BMI View: Following car bombings along the Turkey-Syria border, the likelihood of increased Turkish involvement in the Syrian conflict appears elevated. For now, we believe this will mainly be in the form of a more concerted diplomatic push for coordinated international intervention to end the conflict. Regional tensions stemming from Turkish support of Syrian rebels will continue to strain relations with neighbouring Shi'a governments in Iraq and Iran.
The Syrian civil war continues to have spill-over effects in Turkey, exacerbating regional instability and increasing Turkish calls for coordinated international action to end the conflict. As Turkey struggles to accommodate hundreds of thousands of Syrian refugees, two car bombs struck the Turkish border town of Reyhanli on May 11, an attack quickly blamed on domestic groups loyal to and working under Syrian intelligence. While it remains unclear whether the group responsible has any direct ties to the government of Syrian President Bashar al-Assad, it is clear that Turkey's support of the Syrian opposition and strong desire to see Assad's regime fall has increased tensions in a region increasingly divided along religious sectarian lines. Although Turkish Prime Minister Recep Tayyip Erdogan has pledged to not be provoked into action by Saturday's bombings, we see several implications for Turkey and the region.
Turkey's "zero problems with neighbours" foreign policy mantra is increasingly a thing of the past, as support for Syria's Sunni-led insurgency has increased hostility towards Turkey and widened sectarian divides in the region. Opposition to Erdogan, who once fostered close ties with Iran and Syria, is now widespread among Shi'a leaders in Iraq, Iran and Syria. Turkey's strained relationship with Baghdad is especially problematic given Turkey's strategic interest in closer ties with Iraqi Kurdistan, which is keen to export oil and gas to Turkey. However, this faces adamant opposition from a central Baghdad government opposed to independent energy dealings by the Kurdistan Regional Government in the north. Strained relations between Baghdad and Ankara, made worse the longer the Syrian conflict drags on and the more Turkey involves itself, will make compromise on this front even more difficult.
Turkey, which is a NATO member with the second largest military in the alliance after the United States, is unlikely to take unilateral military action in Syria. However, Erdogan will visit Barack Obama this week and is likely to use the bombings as part of his case towards the need for a coordinated international intervention. Erdogan, who has stepped up his rhetoric of late, has already expressed his support for a no-fly zone over Syria.
Tensions in Turkey are already elevated by the withdrawal of Kurdistan Workers Party (PKK) militants into northern Iraq, a process which has only just begun and is likely to take several months. As many hardliners within Turkey remain opposed to the peace process, and both the PKK and Turkish army remain deeply mistrustful of one another given the long history of conflict between the two, the process is fraught with risks. Although Saturday's bombings and the prospect of international intervention in Syria don't directly threaten the tenets of the peace agreement with the PKK, any increase in violence in Southern Turkey has the potential to disrupt the withdrawal process, especially given the potential for misplaced blame.
Although until now the Syrian conflict has been relatively contained, any further violence in Turkey or involvement by the Turkish military would create a level of political and regional uncertainty likely to damage investment and business sentiment in the short term. Any deepening of Turkey's involvement in the Syrian conflict would likely delay progress towards a second investment grade upgrade, with the potential to negatively impact Turkish debt and equity markets in the short term.