The war has spread to the kitchen, reserves are melting, and relations with NATO are raising concerns

The war has entered its fourth week. This article could have been three separate pieces under three different headings. But they are all related to the war that broke out with the US-Israel alliance attacking Iran… There is concern about whether the war will spill over into Turkey. 

The war has spread to Turkey's fields and kitchens.

Financial markets are on edge… Approximately 16 billion dollars in hot money has left in the last month. To prevent the war from spilling over into the financial markets, the Central Bank's reserves have melted by 39 billion dollars. 

While Trump directs harsh criticism at NATO, he is showering Turkey with praise, and it is being announced that Turkey will establish a corps headquarters with NATO in Adana and a maritime component command in the Bosphorus in Istanbul. While the dissolution of NATO is being discussed, the development of relations with NATO raises the risk of the war effectively spreading to Turkey.

Meanwhile, the CEO of the world's largest fund, the American BlackRock, is meeting with the President and the economic management in Turkey.

These are all separate topics for articles, but they are all intertwined developments that should be evaluated together… 

LET'S START WITH THE KITCHEN FIRST

The war has had a severe impact on fertilizer prices, as well as oil and natural gas prices. In the last month, the increase in urea fertilizer, which is the most used in Turkey, has reached 60 percent. Even before these inputs are reflected in production costs in the field, the fire is growing in the markets, bazaars, and kitchens.

Economist İbrahim Kahveci shared this on his X account. Fresh vegetable prices at the Istanbul wholesale market have increased by an average of 47 percent in the last month. Peppers that are 200 liras at the wholesale market are 300 liras at the bazaar… Lettuce that is 65 liras at the wholesale market is 100-120 liras at the bazaar… And it's not just in Istanbul. I also checked the prices in İzmir. 

Village peppers at the İzmir Wholesale Market have gone from 120 liras to 190 liras in the last month. A 58 percent increase. The same pepper is 270 liras at a large chain supermarket in İzmir. Depending on the variety, tomatoes have increased between 75 and 100 percent in a month. The retail price per kilogram varies between 100 liras and 200 liras. How can tomatoes be 200 liras and peppers 300 liras?  

If you apply fertilizer to the field, the high cost is reflected in the prices. If you don't apply fertilizer, production will fall, and this time prices will rise due to product scarcity. Last year, there was both drought and frost. This year, rainfall has increased, but with diesel and fertilizer costs, agricultural product prices have skyrocketed.

There is a problem like this. A tremendous inflationary pressure is building up. The inflation-fighting strategy of our economic management and the Central Bank is to raise interest rates, and in such periods, the central bank sells foreign exchange reserves. But this fire in the kitchen and food inflation cannot be prevented by monetary measures or policies of raising and lowering interest rates. Very serious support and incentives for agriculture are needed. However, it is difficult to say that the support and incentives that the economic management, which has no tradition of planning, will provide without being based on any plan or program will be of much use.

THEY ARE NOT LEAVING THE WAY THEY CAME

As the first month of the war concludes, the Central Bank has sold 39 billion dollars in the last month to prevent a possible panic and curb the rise of foreign currency.  The increase in our foreign exchange reserves in the last year was due to hot money coming in because of high interest rates and the increase in the value of the gold in the Central Bank. Now, with the war, hot money is fleeing, and the value of gold is falling.

The Central Bank is intervening in the market by selling foreign exchange reserves. It is not just selling dollars. It is trying to keep the market under control by selling some of the gold in its vault and converting some of it into foreign currency through swaps.

According to the table in economist İris Cibre's X post, the Central Bank's gold reserves fell from 571.2 tons to 512.9 tons between February 27 and March 19. The 58.4-ton decrease in gold reserves is due to 28.4 tons from sales and 30 tons from gold-backed swaps.  

These interventions prevent panic in the foreign exchange markets. 

When a fire breaks out, we cannot tell the firefighter to save water and not spend it. Can we not object to the Central Bank selling reserves to ensure stability in the markets due to the war?

This issue is open to debate. There are those who say, “Reserves are for days like these,” and there are also criticisms that “You can sell some reserves, but you also have the interest rate weapon in your hand. With this policy, you are keeping the returns of the fleeing hot money high.” 

In the last month, foreigners (hot money) have sold 19 billion dollars worth of bonds and stocks. In exchange for these assets they sold for Turkish liras, they bought dollars at a good price, which the Central Bank did not allow to rise, and left.  

Some economists say about the fleeing hot money, “They are leaving the way they came.” No, they are not leaving the way they came.

Thanks to the Central Bank's persistent policy of keeping the exchange rate fixed, they are leaving with a donkey-load of interest earnings on top of what they brought. While hot money is fleeing, our Central Bank is facilitating their exit through the foreign exchange market and ensuring their returns remain high. It is telling them to come back just like you left. (Just like in the İmamoğlu operation on March 19 last year… Let us also remind you that the cost of that operation to the economy was billions of dollars.)

However, if the Central Bank had raised interest rates by one or two points with the war, lifted the pressure on the exchange rate a little, and allowed a controlled increase; the hot money flight would not have been of this magnitude, and those who were going to flee would have left by sacrificing some of their earnings.

TRUMP, NATO, AND BLACKROCK

While hot money and Central Bank foreign exchange debates were taking place, the World Economic Forum (WEF) Turkey Country Strategy meeting was held at the Presidential Dolmabahçe Office in Istanbul over the weekend, hosted by President Erdoğan.  At the meeting, senior executives of the world's leading companies, Turkey's economic management, and economic bureaucracy came together. After the meeting, President Erdoğan and Mehmet Şimşek met with Larry Fink, the manager of BlackRock, the world's largest fund with 14 trillion dollars. The details of this meeting were not reflected in the press. 

While hot money and funds are fleeing from emerging countries in world markets, BlackRock's direct meeting with the President in Turkey could give positive signals to the market. We may see the results in the financial markets as soon as possible. But the main question is: In exchange for what? 

In this environment of chaos, important alliances are being established in Turkey-NATO relations. Last week, it was revealed that a NATO Joint Corps Headquarters was planned to be established in Adana. Finally, retired Admiral Cem Gürdeniz shared on his X account yesterday. According to the Ministry of National Defense's statement on March 24, a NATO Component Command is planned to be established at the entrance of the Bosphorus, in Anadolu Kavağı.  According to Cem Gürdeniz, Turkey deploying a NATO maritime component that could directly confront Russia in the Black Sea at the entrance of the Bosphorus is an extremely risky step in terms of strategic balance… Retired Admiral Mustafa Özbey also made an important assessment on his X account regarding this development: 

“Trump showering Turkey with praise while badmouthing NATO is not a good sign. Especially such a structure in the Bosphorus is a trap set by the US against Russia. We are experiencing a mental blackout.”

As a result of German warships passing through Istanbul to the Black Sea, the Ottoman Empire was forced to participate in the First World War and eventually collapsed. Placing NATO in the Bosphorus at a time when the Third World War is being mentioned!

I fear history repeating itself. I don't even want to think about it.