Turkey is starting to address its mistakes. First, President Recep Tayyip Erdogan has agreed to a turnaround in monetary policy under new Finance Minister Mehmet Simsek and new central bank governor Hafize Gaye Erkan.
Now, Turkey appears to be engaging in geopolitical maneuvering.
Despite seemingly “warm” relations with Russia, Ankara first handed over the Azov commanders to Ukraine and then agreed to Sweden’s admission to the North Atlantic Treaty Organization. Moscow was not enthusiastic about this step, to say the least.
Also read: Calling Erdogan’s bluff on NATO
Viktor Bondarev, head of Russia’s Federation Council Committee on Defense and Security, said Turkey is turning from a neutral country into an unfriendly one. The rhetoric against the former “partner” in the Russian media has also become more aggressive.
What influenced the Erdogan team’s decision?
First, Ankara needed to demonstrate solidarity with its NATO partners ahead of the North Atlantic Council meeting in Vilnius on July 11.
Second, Turkey might have sent a signal emphasizing the importance of the agreements taking into account Moscow’s refusal to extend the agreement that allows Ukraine to export grain and other food products safely across the Black Sea.
Unfortunately, Russia did not seem to pick up on this signal and declared the agreements terminated.
It is fair to say that this decision was expected. As early as June, Dmitry Peskov, the press secretary of the Russian president, had indicated that the chances of extending the grain deal were virtually non-existent.
Peskov outlined the conditions set by the Russian side, which included the integration of the Russian Agricultural Bank into the SWIFT system. While the European Union had expressed willingness to consider this step, ultimately no action was taken.
What now?
Russia stands to face a significant loss of access to in additional revenues. Furthermore, the strained relations with Turkey could deteriorate further, resulting in the loss of yet another ally and disrupting the existing supply chain.
As far as the world economy is concerned, Chicago wheat futures rose by 3.5% after the disruption of the grain deal. However, catastrophic consequences are not expected, as Russian grain exports will not be affected, thereby avoiding any significant deficit.
Moreover, the market has already factored in the decline in crop yields and exports from Ukraine. In turn, the primary concerns revolve around the potential impact of El Niño on farms and the US Federal Reserve’s rhetoric.
In relation to the latter, if the hawkish monetary policy persists, the likelihood of a recession will rise, consequently impacting not only the S&P 500 but also the prices of commodities such as oil and wheat.