Economy
CBRT says Iran war delayed disinflation, but deterioration limited
Türkiye’s central bank said Friday the Middle East conflict had delayed the disinflation process, but deterioration in expectation has remained limited, while the slowdown in economic activity continued under tight financial conditions.
Supply shocks mainly due to the fallout from the Iran war had pushed Türkiye’s headline inflation higher in April and May, but June signaled the return of a downward trend.
The annual inflation eased to 32.1% last month from 32.6% in May. The decline had stalled following a sharp rise in energy prices caused by the war launched by the U.S. and Israel against Iran on Feb. 28.
On a monthly basis, consumer prices rose 0.99% in June, slowing from 1.7% in May.
“Recent uptick in underlying inflation poses upside risks for near term inflation,” Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan told an event in Istanbul.
Karahan said easing rigidity in rents and education prices was supporting disinflation in the services sector, while recent strength in core goods inflation was expected to moderate.
He reiterated that the central bank would maintain a tight monetary policy stance until price stability was achieved.
“The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate, and expectation channels,” he added, according to his presentation released by the bank.
Last month, the Central Bank of the Republic of Türkiye (CBRT) held its one-week repo rate steady for a third consecutive meeting as it monitored the impact of the Iran war.
Since the conflict started, the bank has halted an easing cycle that began in late 2024 and taken other liquidity steps that pushed the Turkish lira overnight rate up to the 40% limit.
The CBRT raised its end-2026 inflation forecast to 24% from 16% in its quarterly inflation report published in mid-May, saying the short-term inflationary effects of the Iran war would remain “pronounced.”
The bank projects inflation falling to 15% at the end of 2027 and 9% at the end of 2028.
Strong lira demand
Karahan said Friday the CBRT “will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets.”
“Monetary policy stance will be tightened in case of a significant deviation in inflation outlook from the interim targets,” he noted.
Karahan said the distribution of household and real sector expectations has improved recently. He added that household demand for foreign currency remained limited and confidence in the Turkish lira continued to hold firm
He said the central bank’s foreign exchange reserves remained at robust levels.
Data on Thursday showed CBRT’s gross international reserves rose by $10.49 billion to $159.69 billion in the week ending July 3
Gross foreign exchange reserves increased by $7.70 billion to $61.95 billion, while gold reserves climbed by $2.79 billion to $97.74 billion.
Karahan said capacity utilization in Türkiye remained below historical averages and demand indicators pointed to a slowdown in economic activity.
Credit growth has moderated, while the trade deficit narrowed in the second quarter, he added, noting that the impact on tourism had remained limited.
He also said Türkiye’s balance of payments remained moderate relative to historical averages.
The United States has completed a key procedural stage in the planned sale of F110 engines sought to be used in Türkiye’s flagship homegrown fifth-generation fighter jet after the congressional review period expired without objection.
With the Kaan warplane, Ankara seeks to join the exclusive club of nations producing fifth-generation combat aircraft, which notably includes the United States, China and Russia.
The U.S. State Department formally notified Congress of the proposed sale on June 24, triggering a 15-day review period that applies to arms sales to NATO member states.
During that period, nine members of Congress introduced a joint resolution seeking to halt the sale of certain defense equipment, services, and related support to Türkiye.
However, the resolution was not brought to the floor of either the House or the Senate before the review period expired.
The notified sale covers the integration, assembly, external modification, certification, testing, defense services, and technical data transfer related to the F110-GE-129E/F engines that will power the Kaan jet.
Türkiye has worked on the warplane for a decade. The jet was first publicly unveiled in 2023 before it performed its maiden test flight in early 2024. Its serial production is expected to begin in 2028.
Kaan is sought to replace the Air Forces Command’s aging F-16 fleet, which is planned to be phased out starting in the 2030s.
The F110s have been intended for the first batch of the warplanes. Later stages are planned to include the indigenous power unit, the TF35000.
Last month, U.S. President Donald Trump promised to make Turkish President Recep Tayyip Erdogan “very happy” when asked about Türkiye looking to secure F110s and regaining access to the F-35 fighter jet program.
Speaking alongside Erdoğan before this week’s NATO summit, Trump said Washington would lift sanctions on Türkiye and signaled a willingness to sell the F-35 jets.
The move would be the biggest gesture yet from Trump to Erdoğan, whom he regularly praises and sees as a close ally. The two countries have enjoyed warmer ties since Trump returned to office last year.
Erdoğan said he was confident Trump would resolve the issue and end the dispute.
In 2019, the U.S. removed Türkiye from the F-35 program, where Ankara was also a production partner, following its purchase of the S-400 systems. It later also imposed sanctions on its NATO ally.
