U.S.-Turkey Relations and Global Market Implications: Navigating Geopolitical Risk and Emerging Market Equity Opportunities

The U.S.-Turkey relationship in 2025 is a tapestry of strategic pragmatism, economic recalibration, and geopolitical recalibration. As the Trump administration prioritizes transactional diplomacy and realpolitik, the bilateral dynamic between Washington and Ankara is reshaping global markets, particularly in defense, energy, and trade. For investors, this evolving partnership presents both risks and opportunities, demanding a nuanced understanding of how geopolitical shifts intersect with emerging market equities.

Defense Partnerships: A New Era of Strategic Integration

The U.S. and Turkey have deepened their defense collaboration, driven by mutual interests in regional stability and supply chain resilience. A landmark example is the joint venture between General Dynamics and Turkish firm Repkon to manufacture 155 millimeter ammunition for Ukraine, which underscores Turkey's growing role as a critical node in NATO's defense industrial base Turkish-American defense and energy partnerships^[1]. This partnership allows U.S. firms to access European markets while circumventing European defense spending pressures, creating a win-win scenario.

Turkey's acquisition of F-16 fighter jets, approved in exchange for supporting Sweden's NATO accession, further illustrates this pragmatic alignment What the US-Turkey relationship will look like during Trump 2.0^[3]. Meanwhile, Turkey's domestic defense industry—exemplified by Baykar's drone exports and Roketsan's missile systems—is gaining global traction, positioning Ankara as a strategic partner for U.S. firms seeking to diversify supply chains. For investors, this trend highlights opportunities in defense contractors with Turkish ties and emerging market equities in Turkey's aerospace and technology sectors.

Trade Dynamics: Tariffs, Supply Chains, and Strategic Repositioning

The Trump administration's 10% universal tariff on Turkish imports, implemented in April 2025, has introduced volatility into global supply chains Turkish-American defense and energy partnerships^[1]. While this policy affects sectors like textiles and steel, Turkey's strategic location and free trade agreements with 54 countries have enabled it to reposition itself as a production hub. Analysts suggest that companies from high-tariff regions, such as China, may shift manufacturing to Turkey to capitalize on the lower U.S. tariff rate Turkey Plans Energy Deals With US as Erdogan Courts Trump^[2].

Despite the tariff, the U.S. maintained a $620 million trade surplus with Turkey in the first half of 2025, reflecting the resilience of bilateral economic ties Turkish-American defense and energy partnerships^[1]. The TIFA framework remains a key mechanism for addressing trade barriers, with U.S. foreign direct investment in Turkey reaching $5.8 billion in 2022 United States and Türkiye Hold Trade and Investment Framework Agreement (TIFA)^[4]. For investors, Turkey's adaptability in global supply chains and its robust manufacturing base present opportunities in logistics, infrastructure, and export-oriented industries.

Energy Cooperation: A Strategic Pivot to LNG and Nuclear Power

Turkey's emergence as a regional energy hub is reshaping transatlantic energy security. The country plans to expand its liquefied natural gas (LNG) imports from the U.S., with Bloomberg reporting that Ankara aims to sign new LNG agreements as early as September 2025 Turkey Plans Energy Deals With US as Erdogan Courts Trump^[2]. U.S. LNG has become Turkey's top seaborne energy source, with imports doubling between 2020 and 2024 Turkey Plans Energy Deals With US as Erdogan Courts Trump^[2]. This pivot reduces Turkey's reliance on Russian energy and aligns with U.S. goals to diversify global energy partnerships.

In parallel, Turkey is inviting U.S. firms to invest in small modular nuclear reactors, complementing its collaboration with Russia on the Akkuyu plant Turkey Plans Energy Deals With US as Erdogan Courts Trump^[2]. This dual-track approach to energy security—leveraging both U.S. LNG and nuclear technology—positions Turkey as a key player in regional energy markets. For investors, energy infrastructure projects in Turkey and U.S. LNG exporters stand to benefit from this strategic realignment.

Geopolitical Risks and Emerging Market Opportunities

While the U.S.-Turkey partnership offers clear economic synergies, geopolitical risks persist. Turkey's purchase of Russian S-400 systems and its independent foreign policy in the Middle East remain points of contention Turkey -US International Relations^[5]. However, the Trump administration's focus on shared goals—such as countering Iran and stabilizing post-Assad Syria—suggests a prioritization of pragmatism over ideological divides What the US-Turkey relationship will look like during Trump 2.0^[3].

For emerging market investors, Turkey's strategic recalibration presents a paradox: high geopolitical risk coexists with robust economic fundamentals. The country's growing defense industry, energy partnerships, and trade adaptability make it an attractive but volatile bet. Sectors like infrastructure, energy, and technology are particularly poised for growth, though investors must remain vigilant about currency fluctuations and regional tensions.

Conclusion: A Pragmatic Path Forward

The U.S.-Turkey relationship in 2025 is defined by a delicate balance of cooperation and competition. For investors, the key lies in hedging against geopolitical risks while capitalizing on Turkey's strategic assets. Defense partnerships, energy diversification, and supply chain repositioning offer compelling opportunities, particularly for those with a long-term horizon. As the Trump administration and Erdoğan's government navigate this complex dynamic, the global market will likely see further shifts in trade flows, equity valuations, and regional stability.