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Turkey – US and Northern Syria

The move by US President Trump to pull a small force out of Northern Syria has resulted in lots of backlash in both the US and Europe.  In addition, it has probably made several allies in the middle east region feel insecure.

Let’s take a look at what happened with an eye towards the investment situation and sentiment for Turkish assets.

First, this was planned move by the AKP government led by President Erdogan for domestic reasons mainly along with security issues arising from Syria.  Rising anti-Syrian refugee sentiment in Turkey along with sagging election results especially from the recent election loss in Istanbul made this troop movement into Northern Syria more likely.

Second, aside from the theatrics of the abrupt pull-out by Trump, Northern Syria is not strategic to the US.  On the other hand, it is very strategic to Turkey.  Thus from this perspective, the US can pull out and let Turkey take over.  US and Turkey are both NATO allies and have a close military relationship.  Although some would say this has become less close in recent years.  US would always choose Turkey over the Kurds in a strategic sense.

Third, the Kurds of Northern Syria miscalculated international support and especially US support for a more independent state.  Thus when push came to shove, the US sided with Turkey.   This was a strategic mistake on the part of the Kurds.

Fourth, outside of the threats back and forth between the US congress and Trump and Turkey on the other side.  Nothing will result from this except domestic political gain by Trump and Erdogan.

Now the facts on the ground in Syria.

  1.  US sent more troops to protect the oil under the control of the Kurds.  This does two things.  It keeps the oil out the hands of Assad and gives the US some leverage.  It also proves the Kurds with a leverage to some form of independence from the Assad regime.
  2. Turkish and Russian joint patrols in Northern Syria are a matter of convenience.  Since Russia is close to the Kurds this helps ensure they keep the truce and also Russia sees this as opportunity to get closer to Turkey.  For the US, it might be an acknowledgement that Assad with the backing of Russia have basically won.
  3. US accomplishes its goals:  get rid of ISIS and the head of ISIS (recently killed) plus gets to keep control of the oil and prevents the ‘Shia’ highway in southern Syria.  It has tactically moved troops to the oil fields and south of Syria.  This keeps Israel and Jordon happy.  In addition, the Russians are secretly pleased with this development since Iranian influence in Syria is now capped.

What does this mean for Turkey, politically and economically.

  1.  Short-term:  the ruling AKP party and Erdogan can count this as a win to try and get back the nationalist vote.
  2.  Medium to Long-term:  depending on how the truce goes in Northern Syria, this could be very expensive both politically and economically for Turkey.   This includes the proposed settlement of Syrian refugees.


Looking at the volatile ETF on Turkey – TUR, it is evident that the stock market has recovered in the short-term.

Now, events are still fragile so we could assume the TUR moves further to the upside if the news is good or vice-versa.  Volatility will be high, thus I would personally stay away from any option positions just yet.

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