Washington claimed the system would endanger the jets and is incompatible with NATO systems, while Ankara repeatedly said there is no conflict between the two and proposed a commission to study the issue.
Türkiye also maintained that it fulfilled its obligations on the F-35 project, arguing that its suspension broke program rules and that the jets would strengthen both Turkish and NATO security.
One of Türkiye’s leading telecoms and tech companies, Turkcell, sees artificial intelligence as no longer just a race over models but increasingly a competition over infrastructure, its CEO Ali Taha Koç said.
Koç was speaking at the AI for Good Global Summit organized by the International Telecommunication Union (ITU), where he outlined Turkcell’s investments across five key layers of the AI ecosystem.
Koç said the future of artificial intelligence would depend on countries and companies’ ability to build strong and independent digital infrastructure.
“Artificial intelligence is no longer a matter of models; it is a matter of infrastructure. Whoever controls the infrastructure will shape the future,” he said. “If AI is the key to a strong digital future, the future of AI depends on robust and independent infrastructure.”
Technology, mobile communications and AI leaders gathered in Geneva, Switzerland, from Tuesday through Friday for the U.N.-backed ITU summit, where Koç participated in two separate sessions on the transformation of the technology sector.
Koç said Turkcell aims to become a regional technology provider capable of supporting Türkiye’s digital transformation, highlighting the company’s investments in the core layers underpinning AI development.
5 fundamental layers
Koç said AI infrastructure is built on five main layers: energy, chips and computing power, data centres and cloud infrastructure, models, and applications.
“The decisive factor in the AI era is no longer just the size of models or processing capacity. Building an AI-based infrastructure that can move intelligence from data centres into the real world is becoming increasingly critical,” he said.
Koç added that telecommunications networks serve as the main platform connecting all these layers, enabling AI to improve network planning, energy efficiency and operational resilience.
“Next-generation networks provide the fundamental infrastructure that carries AI from data centres to people, devices, cities and industries,” he said.
Operational independence
Koç said Turkcell’s investments in energy, data centres and cloud technologies were part of a broader strategy aimed at strengthening Türkiye’s digital infrastructure capabilities.
“One of the most critical fronts in today’s global power competition is this: Countries that generate their own energy, process their own data within their borders and build their own cloud infrastructure will shape tomorrow,” he said.
Koç said Turkcell’s efforts across energy, data, cloud, AI models and applications were components of a single integrated strategy.
“Our goal as Turkcell is operational independence in digital infrastructure,” he said. “We are moving forward with an open, balanced and multi-source technology approach, without depending on either East or West and without compromising our national regulations.”
“This goes beyond our company; it is our national responsibility. We view every piece of infrastructure we build in our country as a strategic contribution to our national future.”
Aselsan, Türkiye’s largest defense electronics company, announced Friday it had signed a contract worth approximately 1.47 billion euros ($1.68 billion) to expand the serial production of air defense systems.
The agreement was signed with the Presidency of Defense Industries (SSB) as an addition to ongoing serial production projects, Aselsan said in a disclosure to the Public Disclosure Platform.
The company said the deal is expected to boost revenue but did not disclose a delivery timetable or specify which systems the contract covers.
The company is one of the main suppliers of Türkiye’s integrated, multilayered Steel Dome air defense architecture. It develops technologies in areas including air and missile defense, radar, electronic warfare, military communications, electro-optics and command-and-control systems.
Aselsan CEO Ahmet Akyol said the agreement would further strengthen the serial production capacity of Türkiye’s air defense systems and support the Steel Dome.
“We continue to strengthen the Steel Dome,” Akyol said on the Turkish social media platform NSosyal. “With the support of our state, we will continue producing in high volumes and working resolutely for the security of our country,” he added.
NATO member Türkiye first announced plans to build the Steel Dome in July 2024, capping years of significantly ramping up defense production and reducing its dependence on external suppliers.
The architecture crowns years of investment that have helped Türkiye transform from a nation heavily reliant on foreign equipment to one where homegrown systems meet almost all of its defense needs.
The network aims to provide integrated protection against low-, medium- and high-altitude threats through land- and sea-based, locally developed missile batteries, radars, electro-optical sensors, communications modules and command-and-control centers.
Shares soar
In May, Akyol said the company would increase the delivery of products by 50% as part of the Steel Dome, adding that they aimed to deliver more than 150 different components in 2026.
He said the parts to be delivered by Aselsan included early warning radars, electronic combat and defense systems and payloads, noting that the Steel Dome parts will comprise nearly a third of the firm’s portfolio in the coming years.
Last year, defense companies signed $6.5 billion worth of contracts to reinforce and develop the Steel Dome. Of those, some $3.2 billion worth belonged to Aselsan.
Aselsan shares rose over 4% following Friday’s announcement. The company has outperformed leading global defense and aerospace firms, as its shares gained almost 49% in the first half of the year.
