Turkey's Political Fragility and Western Pressure on Sovereign Policy

Turkey's political landscape in 2025 is defined by a volatile interplay between nationalist consolidation and external pressures from Western institutions. Under President Recep Tayyip Erdoğan, the government has intensified its push for strategic autonomy, leveraging nationalist rhetoric to justify both domestic reforms and assertive foreign policy. However, this trajectory is increasingly at odds with Western priorities, creating a precarious balance that risks undermining Turkey's economic and geopolitical stability.

Nationalist Policies and the Erosion of Economic Reforms

The AKP's embrace of "national neoliberalism" has redefined Turkey's economic governance, blending state intervention with market-oriented policies under the guise of reducing foreign dependency. This approach, exemplified by government-backed retail initiatives to counter inflation, positions the state as a protector against market forces. Yet, as the 2024 BTI Country Report underscores, such measures have not resolved structural weaknesses. The erosion of institutional independence and the rule of law has left Turkey's economy vulnerable to volatility, with austerity measures and foreign aid failing to stabilize long-term fundamentals.

Nationalist pushback has further complicated reform efforts. Erdoğan's Kurdish Opening 2.0 strategy, aimed at securing parliamentary support, for constitutional changes, has prioritized political consolidation over economic modernization. By framing Kurdish issues as existential threats, the government has diverted attention from critical reforms, such as labor market liberalization and fiscal discipline. This dynamic reflects a broader tension: while nationalist rhetoric appeals to domestic coalitions, it risks entrenching authoritarian governance and deterring foreign investment.

Strategic Autonomy and the Fragility of Foreign Relations

Turkey's pursuit of strategic autonomy has manifested in a dual-track foreign policy: maintaining NATO membership while deepening ties with Russia and China as analyzed in the report. This balancing act, as analyzed in Strategic Autonomy in Turkish Foreign Policy, is driven by both geopolitical ambition and domestic political imperatives to legitimize Erdoğan's regime according to research. However, Ankara's assertive interventions in the Caucasus-most notably its unwavering support for Azerbaijan in the Second Nagorno-Karabakh War-have created dependencies that limit its strategic flexibility according to analysis.

The shift from mediation to militarized interventionism has strained relations with regional actors like Armenia and complicated Turkey's alignment with Western partners. While Erdoğan's government frames this as a rejection of Western hegemony, the reality is more nuanced. Strengthening ties with non-Western powers has not insulated Turkey from economic vulnerabilities; instead, it has exposed contradictions between its geopolitical ambitions and domestic economic instability according to research.

Financial Markets and the Cost of Political Uncertainty

The financial markets have borne the brunt of Turkey's political turbulence. The arrest of Istanbul's mayor, Ekrem Imamoglu, in 2025 triggered a sharp sell-off, with the Turkish lira depreciating over 9% in 2025 and stock markets plummeting by 5% in a single day. The Central Bank of the Republic of Türkiye (CBRT) responded by raising interest rates by 350 basis points in April 2025, yet the lira remains one of the worst-performing emerging market currencies.

Foreign direct investment (FDI) inflows, which reached $6.7 billion in 2024, have been tempered by structural risks. While the government promotes green and strategic industry investments through tax incentives, opaque regulatory frameworks and a slow judicial system continue to deter long-term commitments according to Reuters analysis. Moody's has warned that political tensions, including crackdowns on opposition figures, threaten to reverse economic gains and further erode investor confidence according to a report.

Asset valuations have also been affected. Real estate markets, traditionally a safe haven during geopolitical risk, have shown mixed signals. Nominal price increases have been offset by real value declines due to high inflation and fluctuating interest rates. Meanwhile, gold and other hard assets have gained traction as alternatives, reflecting a broader flight from Turkish lira-denominated assets.

Conclusion: A Precarious Equilibrium

Turkey's strategic and economic autonomy is increasingly constrained by the interplay of nationalist pushback and external pressures. While Erdoğan's government has framed its policies as a rejection of Western influence, the reality is that Turkey's economic fragility and political instability have made it more susceptible to external shocks. The pursuit of strategic autonomy has not insulated the country from the consequences of its own contradictions-authoritarian governance, institutional erosion, and geopolitical overreach.

For investors, the risks are clear. Turkey's financial markets remain highly sensitive to political developments, and the government's reliance on nationalist rhetoric to justify economic interventions has created an environment of uncertainty. As the country navigates its fraught path between autonomy and integration, the challenge will be to reconcile its geopolitical ambitions with the need for sustainable economic reforms.