U.S.-Turkey Defense Sector Collaboration: Navigating Geopolitical Risks and Procurement Trends

The U.S.-Turkey defense relationship has entered a period of strategic recalibration, marked by both collaboration and conflict. Over the past three years, bilateral cooperation has been shaped by U.S. sanctions, shifting geopolitical alliances, and Turkey's push for indigenous defense capabilities. For investors, understanding these dynamics is critical to assessing risks and opportunities in a sector defined by high stakes and volatility.

Procurement Trends: A Tale of Two Agreements

The most significant procurement development is Turkey's $23 billion deal for 40 new F-16 Block 70 aircraft and modernization kits for 79 existing jets, finalized in 2024. This contract, aimed at replacing aging fleets and reducing reliance on the U.S. F-35 program, underscores Turkey's strategic pivot amid U.S. sanctionsUS sanctions on Turkey's defense sector deliver deeper blow: widening ripple effects^[1]. However, the deal's execution has been complicated by Turkey's domestic production efforts, which reduced the total expenditure to $7 billionUS sanctions on Turkey's defense sector deliver deeper blow: widening ripple effects^[1].

Conversely, the Turkish Utility Helicopter Program (TUHP), a joint venture between Lockheed Martin and Turkish Aerospace Industries (TAI), has faced severe disruptions. U.S. sanctions under the Countering America's Adversaries Through Sanctions Act (CAATSA), triggered by Turkey's 2019 purchase of Russia's S-400 air defense system, have led to delays, financial losses, and a partial suspension of operations. Lockheed Martin declared force majeure in October 2024, citing restrictions on export licensesUS sanctions on Turkey's defense sector deliver deeper blow: widening ripple effects^[1]. The TUHP, which was projected to generate $1.5 billion in export revenue through 209 T70 helicopters, now faces existential uncertaintyTurkey's Bilateral Defense Agreements: A Global Perspective^[2].

Geopolitical Risks: Sanctions, Diversification, and Strategic Shifts

The S-400 sanctions have had cascading effects. Turkey's expulsion from the F-35 program in 2020US sanctions on Turkey's defense sector deliver deeper blow: widening ripple effects^[1] has forced Ankara to seek alternatives, including negotiations for Eurofighter Typhoon jets and accelerated development of its indigenous Kaan fighter jet. While the Kaan project highlights Turkey's ambition to reduce foreign dependency, it still relies on U.S.-made components like the General Electric F110 engineTurkey, US want to lift defence industry restrictions^[4]. This duality—self-reliance constrained by legacy dependencies—poses a long-term risk for Turkey's defense industry.

Meanwhile, U.S. sanctions have pushed Turkey to expand its global defense partnerships. As of 2024, Turkey has signed 147 military cooperation pacts with 84 countries, including recent agreements with Finland, Kosovo, and North MacedoniaTurkey's Bilateral Defense Agreements: A Global Perspective^[2]. These partnerships, coupled with a projected $8 billion in defense exports for 2025Turkey's Bilateral Defense Agreements: A Global Perspective^[2], signal Turkey's intent to diversify its strategic footprint. However, this expansion also introduces competition for U.S. defense firms, which are now seeking to maintain European market presence by partnering with Turkish companiesTurkish-American defense and energy partnerships^[3].

Opportunities Amid Uncertainty

Despite the risks, the U.S.-Turkey defense sector offers compelling opportunities. The General Dynamics-Repkon joint venture, Repkon USA, exemplifies how collaboration can thrive even amid tensions. The venture produces 155mm ammunition for Ukraine, leveraging Turkey's industrial capacity and U.S. logistical expertiseTurkish-American defense and energy partnerships^[3]. Such partnerships highlight the potential for niche, high-impact projects that align with shared interests in regional stability.

For investors, Turkey's defense exports—projected to reach $8 billion in 2025Turkey's Bilateral Defense Agreements: A Global Perspective^[2]—represent a growing market. The country's focus on indigenous systems like the Steel Dome Air Defense System and the Kaan fighter jetDefying Limits: Turkey’s Defence Industry, US Sanctions, and …^[5] could attract capital if geopolitical tensions ease and sanctions are lifted. Diplomatic efforts, such as Turkish Foreign Minister Hakan Fidan's recent meetings with U.S. officials, suggest Ankara is actively seeking to re-enter the F-35 program and secure sanctions reliefTurkey, US want to lift defence industry restrictions^[4].

Conclusion: Balancing Risk and Reward

The U.S.-Turkey defense sector is a microcosm of broader geopolitical tensions. While sanctions have disrupted key projects and created uncertainty, they have also spurred innovation and diversification. For investors, the path forward requires a nuanced approach: hedging against geopolitical risks while capitalizing on Turkey's growing defense exports and U.S. firms' strategic partnerships. As Ankara navigates its dual role as both a NATO ally and a regional power, the sector's volatility will remain a defining feature—offering both challenges and opportunities for those who can navigate its complexities.