Often working in close joint production with another Turkish defense company, Roketsan, Aselsan provides systems to cover everything from low-altitude micro-drones to high-altitude ballistic protection.
Some of the products include the Korkut, a mobile, dual-barrel, self-propelled anti-aircraft gun; the Hisar-A and Hisar-O, low- and medium-altitude air defense missile systems; and the Siper, a long-range, high-altitude air and missile defense system.
Aselsan also supplies Hakim, the upper-level command-and-control system responsible for coordinating the components within the architecture.
New air defense mass production deals
Separately, on Friday, the SSB said it signed additional serial production contracts with Aselsan and Roketsan for the Hisar-A and Hisar-O systems for the Steel Dome.
“A major day in the defense of the Sky Homeland,” SSB head Haluk Görgün said in a statement on the Turkish social media platform NSosyal.
Görgün added that Türkiye is determined to reinforce its air defense architecture and commitments within NATO.
The Hisar family was developed jointly by Aselsan and Roketsan, while the missile warheads were developed by the defense research institute TÜBITAK SAGE.
Hisar-A is designed primarily to protect mobile and armored units against low-altitude threats, while Hisar-O provides medium-altitude point and regional air defense.
The systems are designed to counter threats including fighter jets, helicopters, cruise missiles, air-to-surface missiles and armed or unarmed drones. The Hisar-A+ variant has an interception range of up to 15 kilometers (9.3 miles), while Hisar-O+ can engage targets at distances of up to 25 kilometers.
Russia is in contact with Türkiye about the fate of the Russian S-400 air defense system that Ankara owns, the Kremlin said on Friday.
The statement came after a news outlet claimed that Türkiye was poised to transfer the air defense missiles to an unnamed Gulf country.
Daily Hürriyet reported earlier on Friday that Türkiye could announce it would resell the S-400s to one of the Gulf nations in a bid to get access to U.S. F-35 fighter jets.
In 2019, the U.S. removed Türkiye from the F-35 program, where Ankara was also a production partner, following its purchase of the S-400 systems. It later also imposed sanctions on its NATO ally.
Washington claimed the system would endanger the jets and is incompatible with NATO systems, while Ankara repeatedly said there is no conflict between the two and proposed a commission to study the issue.
Türkiye also said it fulfilled its obligations on the F-35s and that its suspension broke the rules. Ankara maintains that the jets would strengthen not only Türkiye but also NATO.
Speaking alongside President Recep Tayyip Erdoğan before this week’s NATO summit, U.S. President Donald Trump said Washington would lift sanctions on Türkiye and signaled a willingness to sell the F-35 jets.
The move would be the biggest gesture yet from Trump to Erdoğan, whom he regularly praises and sees as a close ally. The two countries have enjoyed warmer ties since Trump returned to office last year.
Erdoğan said he was confident Trump would resolve the issue and end the dispute.
Asked on Friday about the media report and if Türkiye had sought Russia’s permission to go ahead with the alleged deal, Kremlin spokesperson Dmitry Peskov said: “I can say one thing here: this is an extremely sensitive issue. However, we have been in contact with the Turkish side on this matter, and we will continue to maintain contact with them on this issue.”
Türkiye and Iraq are set to sign a one-year agreement in the coming days to keep open the crude oil pipeline between the two countries, Energy and Natural Resources Minister Alparslan Bayraktar said on Thursday.
Their decades-old agreement, which governs exports through the Iraq-Türkiye Crude Oil Pipeline, is due to expire on July 27.
“We have brought the agreement that will cover the next 12 months to the final stage. We aim to sign it in the coming days,” Bayraktar, who was in Baghdad for an official visit, said in a statement.
He added that oil flow from Iraq to Türkiye’s port of Ceyhan on the eastern Mediterranean coast will continue.
The pipeline had remained offline for 2-1/2 years after an arbitration court ruled for Ankara to pay $1.5 billion over what it said were unauthorized exports by Iraq’s Kurdistan Regional Government (KRG) between 2014 and 2018.
Türkiye, on the other hand, said the International Chamber of Commerce (ICC) had recognized most of Ankara’s demands.
Flows resumed late last year.
Earlier on Thursday, Bayraktar said he had a fruitful meeting with Iraqi Oil Minister Basim Mohammed Khudair, during which they discussed oil and gas cooperation.
“We assessed the areas of cooperation we can develop in the oil and natural gas sectors, particularly focusing on the Iraq-Türkiye Crude Oil Pipeline,” he wrote on the social media platform X.
He said the effective use of existing infrastructure and its support through new connections form the foundation of the two countries’ shared energy vision.
Bayraktar added that Türkiye aims to turn the Development Road Project into not only a trade and transportation corridor but also a regional energy route.
