The Turkish lira extended losses against the dollar on Friday after Reuters reported that U.S. President Donald Trump was poised to impose sanctions on the country for acquiring Russian S-400 air defence missiles.
Trump would be reversing course on his policy towards Turkey after previously blocking recommendations by Congress for punitive measures against the NATO country. The U.S. president enjoys warm personal relations with his Turkish counterpart Recep Tayyip Erdoğan.
The sanctions, which may be imposed as early as Friday, would target Turkey’s Presidency of Defence Industries and its head, Director İsmail Demir, unidentified sources told Reuters. They would be damaging but narrower than the severe sanctions some U.S. politicians have called for.
U.S. sanctions imposed on Turkey in the summer of 2018 for its detention of a U.S. pastor on terrorism charges helped tip the economy into a currency crisis. A painful recession followed.
Congress has called on Trump to impose sanctions under the 2017 Countering America’s Adversaries Through Sanctions Act (CAATSA) It has included a requirement for him to take the measures in the draft of an annual defence bill now before the Senate. The legislation passed the House of Representatives earlier this week.
One of the reasons Trump was finally willing to move ahead with sanctions on Turkey was to “decouple” the issue from the demands in the defence bill, so he could avoid looking like he was being coerced into signing off on them, one U.S. official told Reuters.
The 12 options under CAATSA also include banking restrictions and prohibiting loans from the U.S. and international financial institutions including the World Bank and the International Monetary Fund. Trump would be required to choose from that options list within 30 days of the defence bill passing.