent danger posed by Houthi stalling tactics.

Expressing concerns about the condition of the vessel, Saudi Arabia has called for a meeting for Arab environment ministers on Monday. According to a statement issued on Sunday by Kamal Hassan, assistant secretary-general and head of the Economic Affairs Sector at the Arab League, the aim of the special session is to discuss ways and mechanisms to activate Resolution No. 582, which was adopted by the Council of Arab Ministers Responsible for Environmental Affairs in Oct. 2019.

The objective is to “find an appropriate solution to avoid an environmental catastrophe due to the failure to maintain the oil ship Safer anchored off the Ras Issa oil port in the Red Sea since 2015.”

When the Houthi militia gained control of Hodeidah, the FSO Safer was carrying 1.1 million barrels of oil, or almost half of its capacity, according to local officials. No sooner had the fighters tightened their grip on the city than technical experts fled the area, realizing that it had become too dangerous for them to stay on.

Over the past two years, the FSO Safer has attracted regional as well as international attention on and off, thanks in part to the regular appearance on social media of photos of rusting pipes and water leaking into the engine rooms, raising the specter of a floating powder keg.


45 Age of oil tanker FSO Safer

1.1m Barrels of crude oil in tanker

During the same period, Yemeni government officials, environmentalists and foreign diplomats have sounded the alarm over possible outcomes that could both exacerbate the humanitarian crisis in Yemen and take a heavy environmental toll on the Red Sea littoral states.

The UN has suggested sending a team of experts to Hodeidah to assess the damage to the FSO Safer, but the Houthi militia, who want to pocket the proceeds from sale of the oil, have rejected the proposal. The oil in the FSO Safer’s storage tanks was once estimated to be worth $40 million, but its value now may be less than half of that as crude prices have fallen a lot since the onset of the coronavirus pandemic, according to reports.

The internationally recognized government of Yemen has repeatedly accused the Houthi militia of using the decaying tanker as a bargaining chip, citing demands such as the resumption of salaries for public servants in areas under its control, removal of government forces from Hodeidah, and more relaxed inspection of ships bound for the port.

An oil spill would devastate the livelihoods of nearly four million Yemeni people, with fishing stocks taking 25 years to recover. (AFP)

In July, the government requested the UN Security Council to convene an urgent session to discuss the Safer issue amid concern that time was running out. In almost all their meetings with foreign envoys and diplomats, Yemeni officials bring up the matter of the tanker and the attendant risk of an environmental disaster in the Red Sea. For the past several months, Western and Arab diplomats, UN officials, aid organizations and experts too have underscored the urgency of breaking the deadlock in order to avert a human, economic and environmental catastrophe.

In July, the UN described the rusting tanker as a “ticking time bomb,” adding that the tanker’s cargo of oil could cause an environmental disaster four times bigger than the 1989 Exxon Valdez spill off Alaska. Last week, the UN Secretary-General Antonio Guterres added his voice to the growing concern over the deadlock by appealing to the Houthi militia to give UN experts access to the oil tanker.

As for the Trump administration, its views were conveyed via a tweet by the US mission to the UN that said: “The US calls on the Houthis to cease obstruction and interference in aid ops and fuel imports. We urge the Houthis to cease their assault on religious freedom and to permit UN technical teams immediate, unconditional access to the Safer oil tanker.”

In comments to Arab News in June, Michael Aron, the British ambassador to Yemen, said unless the Houthi leadership allowed experts to address the FSO Safer’s problems, the potential damage to the environment is far greater than that caused by the recent spillage of 20,000 tons of fuel in Russia’s Siberia. “The threat to the environment in the Red Sea is enormous, and will impact on all the countries who share this coastline,” he said.

Independent researchers too say the condition of Safer is deeply concerning. In a paper for the Atlantic Council in 2019 entitled “Why the massive floating bomb in the Red Sea needs urgent attention,” energy experts Dr. Ian Ralby, Dr. David Soud and Rohini Ralby said the potential consequences of an oil-tanker disaster in the area include an end to the two-year ceasefire in Hodeidah and an aggravation of Yemen’s humanitarian crisis.

“The risk of explosion increases by the day, and if that were to happen, not only would it damage or sink any ships in the vicinity, but it would create an environmental crisis roughly four and a half times the size of the Exxon Valdez oil spill,” the three scientists said. Other experts have speculated that just a stray bullet from an exchange of fire between rival factions could trigger off an explosion of the FSO Safer’s oil cargo.

Yemeni NGO Holm Akhdar says 126,000 people working in the fishing industry could lose their jobs in the case of a disaster.

“Even worse, given the complexity of this war, an errant bullet or shell from any one of the combatants could trigger a blast as large as Beirut’s August 4th disaster, prompting a historic oil spill,” Dave Harden, managing director of Georgetown Strategy Group, wrote in an op-ed in The Hill last month. He added: “Clean-up efforts would be daunting — given the insecurity of being in a war zone and the additional health risks from COVID-19.”

Similar concerns have been expressed by local government officials and fishermen in Hodeidah. Waleed Al-Qudaimi, deputy governor of Hodeidah, said that any spillage from the FSO Safer would create a humanitarian crisis as severe as the one caused by the Houthi insurgency.

“It (the oil spill) will add an additional burden that will affect Yemen for the next decades, deprive thousands of people of their jobs and destroy marine biodiversity in Yemeni waters,” he said. Al-Qudaimi appealed to the international community to keep up pressure on the militia to allow maintenance work to be carried out.

For a country reeling from a combination of conflict, humanitarian crisis, plunging currency and crumbling economy, repairs to an abandoned oil tanker off its coast might not carry the ring of urgency normally associated with a major disaster.

But now that the world knows what happened when Lebanese officials ignored warnings for years over a cache of highly explosive material stored in a Beirut port warehouse, the importance of resolving the FSO Safer issue cannot be overstated.


Twitter: @saeedalBatati