It's no secret that Turkish President Recep Erdogan wants to expand Turkey's control of the Central Asian region and impose a Neo-Ottoman empire. His push to 'Islamicize' Ataturk's secular state has proceeded in earnest after the 'coup' of 2016. There are still many who believe Erdogan himself engineered the coup attempt in order to cement power throughout the military and rid himself of detractors.

In any event, Ankara has expanded military operations into Northern Syria, backed GNA forces against General Haftar's mercenaries in Libya, and is actively drilling for hydrocarbons in Greek waters, according to Athens and Paris. Turkey is also flying Syrian fighters to Baku to aid Azerbaijan in its fight against Christian Armenia.

No one has stood up to the new sultan as Erdogan expands influence and power from the Med to the Caspian Sea.

Except the financial markets.

Two trading days after the CBRT unexpectedly hiked rates by 200bps to stem the ongoing plunge in the country's currency, overnight the Turkey’s lira dropped to a record as geopolitical risks rose in the region due to clashes between Azerbaijan and Armenia, reported Zero Hedge.

Shortly after Japanese traders arrived, the lira flash crashed as much as 2.1% to 7.8279 against the U.S. dollar. Then after recovering most losses, it resumed the drift lower and was down 1.7% at 7.914 by 7:00 a.m. ET. 

"The fear is that Turkey, whose economy is on its knees and is actively engaged in escalating conflicts in northern Syria, and with Greece in the Mediterranean, could get dragged into yet another regional conflict it can ill afford, either politically or economically," says Jeffrey Halley, senior market analyst in Singapore at Oanda

“That has torpedoed the Turkish lira this morning, whipping out any gains from the surprise rate hike by the central bank last week and an easing of currency trading restrictions,” he added.

Financial markets have a way of countering bad behavior, whether its from corrupt banks or extremist governments.

In an interesting twist, the Russian ruble has also lost significant value in recent months. The Kremlin assures this will be over at some point.

Russian Presidential spokesman Dmitry Peskov is confident that despite the current volatility of the ruble, the position of the Russian currency will be restored, reported Russian state news agency TASS.

"There is, of course, current volatility of the exchange rate. It's hard not to notice it," Peskov said. "After periods when the ruble loses its strength, there are periods when it regains its strength. Another question is how long it would take," he noted.

He added that "this is market volatility, and there is no doubt that the ruble will recover its positions."

As of 13:25 Moscow time on Monday, the dollar rate grew by 0.7% to 78.75 rubles, while the euro rose by 1% and traded at 91.84 rubles.

Possibly, just possibly, markets don't like the increasingly closed climate for Russian investment, in addition to Moscow's role in the Caucasus.

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