The Trump administration is weighing three sanctions packages to punish Turkey over its purchases of the Russian S-400 missile-defense system, according to people familiar with the matter.
The most severe package under discussion between officials at the National Security Council and the State and Treasury departments would all but cripple the already troubled Turkish economy, according to three people familiar with the matter, who asked not to be identified discussing internal deliberations.
Any of the options would come on top of the months-old U.S. pledge to cut off sales of the F-35 jet to Turkey if President Recep Tayyip Erdogan keeps his vow to buy the Russian system.
The idea with the most support for now is to target several companies in Turkey's key defense sector under the Countering America's Adversaries Through Sanctions Act, or CAATSA, which targets entities doing business with Russia. Such sanctions would effectively sever those companies from the U.S. financial system, making it almost impossible for them to buy American components or sell their products in the U.S.
The Turkish lira was trading 0.6% weaker against the dollar as of 12:05 p.m. in Istanbul, after falling as much 1.5% to 5.9171 on the news earlier Wednesday, June 19. Bonds and stocks fell, with the yield on 10-year government debt jumping 38 basis points to 18%. The benchmark Borsa Istanbul 100 Index was poised for its first loss in four days.
The Treasury Department referred questions to the State Department, which had no immediate comment on the sanctions plans.
The discussions reflect just how badly relations between the U.S. and Turkey, two NATO allies, have soured in recent years, a decline that's accelerated as Erdogan has dug in over his decision to buy the S-400 system. The debate until now has centered on the U.S. threat to end Turkey's participation in the F-35 program. Turkey currently manufactures several key components of the F-35 for Lockheed Martin and was expected to buy dozens of the advanced fighter jets.
According to the people, the U.S. could impose sanctions as early as July, the soonest Turkey could start receiving components of the S-400 system. President Donald Trump is reluctant to make any decision before a Group of 20 meeting in Japan next week, where he's expected to meet with Erdogan.
So far, Turkey been defiant over the sanctions threat because trust in Washington has broken down, according to three Turkish officials.
Trump is facing rising bipartisan pressure from Congress, which has been a driving force behind the effort to get Turkey to forgo the S-400 and go with the U.S.-made Patriot missile-defense system instead. Congressional leaders argue that CAATSA sanctions are mandatory and there's no way for Turkey to avoid them if it proceeds with the S-400 purchase.
The U.S. has gone to great lengths to warn Turkey against buying the Russian system and that it could trigger sanctions under the CAATSA law, according to an administration official who asked not to be identified. The official, who called the S-400 a Russian intelligence-gathering platform, said the U.S. has made its best offer for the Patriot system.
Despite a personal rapport between Trump and Erdogan, Trump has shown he's willing to punish the country before: Angry over Turkey's refusal last year to release American pastor Andrew Brunson, Trump doubled metal tariffs on the country in August and slapped sanctions on two senior Turkish officials involved in Brunson's detention. Brunson has since been released, and the tariffs were lifted.
The U.S. has been considering possible sanctions for well over a year as it became clear Turkey wasn't going to back down. A leading proponent was Wess Mitchell, the assistant secretary of State for European affairs who stepped down earlier this year.
"This has the potential to spike the punch," Mitchell said of the S-400 purchase in Senate testimony in June 2018. "We can't be any clearer than saying that both privately and publicly, that a decision on S-400 will qualitatively change the U.S.-Turkish relationship in a way that would be very difficult to repair."
Yet Turkey has so far refused to back down. Part of the country's calculation, according to people familiar with the matter and outside experts, is that Erdogan believes he can split Trump off from the rest of his administration and persuade him that buying the S-400 isn't a big problem.
This article was written by Nick Wadhams and Saleha Mohsin, reporters for Bloomberg.