Erdoğan's Crackdown In Türkiye Throttles European Energy

Forbes

21-04-2025

Turkey's President Recep Tayyip Erdogan's anti-democratic actions will have a significant economic ... More impact on the country (Photo by Adem ALTAN / AFP) (Photo by ADEM ALTAN/AFP via Getty Images)
Befitting its status as a country bridging Europe and Asia, the Turkish government's massive crackdown on the country's Republican People's Party (CHP) opposition party and arrest of Ekrem Imamoğlu, mayor of Istanbul and leader of the CHP, has immediate implications for the entire region. Recent events are raising alarm bells in Europe that Turkish chaos could hurt an already energy-hungry Europe, which depends on Türkiye's energy transit.
Türkiye's President Recep Tayyip Erdoğan has been the country's strongman leader for the past twenty-two years and has not been shy about using power against the political competition. On March 18th, the university diploma of his key rival, Ekrem Imamoğlu, was abruptly revoked on an administrative technicality. This was an attempted political coup de grâs, as candidates for the presidency must have a university degree according to Turkish law. The transparent move immediately triggered accusations that Erdoğan was trying to stifle the opposition. Next, on the morning of March 19th, Imamoğlu's house was surrounded, and he was arrested on allegations of corruption and terrorism links, just days before he was about to be named presidential candidate of the CHP. Presidential elections are slated to be held in 2028, though they may occur earlier.
Writing from prison on March 23rd, Imamoğlu declared: 'I have been imprisoned on the basis of vague hearsay from a handful of so-called 'confidential witnesses'. There is no conviction against me. I am a political prisoner."
Apparently, many Turks agreed. Protests broke out as soon as Imamoğlu was arrested. Despite a government ban, the demonstrations grew to become the largest Türkiye has seen in over a decade, with crowd estimates ranging from hundreds of thousands to half a million and more, and spread to more than 55 of Turkey's 81 provinces. They were met with a forceful crackdown. Over 1,400 people, including journalists, were arrested. Multiple media outlets were fined for covering the demonstrations. Nevertheless, millions turned out to vote for Imamoğlu to be the CHP's candidate for president. The stage is set for a political showdown, the opposition is not backing off, and neither is Erdoğan or his neo-Ottoman, religious conservative Justice and Development Party (AKP).
To better understand the dissatisfaction and distrust that the Turkish population is displaying, it is worth noting that the inflation rate has slowed to a still intolerable 38.10% a year, making life exceedingly difficult for the majority of people and fueling interest in getting someone with a new outlook into power.
The political turmoil swiftly spilled over into Türkiye's economy. The MSCI Türkiye Index fell by 20.9%, signaling a sharp market reaction to the rising instability. Credit Default Swaps (CDS) surged to 324, a nearly 30% increase, signaling escalating risks and higher borrowing costs. The Turkish lira depreciated further, dropping as much as 12% right after Imamoğlu's arrest, despite the Turkish Central Bank spending $12 billion in foreign reserves to save the lira after it hit a record low. The central bank also raised interest rates to 46% overnight, from 42%.
ISTANBUL, TURKEY - APRIL 13, 2025: Students take part in a protest against the arrest of Istanbul's ... More mayor Ekrem Imamoglu, responding to a series of actions where President Erdogan has assumed further power over the government. (Photo credit should read Tolga Ildun / GocherImagery/Future Publishing via Getty Images)
Despite the Central Bank's efforts to attract foreign direct investment, recent political developments have once again shaken investor confidence. This was best illustrated in a Bloomberg report describing how, during a meeting with a Turkish economist on March 19th where they were expecting good news, Wall Street investors watched in real-time as news alerts on their phones showed Turkish stocks seeing their largest drop since 2013, eroding trust in the country's stability in just 30 minutes.
Investors looking at long-term investments like energy care about the rule of law, good governance, transparency, certainty, and stability for their returns. All of which increasingly authoritarian Türkiye lacks. The recent uproar demonstrated once more that there is no guarantee Erdoğan will follow sensible policies, and that instead he is willing to sacrifice political and fiscal stability on the altar of his ambitions to remain in office at all costs. Erdoğan talks a good game about his commitment to investor-friendly economic policies; however, the damage may have already been done and will cost Türkiye tens of billions of dollars.
Türkiye is not rich in oil and gas, so it has turned to renewable energy as a key strategy to reduce its dependence on costly energy imports. With energy being a long-term infrastructure investment, those looking to invest in wind, solar, and hydro in Türkiye will likely withhold investment decisions, a costly dynamic as Türkiye has publicly declared it will invest $20 billion in renewable energy and infrastructure by 2030. By creating an environment hostile to foreign investment, Erdoğan may have jeopardized the country's long-term developmental goals and damaged Türkiye's prospects for energy independence.
A more volatile economic environment may also impact Türkiye's role as an energy transit hub. As an integral part of existing initiatives such as the Baku-Tbilisi-Ceyhan pipeline and Iraq's Development Road, Türkiye has historically been key to transporting hydrocarbons between the Middle East and Europe. As Europe seeks transit routes outside of Russia, projects like the EastMed pipeline, which partially relies on Türkiye's acquiescence, could be further jeopardized amidst existing delays. As President Trump continues to decouple from Europe and fan conflict and unpredictability in relations between the U.S. and the EU, Türkiye, as a route of transporting energy resources, is looking riskier, which has a distinct impact on European energy security.
The muted Western response to Türkiye's turmoil highlights how the rapid pace of current geopolitical change and uncertainty influences the behavior of nation states. Türkiye's location and strategic importance is prompting diminished criticism of its democratic backsliding. In the U.S, President Trump has made no statement condemning Erdoğan's actions. The EU needs Türkiye for its new joint defense strategies as it holds the second-largest military in NATO after the U.S., and to keep migration under control. However, while many states may prioritize maintaining a relationship with Ankara, investors have no such obligations.
The events unfolding in Türkiye starkly reflect the broader trends of 2025: geopolitical uncertainty and further democratic backsliding. Türkiye's latest political crackdown exemplifies both. Just as the country was beginning to rebuild economic credibility, this dramatic setback has significant financial consequences that threaten Türkiye's potential for growth and Europe's energy supply. With Erdoğan's most recent crackdown, yet another key European trading partner has joined the race to increase political risk, and this dynamic will surely limit the prospects of strengthening the continent's energy security.