What Happened: The European Council called Turkish drilling off Cyprus illegal and said "targeted measures" could be taken against Turkey, the BBC reported June 21. Sanctions could include visa bans and asset freezes, and also freezing already-suspended talks on a customs union and EU accession. Turkey sent a second ship into the disputed area on June 20, with Turkish Energy Minister Fatih Donmez saying his country will continue drilling, Deutsche Welle reported June 20.
Why It Matters: Sanctions against Turkey would strongly impact its currency stability and overall macroeconomic foundations — especially as privately held corporate debt is coming due this year, and with Turkey in a recession after two quarters of negative growth. Making matters worse for Turkey, the EU move comes amid the threat of U.S. sanctions on Turkey given the impending delivery of the Russian S-400 missile defense system.
Background: Turkey has long insisted it has the right to explore gas zones claimed by Cyprus. Cyprus remains divided between a Turkish-speaking northern republic and a Greek-speaking southern one; the north is not recognized by any country other than Turkey. The lira has recovered from its August 2018 low, but remains volatile.