He said Ankara attaches importance to advancing cooperation with Iraq’s newly established government through close coordination, and that concrete steps would raise the partnership between the two countries to a higher level.
Iraqi Prime Minister Ali al-Zaidi also met with Bayraktar during his visit, according to his office.
During the meeting, al-Zaidi said the two countries have significant opportunities for cooperation and partnership across multiple sectors and called on Türkiye to increase its investments in Iraq, particularly in agriculture.
He said efforts are underway to establish a Türkiye-Iraq fund to strengthen the two countries’ economic partnership and support and accelerate Turkish investments in Iraq.
Al-Zaidi also stressed that Iraq is making significant progress under a major development program, particularly in the agriculture and livestock sectors, adding that the government has begun providing the necessary infrastructure and facilities for investors.
Volkswagen plans to drastically cut its model lineup and further pare back capacity, as Europe’s largest automaker considers a far-reaching overhaul that sources say could cost around 100,000 jobs.
Volkswagen is under unprecedented pressure to restructure the business model that underpinned its success for decades, as it grapples with high costs and excess capacity at home.
Those factors, along with rising Chinese competition, regulation, and U.S. import tariffs, have sliced its profit margins in half between 2021 and 2025.
The company said on Thursday, following a supervisory board meeting, that its lineup would be gradually cut by up to half, as it concentrates on the most attractive market segments. Production capacity will be reduced to nine million vehicles per year, down from 10 million currently.
“The global situation has continued to deteriorate over the past twelve months,” Volkswagen CEO Oliver Blume said. “That is why we are acting now.”
Sources have said Blume is considering closing four German plants – Hanover, Emden, Zwickau and Audi’s Neckarsulm site – and cutting up to 100,000 jobs, roughly double the number currently planned, in what would be Volkswagen’s biggest restructuring yet.
Volkswagen did not provide specifics on what sources have said about potential job cuts and factory closures, which drew massive worker protests across company sites on Thursday.
The prospect of plant closures and deep job cuts at one of Germany’s most storied companies, founded 89 years ago, exemplifies the challenges Europe’s largest economy faces as it struggles with weak growth and high labor and energy costs. So-called offering complexity, including the number of equipment options, will be cut by up to 75%.
No word on job-cut speculation
At the board meeting at Volkswagen’s headquarters in Wolfsburg on Thursday, Blume faced the committee’s powerful labor representatives, who oppose deeper cuts across the group, which includes the Audi and Porsche brands.
He is also under pressure from the Porsche and Piech owner families, whose core investments have lost tens of billions of euros in market value in recent years. Volkswagen shares have lost more than half their value in the last three years.
In Wolfsburg, workers blew whistles, waved red union flags and marched behind a banner reading “gemeinsam stark” – “strong together” – as a klaxon sounded in the background.
The IG Metall union said around 400 people were demonstrating in Wolfsburg, with union representative Thorsten Groeger warning the company risked a “major conflict” with workers.
Daniela Cavallo, the head of the company’s works council, which represents employees, said staff were not to blame for the sector’s crisis, and “great fear and deep uncertainty” were spreading across company factories and offices.
Volkswagen’s works council called on Blume to address speculation around job cuts and plant closures by a Friday deadline, warning of further extraordinary staff meetings in the months ahead if he did not.
“Not a word about production, not a word about employment,” said German automotive industry analyst Ferdinand Dudenhoeffer. “One could also say that uncertainty remains – which is not good for customers, employees and investors.”
Volkswagen faced mass strikes in December 2024, but there is currently an agreement for workers not to take industrial action while existing work contracts are in force.
The company’s supervisory board includes representatives of the owner families, unions and the Lower Saxony state government, a power-sharing structure that often complicates decision-making.
Car plants expected to cut output
Under Blume’s last restructuring deal, unions secured a commitment from management to avoid German plant closures, prompting Volkswagen to seek alternative uses for underutilized sites.
Those efforts include a long-running search for a defense-sector partner for the Osnabrueck factory and the possibility of producing models designed for the Chinese market in Germany.
Mobility Global data seen by Reuters estimates the group’s German car plants will operate at 81% of standard capacity in 2026. That figure is expected to fall to 73% by the end of the decade, even after the anticipated removal of Osnabrueck from the network.
Among the four sites threatened with closure, Zwickau is forecast to have the highest utilization rate in 2026 at 88%, which is expected to fall to 42% by 2030, the data showed.
Conservative Chancellor Friedrich Merz, currently trailing in polls to the far-right Alternative for Germany (AfD), has promised a series of reforms to make Germany more competitive.
The AfD, which could take power in a German state for the first time in elections in September, has seized on Volkswagen’s troubles as a line of attack against the government.
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