Shortly after we learned that Turkey had sold virtually all of its Treasuries in March to defend the lira after the Iran war broke out, the country was thrown into fresh political turmoil on Thursday when a Turkish court removed the leader of the country’s main opposition party in a landmark ruling that triggered a stock market crash, including one marketwide halt, and could strengthen President Recep Tayyip Erdogan’s grip on power while further alienating foreign capital.
The Ankara appeals court annulled the results of the 2023 congress of the Republican People’s Party, known by its Turkish initials CHP, the party’s deputy chairwoman Gul Ciftci told Bloomberg on Thursday. The decision voids the election of Ozgur Ozel as CHP chairman. The party can appeal the ruling.
The decision reinstates the CHP’s previous administration, including former party leader Kemal Kilicdaroglu, who lost a presidential race to Erdogan in 2023. The ruling also effectively cancels all decisions made by the party since the 2023 congress, according to the verdict.
By further hollowing out the political opposition and hampering the CHP’s efforts to secure the release of Imamoglu, Erdogan’s most prominent political rival, the decision eases the president’s ability to tighten his grip on power. Imamoglu has been behind bars since March 2025. Although he’s the CHP’s presidential candidate for elections slated for 2028, he may not be eligible for the ballot due to the cancellation of his university diploma.
Turkish stocks plunged after the court decision, with the benchmark Borsa Istanbul 100 Index closing 6.1% down. The sharp decline triggered a market-wide circuit breaker. Five-year credit default swaps rose 12 basis points to 253 basis points, while the lira was little changed and trading at 45.6133 per US dollar as of 6:09 p.m. Istanbul time although with little reserves left to defend the currency, we expect a painful and sharp devaluation in the coming weeks.
“While the central bank still has enough reserves to maintain the current policy framework, the buffer is wearing thin,” said David Austerweil, emerging-markets deputy portfolio manager at Van Eck Associates Corporation.
The decision paves the way for a comeback by former party leader Kemal Kilicdaroglu, potentially derailing CHP unity in the run-up to the next presidential elections, which is currently set for 2028 but expected earlier. According to Bloomberg, it may also hamper the party’s efforts to secure the release of jailed Istanbul Mayor Ekrem Imamoglu, Erdogan’s most prominent political rival.
The biggest impact, however, was on the Turkish markets which were already strained by the fallout of the Iran war. As reported earlier, to support the lira, monetary authorities offloaded almost all of the country’s US Treasuries in March.
They have also sold much of the country's gold reserves, tightened liquidity, made lira funding costlier and asked state-run lenders to intervene in the currency market. The ruling on Thursday will likely put further pressure on Turkish assets and send the lira into a tailspin.
Ironically, the decision came while Finance Minister Mehmet Simsek and Central Bank Governor Fatih Karahan were in London courting investors. Both figures have been trying to attract foreign investment since taking over Turkey’s economic management in 2023. Their efforts were hampered after the arrest of Imamoglu last year, which led to a foreign investor exodus.
Hundreds of CHP figures have been detained since the 2024 elections, including the leaders of large cities. More recently, Erdogan's regime detained the mayor of Bursa, the country’s fourth-largest city, on charges of corruption and launched a probe against Ankara’s popular mayor, Mansur Yavas, over the alleged misuse of state resources. Like Imamoglu, Yavas is also seen as a potential presidential candidate. Opposition figures have said such charges are politically motivated.
In September, a court removed the CHP’s Istanbul leadership over allegations of corruption and appointed Gursel Tekin - a former Istanbul party chief and ally of Kilicdaroglu - as trustee, another move that unnerved markets and triggered a selloff.
“The decision is an opportunity to unite,” Kilicdaroglu wrote on X after the ruling, having effectively reclaimed the party’s leadership. He had published a video the day before in which he spoke about the need to root out “corruption” within the CHP.
The ruling “will dent further risk appetite for TRY carry trades,” said Guillaume Tresca, an emerging market strategist at Generali Asset Management SpA. “Turkey is a trickier position than before.”
Turkey's five-year credit default swaps - a barometer of risk sentiment and odds of sovereign default - rose 19 basis points to 261 basis points.