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The Machiavellian VIRTUs #TurkeySanctions

The Machiavellian VIRTUs <a class="hashtagger" href="">#TurkeySanctions</a>

Sanctioned and scorned, Venezuela, Iran, Russia, and Turkey are increasingly cooperating to frustrate American aims and dodge sanctions.

Two weeks before Turkey’s Black Friday, the August 10 meltdown of the lira, Turkish President Recep Tayyip Erdogan was in Johannesburg attending a summit of the BRICS countries. Taking its name from the initials of its member states—Brazil, Russia, India, China, and South Africa—BRICS is a club for five major emerging national economies. Erdogan attended their summit to promote Turkey as the newest member of the club. “If you take us in, the name of the platform would become BRICST,” the President told reporters.

Since then, Erdogan has found himself in a currency crisis of his own making. Having eschewed conventional monetary policy, appointed his son-in-law as the Minister of Finance and Treasury, and declared interest rates the “mother and father of all evil,” Erdogan can only explain the plunging lira in the context of an “economic war” against the nation. Just weeks after Erdogan lifted the state of emergency he had declared after a bloody coup attempt in 2016, Ankara is back in crisis mode, ready to fight the nefarious foreign forces that, in Erdogan’s imagination, conspire to prevent his New Turkey from becoming a reality.

In terms of its leader’s behavior and tone, Turkey is looking a lot more like a rogue state than a responsible member of NATO. Investors worry that capital controls may be right around the corner, while some analysts predict a massive IMF bailout. The country is becoming effectively “uninvestable.” Meanwhile, the U.S. Treasury has imposed sanctions on two Turkish cabinet ministers and Erdogan is threatening that Ankara will “start looking for new friends and allies.”

Erdogan is indeed reaching out to new friends: Russia, Iran, and Venezuela. Like the Turkish President, Vladimir Putin, Ali Khamenei, and Nicolas Maduro all see themselves as underdogs on the world stage, fighting against American imperialism and its dollar hegemony.

These leaders claim to seek a new, multipolar world consisting of regional power brokers “benevolently” ruling over their respective spheres of influence. In practice, they subscribe to Machiavelli’s maxim that princes ought “to disregard the reputation of cruelty,” and that “to be feared is better than to be loved.” Erdogan fits this mold so precisely that he and his new friends might form their own acronymic club: the Machiavellian VIRTUs of Venezuela, Iran, Russia, and Turkey.

To be sure, these four countries are allies of convenience rather than permanent partners, and their grouping is unlikely to be institutionalized any time soon. But their warming ties are already bearing fruit.

Maduro and Erdogan’s budding friendship, for instance, has resulted in a burgeoning trade in gold. Caracas, eager to avoid potential asset freezes in Switzerland, is now refining gold in Turkey. Against a backdrop of intensifying U.S. sanctions, Maduro sees Turkey as the most secure place to park $779 millionof the precious metal. Venezuelan Mining Minister Victor Cano explained, “It’s being done by allied countries because imagine what would happen if we sent gold to Switzerland and we are told it has to stay there because of sanctions.”

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Istanbul and Caracas have also inked several deals to boost economic relations, including plans to open up a Turkish Airlines base in Venezuela. Turkey has even promised to build a mosque and cultural center in Caracas.

Maduro, for his part, has declared Erdogan to be leader of a “new multipolar world.” Hyperbole notwithstanding, both men believe they are fighting on the same side of an economic war that has caused high inflation, plummeting currencies, and in the case of Venezuela, drastic food shortages. Following an assassination attempt on Maduro on August 4, Turkey’s Foreign Ministry was quick to issue a statement that “the continuation of stability, prosperity, peace and security in Venezuela is Turkey’s greatest wish.” One would be hard pressed to find other governments willing to describe Venezuela as stable or prosperous, especially not after last month’s overnight devaluation of its currency, the bolivar, by 96 percent.

Turkey’s pivot to Russia has been in the making for some time. Ankara’s move to purchase Russia’s S-400 air defense system has caused significant alarm in Washington, not least because the system is incompatible with America’s F-35s and could betray the jets’ stealth technology to Russian spying. Beyond the income from S-400 sales, Moscow is already reaping dividends from the wedge the S-400 deal has driven between NATO and Turkey. For the Kremlin, this may be a once-in-a-generation chance to “flip” Ankara. Then again, as one former Russian diplomat put it, “it serves our interests better to have an offended Turkey inside NATO to undermine the alliance’s capabilities.”

Economic ties between Russia and Turkey run deep, which Moscow is leveraging to build its hybrid warfare capacity. Behind the scenes, the Kremlin seeks to build a powerful pro-Russia lobby through increased business ties and lucrative contracts. At the state level, Moscow shows compassion for Turkey’s plight, decrying U.S. sanctions “based on the desire to dominate everywhere and everything.” Ultimately, according to Russian Foreign Minister Sergei Lavrov, “with such abuse, the role of the American dollar as the world reserve currency will weaken.”

That prediction may well be a pipe dream; in any case, the dollar faces a stronger long-term challenge from the Chinese renminbi than any of the VIRTU countries. But they are nonetheless collaborating in the short term to find creative new ways to evade the effect of sanctions.

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Under renewed sanctions from the Trump Administration, Tehran again needs to find sources of hard currency. Last time around, Halkbank, Turkey’s second-largest public lender, was complicit in the largest sanctions-busting scheme on record, netting tens of billions of dollars for the Islamic Republic. A massive finefrom the U.S. Treasury is likely in the works. Meanwhile, Ankara has recently vowed to defy once again U.S. sanctions against Iran.

As American pressure against all four VIRTU states continues to bite, expect increased friendly rhetoric and economic cooperation. As one analyst notes, U.S. sanctions against Venezuela, Iran, Russia, and Turkey could coalesce an “axis of anger” among the sanctioned four.

One area in which the VIRTUs are already cooperating is cryptocurrency. VenezuelaIran, and Turkey are all in the process of creating their own cryptocurrencies to mitigate the need for dollar-denominated transactions. Venezuela has even taken the bold and misguided step of issuing a new fiat currency, the “sovereign bolivar,” pegged to its national cryptocurrency, the petro. The Russian government and Russian entrepreneurs helped both the Iranians and Venezuelans develop their cryptocurrencies, likely in an attempt to build a more robust alternative system for financial transactions.

A crypto-VIRTU currency is unlikely to prove sustainable given the radically different political systems and economies involved, much like the Council for Mutual Economic Assistance (COMECON) failed to bring the Soviet Union, Eastern Bloc, Cuba, and Vietnam closer together economically despite significant investment. But such efforts nonetheless bear monitoring—given their track records, the VIRTU countries will likely use such mechanisms in an attempt to evade U.S. sanctions, launder money, and finance terrorism.

Ultimately, Venezuela, Iran, Russia, and Turkey will remain oblivious to the warnings renowned Turkish economist Daron Acemoglu presents in his seminal work Why Nations Fail about “vicious cycles” triggered by extractive economic and political institutions. The renegade four will continue to be caught in a very un-VIRTUous cycle of currency depreciation, hyperinflation, unemployment, and increased populist attacks on America and the West. And as the Machiavellians hunker down, they must not forget that a prince “must only endeavor to escape being hated.”

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