Persistent inflation, currency depreciation, and sweeping currency controls have pushed Turkey’s commercial contract law to its limits – and foreign companies are absorbing the consequences. The pressure on Turkish contracts has reached a breaking point.
Turkey occupies a position of unusual commercial and geopolitical consequence. It controls the Bosphorus Strait, the only navigable passage between the Black Sea and the Mediterranean. In addition, it hosts the TurkStream pipeline carrying Russian gas into Southern Europe. It sits at the intersection of NATO obligations and pragmatic relationships with Moscow, Tehran, and Beijing. Yet it has, over the past four years, experienced one of the most severe episodes of currency depreciation and consumer price inflation recorded by a G20 economy in recent history. The legal consequences of that economic turbulence – for contracts, dispute resolution, maritime operators, insurers, and the logistics sector – are acute, ongoing, and, in many cases, still unresolved. For foreign companies with Turkish operations or Turkish counterparties, the central legal challenge of the current period is not market access or regulatory approval. It is the question of what their contracts are still worth.
The Inflation Crisis and Its Contractual Consequences
Turkey’s annual consumer price inflation peaked at approximately eighty-five percent in late 2022. It has since moderated, but remains at levels that render multi-year contracts denominated in Turkish lira commercially devastating for the party that bears the currency risk – and commercially windfall-generating for the party that does not. The Turkish lira lost the overwhelming majority of its value against major reserve currencies between 2018 and 2025. Contracts priced in lira at 2020 exchange rates, and still running, represent radically different economic bargains from the ones the parties struck.
This is not, in the first instance, a legal problem. It is an economic one which creates legal claims, and the volume of disputes arising from Turkish contracts in construction, energy and logistics, services, and financial arrangements, has placed Turkey’s courts, arbitral institutions, and commercial legal practitioners under sustained pressure. The legal question that sits at the centre of most of these disputes is the same: when does a change in economic circumstances entitle a party to demand modification of a contract it voluntarily entered into?
Article 138: The Legal Escape Valve for Turkish Contracts
The Turkish Code of Obligations (Law No. 6098 of 2011) introduced Article 138, which codifies the doctrine of excessive difficulty of performance. The provision allows a party, where an extraordinary and unforeseeable event has arisen after the formation of the contract that makes performance excessively burdensome – to a degree that conflicts with principles of good faith – to request that the court adapt the contract to the changed circumstances, or, where adaptation is not possible, withdraw from it.
Article 138 was conceived for genuinely exceptional events. It has been invoked, in the current period, at scale. The results have not been uniform. Courts have, in some cases, adjusted pricing and payment terms. In others, they have declined to intervene on the basis that currency fluctuation and inflation – however severe – were not unforeseeable in a market that has experienced volatility for years.
The distinction between adaptation (available under Article 138) and impossibility (governed by Article 136, which extinguishes the obligation) matters enormously for the available remedy. Impossibility discharges the contract. Adaptation preserves it, on modified terms that the court determines. Turkish courts have consistently preferred adaptation over discharge – a preference for contractual continuity that mirrors the approach of Iraqi and UAE courts and reflects a shared civil law instinct that contracts should be preserved wherever their essence can be maintained.
For foreign companies holding contracts with Turkish counterparties, this creates a specific exposure: a Turkish counterparty facing economic distress cannot simply walk away from a contract. But it can, and in the current environment increasingly does, initiate court proceedings seeking adaptation, which freezes the commercial relationship, creates uncertainty about the terms on which performance will continue, and imposes litigation costs and delay on a party that may have considered the contract settled.
Presidential Decree No. 32 and the Foreign Currency Contract Prohibition
The most practically disruptive legal development for foreign companies operating in Turkey over the past several years has not been a court judgment or an arbitral award. It has been a regulatory instrument. Presidential Decree No. 32 on the Protection of the Value of Turkish Currency, in its amended form, prohibits contracts between Turkish resident parties from being denominated in or indexed to foreign currency in a range of specified contexts, including real estate transactions, employment contracts, certain service agreements, and construction contracts for works performed in Turkey.
Turkish contracts structured under foreign currency assumptions – including USD or EUR denomination that was standard practice in Turkish commercial contracting for decades – have required conversion to Turkish lira, in some cases retroactively, creating immediate economic losses for the party that would otherwise have received hard currency payment.
Turkish Contracts in Construction: Where the Crisis Hits Hardest
The sector in which Turkey’s contractual crisis has produced the most significant and widespread legal disputes is construction and infrastructure. Turkey has been among the most active markets in the world for large-scale infrastructure development – highways, bridges, airports, hospitals, energy facilities – with a substantial proportion of that activity structured through public-private partnership arrangements. Many of those projects were contracted, or sub-contracted, at lira prices or with cost assumptions built on pre-crisis exchange rates.
The consequences are visible across the sector. Contractors and subcontractors operating on fixed-price Turkish contracts have faced input cost increases – materials, labour, plant, imported equipment – that have made completion at the contracted price commercially impossible without adaptation relief. Foreign contractors, or Turkish contractors with foreign parent companies or foreign subcontracts, carry an additional layer of complexity: their own upstream obligations are frequently in hard currency, while their downstream revenues, under Decree No. 32, are in lira.
