We present an article by Ed O. Krueger, former chief economist of the World Bank and senior research fellow at the Stanford University Center for International Development.
Ed O. Krueger
The rapid rise of China, Russia's invasion of Ukraine, and the US-Israeli war with Iran have become the main forces shaping the global economy in the context of geopolitical competition. The shift in long-established US policy under Donald Trump has added uncertainty, forcing governments and businesses to navigate an increasingly complex strategic landscape.
The recent NATO summit in Ankara reflected this new reality, showing how geopolitical and defense priorities can overshadow other important political objectives. Nowhere is this compromise more evident than in the West's relations with the host country of the summit.
Turkey has long been an undervalued NATO ally and an important economic bridge between Europe and the Middle East. Although its ties with NATO and the West have weakened in recent years, the country's unique strategic position makes it irreplaceable for the alliance. Situated at the crossroads of Europe and Asia, Turkey is one of the most important geopolitical crossroads in the world.
Turkey borders Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Iran, Iraq, and Syria, and also connects through the Black Sea to Bulgaria, Romania, Ukraine, and Russia. With a population of nearly 88 million and the second-largest army in NATO, the country is a major regional power. Economically, it has become one of the leading manufacturing and logistics centers in the region.
Remaining neutral for most of World War II, Turkey then firmly connected with the West by joining NATO. Later, it became an associated member of the European Economic Community, the predecessor of today's European Union, and eventually applied for full EU membership. The membership process accelerated after the electoral victory of Recep Tayyip Erdoğan's Justice and Development Party (AKP) in 2002, but negotiations have stalled and effectively stopped since 2017. This is largely due to the EU's reluctance to move forward amid growing concerns about the retreat of democracy under Erdoğan.
Erdoğan's more authoritarian rule has also complicated relations with the US, although this seems to bother Trump much less than his predecessors. In 2019, Trump's first administration blocked the sale of American F-35 fighter jets to Turkey after the country acquired the Russian S-400 air defense system. Trump's second administration is acting differently: it is pushing a deal worth over $700 million for the sale of engines for Turkey's KAAN fighter jets while simultaneously signaling a willingness to revisit the F-35 issue.
The purchase of the S-400 became a symbol of Turkey's independent foreign policy and its willingness to maintain close ties with both the West and its main competitors. As relations with the US and the EU became increasingly strained, Erdoğan continued to develop ties with Russian President Vladimir Putin while simultaneously supplying drones to Ukraine. Recently, Erdoğan has sharply criticized the war with Iran and, according to Trump, has even considered the possibility of joining the conflict against Israel.
This strategic ambiguity, combined with Erdoğan's unorthodox economic views, has coincided with a noticeable deterioration in Turkey's economic situation. Twenty years ago, the country was considered one of the world's most promising emerging markets, especially after the extensive reforms implemented by former economy minister Kemal Derviş following the financial crisis of the late 1990s.
However, under Erdoğan's rule, economic indicators have been highly uneven. Over the past two decades, growth has generally been stable due to large-scale infrastructure improvements and the rapid expansion of the defense industry and other manufacturing sectors. But this growth has been accompanied by recurring cycles of boom and bust, outbreaks of very high inflation, and periodic macroeconomic instability. Although inflation has significantly decreased from a peak of 85% in 2022, the economy continues to suffer from chronic problems, including currency instability and weakening exports.
The wars in Ukraine and Iran are both a boon and a burden for Turkey's economy. On the one hand, Turkey has benefited from the redirection of business from other parts of the Middle East and the increase in military exports. On the other hand, disruptions in global energy markets and volatility in commodity prices have made it difficult to combat inflation.
In the years leading up to the latest NATO summit, the EU and other Western allies had been cautious towards Turkey due to Erdoğan's attacks on democratic institutions, his close ties with Putin, and questionable economic policies. But as Turkey's strategic significance grew, many NATO allies began to pay more attention to security and defense cooperation. The NATO summit made this shift more evident: Trump generously praised Erdoğan, while European allies largely avoided publicly criticizing the Turkish leader's domestic policies.
These changes reflect the recognition of Turkey's strategic importance and its key economic role in an increasingly unstable region, while also revealing the dilemma facing Western democracies: some countries critical to transatlantic security are increasingly drifting away from democratic norms. Under excessive pressure, they may shift into the orbit of China and Russia. Under insufficient pressure, the erosion of democratic institutions may accelerate, undermining both the values espoused by the West and its authority in defending them.
Reconciling these competing priorities is extremely difficult, as EU and NATO leaders are discovering. But it must be done not only to protect the West's authority but also to unlock Turkey's full potential as a strategic ally and economic partner.
This article has been translated and published with the support of the Gulbenkian Foundation: the views expressed in the article do not necessarily reflect the views of the Gulbenkian Foundation or Mediamax.
Copyright: Project Syndicate, 2026.
