Turkey's Currency and Political Risks in a Post-Erdogan Era: Geopolitical Turbulence and Its Implications for Emerging Market Debt and Commodities

The political and economic landscape of Turkey in 2025 is a volatile cocktail of authoritarian consolidation, currency instability, and geopolitical fragility. As President Recep Tayyip Erdoğan's grip on power faces mounting challenges from a resilient opposition, the country's transition toward a post-Erdogan era is fraught with risks that extend far beyond its borders. These risks are not confined to domestic politics; they reverberate through global commodities markets and emerging market debt flows, amplifying uncertainties in an already turbulent world.

Political Repression and Institutional Erosion

Turkey's political transition has been marked by a systematic crackdown on the opposition Republican People's Party (CHP). The arrest of Istanbul Mayor Ekrem Imamoğlu in March 2025 on politically motivated corruption charges, alongside the detention of 14 CHP mayors and judicial interventions into the party's leadership structure, underscores a strategy to cripple institutional opposition, as noted in a Carnegie Endowment analysis. These actions, coupled with the annulment of key CHP congresses and the appointment of pro-AKP trustees, signal a deliberate effort to weaken the party's capacity to challenge Erdoğan's dominance ahead of the 2028 elections, according to a Future Center analysis.

The erosion of democratic norms has profound implications for investor confidence. Political instability correlates with capital flight and currency depreciation, as seen in Turkey's case. The Turkish lira (TRY) has lost 14.5% of its value against the U.S. dollar since July 2024, while inflation remains stubbornly high at 44.38% in 2025, according to an IGK Group report. The Central Bank of the Republic of Turkey (CBRT) has responded with a 50% interest rate to curb inflation, but such measures often come at the cost of stifling economic growth and exacerbating external debt vulnerabilities, as discussed in an Invest CPA report.

Geopolitical Leverage and Energy Market Volatility

Turkey's strategic location as a bridge between Europe and Asia, coupled with its control over the Bosphorus Strait-a critical chokepoint for global energy and commodity flows-amplifies its geopolitical significance. The 2025 Türkiye Risk Report highlights that 92% of experts rate geopolitical instability as a "high or very high" risk, driven by regional conflicts such as the Israel-Palestine crisis, Syria's instability, and the lingering effects of the Ukraine war. Disruptions in the Bosphorus, while not directly reported in 2025, could mirror the Red Sea shipping crisis, where Houthi attacks reduced Suez Canal traffic by 57.5% in early 2024, spiking freight costs and delaying global supply chains, as shown in an Atlas Institute analysis.

Turkey's role in energy transit further complicates matters. The country has capitalized on Western sanctions against Russian energy exports to position itself as a re-export hub for hydrocarbons. For instance, the TurkStream pipeline diverted 31.5 bcm of Russian gas to Europe via Turkey in 2024, while the Bosphorus facilitated 2.9 million barrels of oil per day in 2024, a dynamic explored in a Geopolitics Unplugged article. However, this strategic pivot is double-edged: any political instability in Turkey could disrupt these flows, exacerbating global energy price volatility.

Emerging Market Debt: A Fragile Balancing Act

Turkey's external debt challenges are compounded by its reliance on short-term financing and a current account deficit of $60 billion in 2023, as detailed in an NBER paper. The government's use of FX-protected deposit schemes to manage currency risks has shifted depreciation pressures onto the state balance sheet, creating vulnerabilities to self-fulfilling debt crises, a point highlighted in a CFR analysis. Moody's recent upgrade of Turkey's sovereign debt rating offers a glimmer of hope, but the rating agency also warns that persistent inflation, political tensions, and global financing conditions could reverse this trajectory, according to an AGBI piece.

Emerging market debt flows are further strained by Turkey's recalibration of foreign policy. While engagement with BRICS+ nations promises access to alternative financing mechanisms like the New Development Bank, it also signals a retreat from Western markets. This shift could fragment global capital flows, as investors reassess risk premiums for Turkey's debt in light of its geopolitical realignment, according to a Trends Research report.

Implications for Global Commodities and Investors

The interplay of political repression, currency instability, and geopolitical leverage creates a perfect storm for commodities markets. Energy prices, in particular, are susceptible to shocks from Turkey's evolving role as an energy transit hub. For example, sanctions on Russia and Iran have already fragmented global energy markets, with Turkey's strategic partnerships with Turkmenistan and its pivot to BRICS+ nations likely to deepen these divides, as argued in a ScienceDirect study.

Investors in emerging market debt must also contend with Turkey's macroeconomic fragility. The country's reliance on external financing and its history of inconsistent monetary policy-such as cutting interest rates despite inflationary pressures-highlight the risks of a sudden liquidity crunch, a concern raised in a Reuters report. The EBRD's revised 2025 growth forecast, which flags political tensions and volatile investor sentiment as key risks, underscores the precariousness of Turkey's economic outlook, according to a Capital Economics analysis.

Conclusion

Turkey's post-Erdogan transition is a high-stakes gamble with global ramifications. The erosion of democratic institutions, coupled with the country's geopolitical centrality, ensures that its domestic turbulence will ripple through commodities markets and emerging debt flows. For investors, the lesson is clear: Turkey remains a high-risk, high-reward proposition, where political and economic stability are inextricably linked to the broader forces of global geopolitics.