Financial risks associated with a tit-for-tat diplomatic dispute between Turkey and the United States appear to have been almost fully resolved by late Wednesday. The U.S. Embassy in Ankara held a press briefing Wednesday afternoon in which it used language that signaled a major de-escalation of differences between both countries.
The Turkish lira traded at 3.61 to the dollar at the close of trading on Friday. On Sunday, the U.S. embassy issued a ban on processing of all non-immigrant visas at its embassy and all consulates. The exchange rate spiked at the open of trading late Sunday following the announcement to nearly 3.8 liras. As of this writing, the lira traded at 3.65, or 1 percent off its Friday close.
The initial dispute stems from the arrest of a U.S. Consulate employee by Turkish police. Turkish authorities allege the individual arrested is tied to its probe of the failed July 15 coup attempt. The individual in question has no diplomatic immunity and is a Turkish citizen. Therefore this individual is, according to Turkish government officials, not protected by any diplomatic agreement between both countries and can be tried in Turkish courts for alleged crimes.
Turkish prosecutors allege they have phone records that prove the consulate employee was in constant contact with many indicted coup attempt-related terrorists and also had contact with the ring-leader. U.S. officials allege the individual arrested was in contact with said officials as part of his duties at the consulate. Embassy officials also claim they have not received any official correspondence regarding their employee from Turkish officials.
"It is quite unusual for a government to detain and arrest employees of a diplomatic mission without holding any official discussion," U.S. Ambassador John Bass said.
The announcement Sunday was met with a response by the Turkish government, suspending all visa processing for U.S. citizens, mirroring the U.S. Embassy's actions. Following the U.S. Embassy's announcement, no word from U.S. State Department officials informing their Turkish counterparts of the visa suspension had been received until late Tuesday.
While it was Columbus Day in the United States and government offices were closed, Turkish officials were left guessing if this move was one made unilaterally by the U.S. ambassador in Ankara or by Washington. President Recep Tayyip Erdoğan questioned the move while on a state visit to Serbia.
Late Tuesday, U.S. officials responded that the move was made in coordination with the White House and the U.S. State Department. By Wednesday afternoon the U.S. Embassy in Ankara voiced an interest in de-escalation and lifting the temporary visa application ban at its missions in Turkey while reiterating Turkish citizens could still apply outside of Turkey.
Markets appear to have shrugged off the implications of this latest installment of the tit-for-tat between the two countries. Turkey is most concerned with U.S. support for the Democratic Union Party (PYD), a group Turkey says is an offshoot of the PKK, which is a terrorist group that is officially recognized by the U.S. and the European Union.
Turkey believes the endgame for the U.S. is the establishment of a separatist Kurdish state along the southern border of Turkey. The U.S. denies such accusations.
Markets believe that both sides have realized mutual cooperation is far more important than the recent disagreements. The U.S. embassy seems to be particularly displeased with leaks from Turkish prosecutors of phone records of the U.S. consular staffer which appear to show constant communication with law enforcement officials currently indicted for terror related activities.
Turkish officials responded that the U.S. provided no such courtesy when arresting a Turkish government worker for official duties while working at a government bank, Halkbank.
The U.S. ambassador, in a video released following the visa suspension, questioned whether or not some Turkish officials wanted purposely to strain relations between the two countries. Similar comments were made by Turkish officials regarding U.S. officials.
With Turkish credit default swaps currently trading cheaper by nearly two percent and the Turkish benchmark equity index trading higher than its Friday close, this mini-crisis appears to be nearing a mutually beneficial resolution. The BIST100 traded at 104,449 late Wednesday while credit default swaps traded at 1.7843. The bounce back of financial markets indicates markets believe visa processing on both sides will resume in the near future.