US sanctions on Turkish defence agency may have wider global impact, says Janes

by Charles Forrester

Key Points

  • US sanctions against Turkey’s SSB over the acquisition of the Russian S-400 ground-based air defence system may limit Turkey’s ability to upgrade, modernise, and develop its equipment.
  • Countries and companies may have to take into account the broad-reaching consequences of CAATSA for their own procurement and market strategies.

The US government announced the imposition of sanctions on Turkey’s defence acquisition organisation on 14 December under the Countering America’s Adversaries Through Sanctions Act (CAATSA) over the Turkish acquisition of the Russian-made S-400 air-defence system in a move that could have wider implications for the international defence market.

Under the sanctions, Washington is targeting Turkey’s defence procurement organisation: the Presidency of Defence Industries (SSB), as well as issuing blocking sanctions and visa restrictions against senior members of the SSB. The US has also launched a prohibition on granting export licences for all goods or technology transfer to the SSB; prohibiting loans to the SSB greater than USD10 million from a US financial institution in a 12-month period; a requirement for the US to oppose loans benefitting the SSB by international financial institutions; and a ban on support from the US Export-Import Bank for exports to the SSB.

“The imposition of sanctions and withdrawal of export approvals against the SSB are likely to cause some difficulties for the Turkish military and defence industrial base in the near-term despite the country’s significant push towards self-sufficiency in the defence sector. Acting as the country’s lead agency for defence procurement, research and development, and offset discharge, sanctioning the SSB will have wide-ranging effects for the Turkish military,” Charles Forrester, Principal analyst at Janes said.

The US Department of State approved USD581.6 million in export licences to Turkey in 2019[1], primarily for aircraft and aircraft components (USD199.5 million) and gas-turbine engines (USD161.4 million). This was up from USD472.75 million in 2018[2], where gas-turbine engines accounted for USD142.6 million of approvals. Recent statistics released by the US Defense Security Co-operation Authority (DSCA) showed that in FY2020[3], USD82.2 million in Foreign Military Sales to Turkey were approved, down from USD134.8 million in 2019.

“While Turkey has made significant progress in localising its defence equipment, it still requires active support from a variety of international suppliers to meet its needs. These can include power packs for main battle tanks, as well as aeroengines,” Forrester said.

“However, moving forwards the Turkish military may face challenges in upgrading and modernising existing equipment if it is unable to obtain the requisite export approvals from original equipment manufacturers in the US due to these sanctions.”

International ramifications?

However, the extraterritorial nature of the CAATSA sanctions regime may mean that some manufacturers have to re-evaluate their operations.

“Turkey has been seen as a high growth market for many international manufacturers, as they seek to diversify away from home markets or potentially volatile major export markets,” Forrester said.

“This move by the US may mean that some manufacturers have to reconsider their engagement with Turkey in order to ensure that they can maintain their opportunities in the US market.”

Similarly, the final decision to launch the sanctions against the SSB will also send a message to a number of other countries that have signed agreements with Russia since the passing of the CAATSA legislation in 2017. Turkey’s position within NATO has meant that attempts to defer the imposition of sanctions have been more earnest, and other countries without this long-standing security alliance may be deterred from completing their purchases.

“Countries in Asia, Africa, and Latin America have been concerned about what CAATSA sanctions may look like when enacted, and what they could mean for them in a wider economic and political context. This action now shows the implications of a procurement decision, and may mean that US or European suppliers gain traction as governments seek to improve relations with key economic trading partners,” Forrester said.

 

[1] US Department of State Section 655 report, 2019
[2] Ibid, 2018
[3] US Defense Security Cooperation Agency (DSCA) Historical Factsbook FY2020 edition

https://www.janes.com/defence-news/news-detail/us-sanctions-on-turkish-defence-agency-may-have-wider-global-impact-says-janes

The US government announced the imposition of sanctions on Turkey’s defence acquisition organisation...

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