Turkey's FX Reserves Erode Amidst Iran Tensions: A Looming Gold Intervention?
Date: March 26, 2026
Iran Crisis Casts Shadow Over Turkish Economy: Foreign Exchange Reserves Under Strain
Turkey is experiencing a significant depletion of its foreign exchange reserves due to escalating tensions in the region, particularly related to Iran. This situation has raised concerns among financial institutions and analysts regarding the effectiveness of the Turkish Central Bank's monetary policies. There is speculation about the potential use of gold reserves to support the Turkish Lira.
Reserve Depletion: Desperate Attempts to Maintain Lira Stability
In the last three weeks, the Turkish Central Bank has reportedly spent around $30 billion USD from its reserves to stabilize the Lira. This expenditure is comparable to the financial panic experienced last year following the arrest of Istanbul Mayor Ekrem İmamoğlu, highlighting the severe pressures on the Central Bank.
Kieran Curtis, an Emerging Markets Fund Manager at abrdn, noted that the current rate of reserve depletion suggests that the Central Bank's existing foreign exchange policy is unsustainable without selling some gold reserves.
Turkey's Strategic Position and the Vulnerability of Import Dependency
As a NATO member with a 550-kilometer border with Iran, Turkey is attempting to mediate the ongoing conflict. However, its heavy reliance on imports, especially in energy, makes it particularly vulnerable in this volatile environment. Finance Minister Mehmet Şimşek has acknowledged that Turkey cannot remain insulated from the crisis's fallout, particularly concerning the current account deficit, which poses a significant risk to the Lira.
Numbers Reveal: A Sharp Decline in Net Reserves
Research from Bürümcekçi Research and Consultancy indicates that the Turkish Central Bank sold $26 billion USD in foreign exchange in the three weeks leading up to March 19th, resulting in net foreign exchange reserves dropping to $43.4 billion USD. Other estimates suggest a total decrease of $34 billion USD since the conflict began.
Gold as a Safety Net: Substantial Reserves at the Central Bank's Disposal
Data from JPMorgan reveals that the Turkish Central Bank holds gold reserves valued at over $100 billion USD, with about $30 billion USD deposited with the Bank of England. These gold reserves could be utilized for intervention in the foreign exchange market, potentially serving as a crucial asset.
Reports suggest that the Central Bank is considering gold swap transactions to enhance its foreign exchange reserves, which involve temporarily exchanging gold for foreign currency with an agreement to reverse the transaction later.
Attempting to Rebuild Economic Credibility: Strict Policies and Mixed Results
Under Finance Minister Şimşek and Central Bank Governor Hafize Gaye Erkan, Turkey has made strides in rebuilding economic credibility over the past three years. Their policies of high interest rates and a strong exchange rate regime have successfully reduced inflation from a peak of 85% in late 2022 to around 30% in January 2026. These measures have also attracted foreign investment, aiding in the recovery of foreign exchange reserves.
Energy Challenges and Persistent Inflation: A Burden on Economic Stability
Despite these efforts, rising energy costs are beginning to impact the Turkish economy, threatening the effectiveness of tight monetary policies. Since the conflict began on February 28th, Brent crude oil prices have surged over $30 per barrel, contributing to an inflation rate of 31.5% last month, one of the highest globally. Additionally, Turkey's annualized current account deficit has widened to nearly $33 billion USD.
Looking Ahead: Prolonged Conflict and Potential Lira Capitulation
Timothy Ash, a Senior Sovereign Strategist at RBC BlueBay Asset Management, remarked that while Turkey has performed better than expected, prolonged conflict and high energy prices could force the country to allow the Lira to depreciate and raise interest rates, which could have global repercussions.
Historical Comparison: Lessons from Past Turmoil
The Turkish Central Bank has so far refrained from raising its key policy interest rate, contrasting with the significant hike in March of the previous year. At that time, the Central Bank injected up to $50 billion to support the Lira, leading to a drastic drop in net reserves.
Multiple Pressures: Political and Economic Challenges on the Horizon
While Turkey has rebuilt its foreign exchange reserves, any further economic weakening, coupled with a potential influx of Iranian refugees, could complicate President Erdoğan's political prospects ahead of the upcoming presidential elections in May 2028. Current polls indicate that Erdoğan's ruling party is slightly trailing the main opposition party.