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Turkey Fighting Too Many Fronts

07 October 2020 by jbchevrel

Some decent under-performance in Turkey CDS today. The Turkey 5y CDS is wider by +13bp. The lira is off by more than 1%. Risk premium picked up as Turkey decided to open to the public a beach that's been closed since war divided Cyprus 46 years ago. It’s called Varosha. UN expressed concern. Russia said this threatened the Cyprus peace process. The Cypriot government said it would lodge formal protests at the UN and the EU. This move by Turkey contravenes international law and UN SC resolutions on Varosha. Greece supports Cyprus. EU supports Cyprus. Adding to Turkey risk premium, is another recent development. Fighting is going on over the disputed Caucasus mountain region of Nagorno-Karabakh. It’s essentially an enclave inside Azerbaijan inhabited by Armenians. Armenia (Russia’s ally) bombarded Azerbaijan (Turkey’s ally – Turkey NATO member..) 2nd city in retaliation for attacks on the capital of the breakaway territory. The city in question Ganja happens to be close to a pipeline running from Baku to Turkey. That added to tensions between Russia and Turkey, as Turkey openly supported Azerbaijan’s attempt to reclaim the territory. For reference, Russia and Turkey (NATO member..) are already on opposites sides of the civil wars in both Syria and Libya.