Business risk: Big risk of increased political instability, which will make the already hard economic situation even harder. Smaller risk of temporary disruptions of maritime traffic through the Turkish Straits.
What happened before? On March 31, Erdogan’s AKP party lost municipal elections in Istanbul by 0.2%. President Erdogan refused to accept his loss and forced a rerun of the elections. Erdogan reached himself national prominence when he was elected mayor of Istanbul in 1994.
What happened now? On Sunday, June 23, the rerun led to an even bigger defeat for the AKP candidate. He lost from Ekrem Imamoglu of the centre-left CHP with 9.2% of the votes. In addition to the symbolism, losing Istanbul is also a big blow to the AKP’s patronage networks for which Istanbul is essential.
What will happen? Turkish opposition parties will feel bolstered after their victory in Istanbul (and other important cities). This will strengthen their determination to keep resisting the slide towards repression. At the same time, Erdogan weakened and humiliated will probably not give the opposition more leeway. He will dig in! These two dynamics will collide, and we expect a lot more political instability in Turkey due to increasing conflict between Erdogan and his opponents.
Not repressive enough, not free enough. Turkey is a typical case of a political regime in between democracy and autocracy. On one hand, it’s not oppressive enough to contain all political dissident and on the other hand it’s not free enough to create political openings to voice legitimate concerns without breaking the law. This makes it a very combustible environment without a pressure valve, leading to a potential blow-up.
Why does it matter? Turkey is the EU’s fifth largest trade partner and instability and economic crisis will have an impact on the EU’s economy. Besides, Turkey is already in quite some trouble in its relationship with the US as it plans to buy a Russian anti-missile system. The US has threatened with sanctions if the sale proceeds. Finally, Turkey has a deal on migration with the EU, where it receives millions of refugees in exchange for European money. If instability increases, the refugee deal could be threatened, potentially creating a new migration crisis in Europe.
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