Turkey’s economy was in crisis well before the market turmoil caused by Russia’s war. Now, the situation is even worse. 

In February 2022, the Turkish economy was already facing inflation around 55%, food prices had nearly doubled, and the national currency, the Lira, was quickly losing its value. In June, inflation rose to 79% according to the Turkish Statistical Institute: the highest rate in more than two decades.

The real numbers may be even worse. According to ENAGrup, an independent inflation research group, the annual inflation may be as high as 175%. This puts Turkey among the most inflated countries in the world, alongside Venezuela and Lebanon. 

“My rent in Istanbul has increased more than twice while my salary stays the same,” says Aslihan Dinler, a marketing associate based in Turkey’s biggest city, “I started watching what I buy in the supermarket because I can barely make ends meet with current prices.”

Consumer purchasing in the country has contracted by almost 3% in the last three months, as a result of rising prices and low purchasing power. To make matters worse, Turkey is a major energy and grain importer; it depends on grain from Russia and Ukraine. Russia’s blockade of Ukrainian ports has complicated the situation for an already fragile economy. 

In addition, Turkey’s long-serving President, Recep Tayyip Erdogan, is facing an election next year. Erdogan, who’s been in power for two decades, is facing high disapproval ratings due to poor management of the country’s economy. To strengthen his domestic position, the President has attempted to shift focus to international issues, such as trying to mediate between Russia and Ukraine. 

“Erdogan faces a difficult economic situation, and the war in Ukraine makes it harder for him,” says Timothy Ash, an associate fellow in the Russia and Eurasia programme at Chatham House and a senior sovereign strategist at Bluebay Asset Management in London, “So Erdogan is pretty desperate for a peace deal at any cost, which is something that Ukrainians would not accept.”

Russian and Ukrainian officials have already met in Turkey on a few occasions, but the peace talks have thus far been unsuccessful. Turkey has also tried to strike a deal with Russia to help transport blocked Ukrainian grain. This, too, did not work, and Ukraine was not included in the Turkey-Russia talks. Upon Ukraine’s request, Ankara blocked a few Russian ships carrying stolen Ukrainian grain - but then, released them. 

“Turkey has not joined any Western sanctions against Russia, and probably will not do so in the future,” Ash continues, “They benefited from Iran sanctions by brokering there, and they hope to benefit from Russia sanctions, too, by trying to get some Russian companies working in Turkey.”

This, however, is risky:  if Turkey’s actions help Russia avoid sanctions, then Turkey can be sanctioned, too, by both the US and the EU. 

“Turkey is a big food and energy importer, so attracting some Russian companies here is not going to to be enough to offset the losses in energy and food,” Ash says.

Another international issue was Turkey’s opposition to NATO enlargement. Erdogan vetoed Sweden and Finland joining NATO and only approved of them after concessions had been made. Most notably, both Sweden and Finland pledged not to embargo arms sales to Turkey and to review Turkish extradition requests as Ankara claims that the countries are harboring terrorists.  

Turkey has been a challenging NATO member in recent years; it is heavily involved in Syria where it is attacking Kurdish fighters even though they have been US allies. In addition, Ankara purchased the S-400 missile defense system from Russia back in 2017, which caused another rift between Washington and Ankara. 

In addition, despite being a NATO member, the Turkish public holds generally negative feelings toward the organization. 48% of Turks blamed NATO for the war in Ukraine while only 33.7% blamed Russia. In addition, 7% blamed Ukraine. 

Turkey has important financial ties to both Ukraine and Russia, so it’s likely to keep with its balancing act between both countries and the collective West. This policy is supported by the population: 80% of Turks agree with the government’s neutral stance and do not want to get involved with the war in any way.