Turkey's intervention in the Azerbaijan-Armenia conflict weakens the lira again

Turkey's currency has returned to record lows against the euro and dollar this week
Screen showing exchange rates at a currency exchange agency near the Grand Bazaar in Istanbul on 24 September 2020

AFP/OZAN KOSE  -   Screen showing exchange rates at a currency exchange agency near the Grand Bazaar in Istanbul on 24 September 2020

The Turkish lira has again plummeted this week, reaching record lows against the dollar and the euro. Each lira has been exchanged for 9.14 euros and 7.92 dollars, according to data from the Bloomberg agency. In addition to the lack of foreign currency, the rise in interest rates and the military intervention in the conflicts in Libya and Syria, Turkish aid to Azerbaijan in its escalation of the war with Armenia over the enclave of Nagorno-Karabakh has now been added. Although the dispute has taken place between Yerevan and Baku, Recep Tayyip Erdogan has shown himself willing to support Azerbaijan, a country that is an ally of the Turks and very rich in gas. Russia has also made a move in the conflict on the Armenian side, triggering fears of a clash between two regional powers that could disrupt the economy. 

In this context, the Turkish lira has dropped again and is now down four percent against the dollar. Analysts link this new setback for the local currency to the support Turkey has given to Azerbaijan. The lack of reserves in dollars of the Central Bank of Turkey, added to the political instability and Erdogan's aggressive foreign policy, are pushing down the value of the currency every day

The situation is so delicate that the Turkish regulator was forced to raise the interest rates last week to 10.25% for the first time in two years. Companies and individuals who get into debt will have to face more expensive interest rates despite the delicate economic situation that the pandemic has brought. The lira recovered a little, barely 1 per cent, thanks to this measure against the dollar and the euro, but Turkey's support for Azerbaijan and the possibility of a regional shock have put an end to this slight change of trend and the currency is returning to a downward path. 

The confrontation that began as a skirmish is becoming increasingly complicated and there are fears that more countries will take part on behalf of one of the two countries and a regional conflict could break out. For the time being only Azerbaijan has secured support from Turkey, the countries that make up the GUAM organisation (Georgia, Azerbaijan and Moldova) and the Islamic Cooperation Organisation. For its part, Amenia has only managed to get Russia to condemn the Azeri conduct. "Turkey's support for Azerbaijan is a clear advantage over the cautious response of Russia and the CSTO, formed by Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan, which can be seen as a diplomatic defeat for Armenia, which has achieved neither support from these countries nor condemnation of Azerbaijan", said Paulo Botta, a researcher at the Joint War College, in a document published on Tuesday by the Spanish Institute of Strategies.