Ankara’s launch of a long-expected military move into Kurdish-held areas in northeastern Syria has worsened the prospects of the already ailing Turkish economy, drawing threats of sanctions by the United States and the European Union (EU), atop the country’s currency woes and swelling debt. The Turkish lira has tumbled and Turkey’s risk premium has shot up since the operation kicked off Oct. 9, triggering fresh financial jitters that seem to weaken newfound hopes of an economic rebound after almost a year of contraction. 

The military campaign — launched after a perceived green light from Washington and with the stated aim of creating a safe zone against terrorist threats by Kurdish groups and the Islamic State — creates fresh uncertainties for the economy, threatening to stymie any fledgling prospects of renewed growth. Fears are rife that military expenditures will aggravate the Treasury’s deficits, fuel borrowing needs and eat into funds that could be otherwise used to stimulate the economy.

The EU, Turkey’s top trading partner, is expected to discuss sanctions against Ankara this week after the operation generated harsh reactions from member countries. Showdowns with the EU threaten to bear on Turkey’s foreign trade, borrowing means and investment appeal. 

The US administration, too, has raised the specter of "very powerful sanctions" that could cripple the Turkish economy, in addition to a bipartisan sanction move in Congress. According to the outline of a planned bill, shared by Republican Sen. Lindsey Graham on Twitter, the sanctions would target Turkey’s energy and defense sectors and top officials, including President Recep Tayyip Erdogan, as well as foreigners who “provide financial, material or technological support” or engage in any transactions with the Turkish military. The legislation would call also for visa restrictions for Turkish leaders and a report on Erdogan’s wealth.