Atilla Yesilada: Damage Assessment: Taking Stock of the Economic Fallout

As geopolitical tensions in the Middle East escalate, the economic aftershocks are beginning to ripple far beyond the battlefield. In this op-ed, a tongue-in-cheek yet hard-hitting assessment of Türkiye’s economic outlook explores why a currency crisis may be avoided—but at the cost of slower growth, persistent inflation, and rising political risk.

Insomnia, Trump, and the Sound of Missiles

It’s 02:30 in the morning. My eyes are wide open—less “early bird,” more “possessed by breaking news.” I used to wake up around 04:00–05:00, but now I’ve moved the schedule forward. Why? To catch whatever fresh absurdity Donald Trump has unleashed overnight.

Today’s menu is particularly rich: if the Strait of Hormuz isn’t reopened to shipping immediately, Kharg Island will be occupied, and Iran’s oil fields will come under attack. Should Wall Street suffer yet another nervous breakdown, expect a sudden pivot—“Talks are progressing rapidly, peace is near.”

The United States may not deserve Trump, but that’s a discussion for another day.

The bottom line: the Middle East war won’t end in two months. In fact, it may never truly end. Once ammunition runs dry and defense budgets collapse, the parties will likely stop firing missiles—not out of peace, but because they can no longer afford the privilege—and resort to mutual insults instead.

Two More Months of Destruction

The war will drag on for at least another two months. By then, there may not be much industrial infrastructure left standing across Iran, Israel, and the Gulf.

Repairing shattered supply chains and restoring global capital flows will take time—likely until the final quarter of the year at the earliest.

Political Fallout Comes First

Before assessing economic damage, let’s take a quick detour into politics.

When April polling data is released, expect to see President Recep Tayyip Erdoğan and the AKP down by at least five percentage points. Erdoğan didn’t start this war—but in Türkiye, even a missing lamb on the banks of the Euphrates somehow becomes the government’s responsibility.

And the public reaction won’t be gentle. With employment weakening and inflation still biting, the political cost could be severe.

The $41 Billion Vanishing Act: Can Turkey Survive a Long War?

What Will NOT Happen: No Currency Crisis

Let’s start with what won’t happen—so no one asks along the way.

There will be no currency crisis.

Central banks accumulate FX reserves precisely for moments like this. When the storm hits, they use them. The recent decline in reserves was largely driven by the exit of opportunistic carry trade flows—those are now mostly gone.

Domestic residents remain in lira. And if the Central Bank of the Republic of Türkiye (CBRT) delivers another 300 basis-point hike at its April 22 meeting, locals may even start selling foreign currency.

Then comes the tourism season, bringing a steady inflow of reserves.

Could I be wrong? Of course. Two “black swan” scenarios stand out:

• Political escalation: Erdoğan removes Ankara Mayor Mansur Yavaş or strips CHP leader Özgür Özel of parliamentary immunity. Türkiye already lost 2025 to the Ekrem İmamoğlu saga—losing 2026 for similar reasons would deepen the damage.
• Direct spillover from Iran: If Iran targets strategic Turkish assets—not İncirlik, but pipelines like Baku-Tbilisi-Ceyhan or facilities such as STAR refinery and Petkim—panic would follow. Foreign investors could rush to short the lira. That’s when things get ugly.

Inflation: The Enemy Within

This isn’t just about energy. Fertilizer, plastics, pharmaceuticals—input costs are quietly sneaking through the window and into the household.

And once inflation enters, it doesn’t leave quickly. Expect at least a year of persistence.

A devaluation—sorry, a “realignment of the currency”—would immediately feed into inflation. Pass-through is typically estimated around 35%, but in this environment, it could be much higher. A 20% depreciation could easily translate into a 20% inflation spike within three months.

At that point, monetary tightening becomes unavoidable.

The Real Damage: Growth

If not the currency, then where does the real damage lie?

Growth.

The economy had already begun to stumble before the war. Now, uncertainty will delay private sector fixed investment. Consumers will postpone big-ticket purchases—housing, cars—until visibility improves.

The current account deficit could reach at least $50 billion this year—roughly 4% of GDP. That alone will shave off growth.

Türkiye may end the year with sub-2% growth. In 2025, the economy supposedly grew by 3.8%, yet employment barely increased. This year, job losses could become a major social issue.

Headline unemployment may rise to 10%, while broader underemployment could exceed 30%.

Can Türkiye Finance the Gap? Probably Yes

A $50 billion current account deficit sounds alarming—but in perspective, it’s manageable.

Unless there’s a global financial crisis, Türkiye can finance it. Before the war, banks and corporates were rolling over FX debt at around 150%. That may fall to 100%, but it’s unlikely to drop below that threshold.

Inflation Outlook: No Easy Victory

Thanks to exchange rate management and relative currency stability, the global inflation shock has been partially contained.

But eventually, what cooks next door lands on your plate.

If the CBRT makes the mistake of holding rates steady in April, inflation could accelerate again. Even with additional tightening, the anti-inflation campaign may effectively end this year.

Year-end CPI will likely hover around 30%.

If Erdoğan bows to social pressure and implements mid-year wage hikes in July, inflation could climb toward 35%.

A String of Bad Luck

There’s an old saying: “When fate turns against you, even a polar bear finds you in the desert.”

That sums up Türkiye’s situation.

COVID-19, the Ukraine war, Gaza, now the broader Middle East conflict—stacked shocks make stabilization extremely difficult, even with good policy. Unfortunately, policy intent itself remains questionable.

The government’s primary objective still appears to be rent-seeking and maintaining political control—“clearing the field,” so to speak.

Back to Trump… and Perspective

Having fulfilled my opposition duty, I can now return to Trump.

Yes, waking up every morning in Türkiye to a new political shock and reaching for antidepressants is exhausting. But compared to the voters who put Trump back in office, our struggles may still qualify as “manageable.”

Note:  The original of this article is in Turkish, being a lazy-ass, I let ChatGPT do the English translation. Read it over and over, sounds legit. Hope you like it.