The United States is all but ready to slap sanctions on Turkey unless the latter cancels its purchase of S-400 missiles from Russia until the first week of June, raising stakes in the already high tensions between the two NATO allies.
Washington’s demand from Ankara call off the $2.5 billion-worth deal may quickly escalate into the worst crisis yet between the two nations, with an estimated four-times higher price tag for Ankara if US move on imposing diplomatic and military sanctions.
Much to the chagrin of the US, Turkey has already paid $1.2 billion to Russia as President Recep Tayyip Erdogan stated that Washington’s initial reluctance to sell Ankara advanced weapons and defense systems forced him to seek options offered by Russia.
The sanctions stem from a 2017 law passed by the Congress and named as the Countering America’s Adversaries through Sanctions Act (CAATSA). The bill was first designed to challenge Russia, Iran and North Korea. However, it has the potential application to countries and entities working with those states in fields US deems unacceptable.
The law is designed in a way to effectively cripple a target’s economy. One of the aims of the legislation is to halt any “significant transactions,” to Russia, without any further definition, which can cover the purchase of the S-400s.
One specific entity mentioned in the CAATSA is Rosoboronexport, Russia’s sole state company of arms export-import industry that sells the S-400s.
The way it hits
Caatsa may target individual officials, private persons-particularly businessmen affiliated with a government or government entities of a country.
Specifically speaking, it imposes a prohibition on loans to the sanctioned persons, export-import bank assistance for exports to them, US procurement of goods or services from the sanctioned person and denial of visas to persons closely associated with the sanctioned.
The US can also deny the license for, and export of, any items controlled by the US to the sanctioned person, including all dual-use high technology goods and technology, all defence related items, all nuclear-related items.
Articles above constitute the ground for the US threat of expelling Turkey from the F-35 fighter jet program, despite some damage to the project itself due to Turkish contribution to the production.
An article dealing with the “Prohibition of Banking transactions” requires the Secretary of the Treasury to prohibit the opening or impose strict conditions on maintaining accounts or payable-through accounts of the targeted persons in the US, barring Turkey from using Dollars in the purchase of S-400s.
Not much left to President
The US President can issue waivers to a target entity, person or government only if the party in question takes steps to reduce its inventory of major defense equipment and advanced conventional weapons produced by the defense sector of Russia or cooperates with the US security matters that are critical to American interests.
But the Congress has pretty much tied President’s hands in the application of CAATSA, a point President Donald Trump made when he reluctantly signed it into law.
Given how fragile Turkish economy has become amid the Lira’s volatile forex rates, double-digit unemployment figures, soaring inflation, capital flight and diminishing foreign investments, any serious US activation of CAATSA can have devastating consequences.
For a Turkey highly integrated with the Western world in trade and financial terms, the actions mentioned can deliver a huge blow to the country’s already well-battered economy and impede Ankara from asking for any loans from the US, its allies, IMF or the World Bank.
As we saw in the 2018 case of the Turkish detained US pastor Andrew Brunson when the US hit Ankara with much milder symbolic sanctions, such as the freezing of two ministers’ non-existent properties in the US, the Turkish Lira showed a wild reaction.
Although the Turkish government and the Central Bank CBRT had the time to prepare for potential US consequences, at a time when the Turkish economy is suffering the incoming CAATSA can create lasting damage for the country.
Thus the Lira will almost certainly witness much deeper volatility which in turn can force the CBRT to take more unorthodox measures, inadvertently leading to even more heightened risks for the economy’s failing health.