U.S. sanctions on Turkey over its Syrian military offensive are being dismissed by the political leadership in Ankara, as financial markets shrug off the measures.
Sanctions were announced against Turkish officials on Monday as negotiations on a $100 billion trade deal ended. While a tariff on Turkish steel was doubled to 50%, U.S. Vice President Mike Pence said the measures would remain until Turkey declared a cease-fire with the Syrian Kurdish militia, the YPG.
Last week, Turkish forces launched a major military attack into Syria against the YPG, considered by Ankara to be linked to terrorism inside Turkey. The YPG has been a U.S. ally in the fight against the Islamic State terror group.
With over 100,000 people displaced by the fighting, and fears mounting that the operation is opening the door to a resurgence of the Islamic State group, international condemnation continues to grow.
Turkish President Recep Tayyip Erdogan dismissed the Trump administration's measures.
"We have seen all the threats from sanctions to embargoes, just because we fight against terrorism," he said.
Erdogan later pledged to continue with the operation until "all our objectives had been achieved."
Erdogan's defiant stance comes as Turkish financial markets were mostly unaffected by the sanctions. Analysts say sanctions were widely seen in Turkey as symbolic and posed little threat to financial institutions or the broader economy.
U.S. President Donald Trump's previous increase of Turkish steel tariffs a year ago over the jailing of American pastor Andrew Brunson plunged the Turkish economy into crisis. Brunson subsequently was released; however, some analysts say the Turkish financial markets are more resilient.
"The then-imposition of sanctions on an ally was pretty much uncharted territory," said an international banking analyst, speaking on the condition of anonymity. "But since then, the markets are more prepared for assessing sanctions."
News of Trump's sanctions saw the Turkish currency, the lira, increase in value, along with gains in the broader financial markets. The gains came after several days of losses fueled by growing fears of more draconian sanctions from the United States. Both Republicans and Democrats in the U.S. Congress are united in a rare bipartisan consensus in condemning Turkey's military operation.
Trump's sanctions are seen as at least postponing, if not averting, more stringent measures against Turkey. Republican Senator Lindsey Graham and Democratic Senator Chris Van Hollen are proposing legislation targeting Turkey's energy and military sectors, along with other financial measures.
Graham has indicated he is ready to wait to see if Trump's measures will be effective. Analysts suggest, at least for now, that Turkey has had a narrow escape.
"If Graham's bill passes, Turkey will be in deep trouble," said analyst Atilla Yesilada of Global Source Partners. "Last week, [Turkish] state banks sold a billion dollars to stabilize the currency. This threat of sanctions is a long-term affair."
The threat of significant damage to Turkey's economy from sanctions remains.
"If these sanctions don't achieve the required results, and if Turkish involvement in Syria goes on and even deepens, then there might be further sanctions, as this path has been opened," the anonymous analyst said.
Deeper punishment
Pence warned of further U.S. measures if Turkey continues with its military operation. He also gave a specific warning to Ankara not to attack the predominantly Kurdish town of Kobane on Turkey's border. Erdogan has declared it a key objective in Turkey's military offensive.
The Turkish operation seeks to create what Erdogan calls "a "safe zone" in Syria about 400 kilometers (250 miles) long and 30 kilometers (19 miles) deep. The zone not only aims to secure the Turkish border from the threat of the Kurdish militia, but also to allow the return of up to 2 million refugees living in Turkey.
"We will secure the area extending from Manbij [in Syria] to the Iraqi border, and then facilitate 1 million Syrian refugees' return home in the first phase. And later on, the return of 2 million people," Erdogan said Tuesday in a speech in Baku, Azerbaijan.
Analysts say Erdogan faces increasing domestic pressure, with growing public discontent over the presence of 3.6 million Syrian refugees in Turkey.
Pence said he plans to visit Turkey for high-level talks, which are expected this week. Analysts warn that Erdogan's room for maneuver is likely to be limited.
"I can't imagine the repercussions at home of Turkish soldiers picking up and going back," Yesilada said. "Erodgan will have to pay some price for staying there in some limited way."