Public procurement disputes in Turkey involve an additional constraint that mirrors, in its essential character, the B2G complexity described in other markets: government counterparties operate within statutory budget frameworks that limit their ability to renegotiate or vary contracts, even where the economic case for doing so is clear. The applicable public procurement legislation creates procedures for variation and price adjustment that are bureaucratically intensive and not always available in the circumstances where the contractor needs them most. Disputes that cannot be resolved through administrative processes frequently end in litigation or arbitration – and, given the volumes involved in the current period, they frequently are.
Maritime: The Bosphorus, Black Sea Exposure, and Sanctions Complexity
Turkey’s maritime significance is structural. Turkey maintains sovereign control over the Bosphorus and Dardanelles Straits, the sole sea passage connecting the Black Sea to the global ocean system. Following Russia’s invasion of Ukraine in February 2022, Turkey’s exercise of that control – restricting warship passage while permitting commercial traffic – became a point of acute geopolitical attention. For commercial shipping operators, the practical consequence has been a Black Sea trade environment of elevated risk, elevated insurance cost, and genuine legal uncertainty around force majeure and war-risk coverage for vessels engaged in Black Sea trade.
The Turkish maritime legal framework contains comprehensive provisions on maritime commerce covering ship ownership, charterparties, bills of lading, maritime liens, and collision. It is a modern instrument that aligns more closely with contemporary shipping practice. Ship arrest procedures under Turkish law are available as precautionary measures and are regularly invoked in Turkish courts by maritime creditors – a practice that, in the Black Sea context, has acquired additional significance as vessels connected to sanctioned or restricted trade have been subject to legal challenge in multiple jurisdictions.
Turkey’s position as a sanctions-adjacent jurisdiction creates specific maritime compliance exposure. Vessels using Turkish ports, operating under Turkish-flagged registry, or transacting through Turkish financial institutions in connection with Black Sea trades involving Russian cargo or Russian-connected counterparties carry sanctions risk that requires active legal management. The United States and the European Union have both communicated, with increasing specificity, their expectations of intermediary jurisdictions – including Turkey – regarding secondary sanctions compliance. Turkish entities acting as ship managers, freight forwarders, or trading counterparties in transactions that ultimately involve sanctioned parties face exposure under US and EU sanctions regimes that Turkish domestic law does not insulate them from.
Turkey’s geopolitical position is its greatest commercial asset and its most complex legal liability.
Insurance: War Risk, Political Risk, and an Evolving Regulatory Framework
The insurance consequences of Turkey’s current operating environment are, for commercial operators, substantial. War-risk coverage for Black Sea operations has become both more expensive and more contractually contested since 2022. The determination of whether a specific event – a maritime incident in the Black Sea, a drone strike on a port facility, a vessel seizure – falls within the coverage of a war-risk policy or a marine cargo policy, and which insurer bears the loss as between the war-risk underwriter and the hull and machinery insurer, involves legal analysis that standard policy language was not always written to resolve cleanly.
Political risk insurance – covering expropriation, currency inconvertibility, and contract frustration by government action – has seen renewed interest from companies with Turkish exposure precisely because the regulatory changes of recent years (currency controls, FX conversion mandates, administrative price interventions) have generated events that, depending on the specific policy wording, may engage political risk coverage. The interaction between Turkish law governing the underlying contract, the law governing the insurance policy, and the law governing the insurance arbitration or litigation is a choice-of-law problem that requires careful analysis before a claim is made.
Closing the Gap in Turkish Contracts
Turkey presents foreign operators with a legal challenge that is, at its core, one of alignment: ensuring that the contractual framework reflects not the economic assumptions of the day the contract was signed, but the operating reality of the jurisdiction in which it will be performed. Turkish law provides mechanisms for parties to seek relief from contracts that have become economically oppressive – but those mechanisms are judicial, uncertain, contested, and slow. They are not a substitute for contractual drafting that anticipated the possibility of currency volatility, inflationary pressure, and regulatory intervention from the outset.
The companies managing Turkish contracts most effectively are those that have addressed currency exposure explicitly – through hard currency denomination where permitted, through price adjustment mechanisms calibrated to Turkish inflation indices where not – that have structured dispute resolution clauses with enforcement realities in mind, and that have engaged Turkish legal counsel with current knowledge of the adaptation doctrine’s trajectory in the courts.
This article is written for informational purposes and does not constitute legal advice. All references to Turkish legislation are based on publicly available instruments. Companies operating in or considering entry into the Turkish market should seek jurisdiction-specific legal counsel.
FAQ: Turkish Contracts Under Strain
Turkish contracts – particularly those denominated in Turkish lira – have been severely disrupted by inflation peaking at 85% in 2022 and sustained currency depreciation. Foreign companies holding contracts with Turkish counterparties face uncertainty over pricing, performance obligations, and dispute resolution.
Article 138 allows a party to request court-ordered adaptation of a contract when an extraordinary and unforeseeable event makes performance excessively burdensome. Turkish courts have used this provision extensively during the inflation crisis, generally preferring to modify contracts rather than discharge them entirely.
Presidential Decree No. 32 prohibits many categories of Turkish contracts between resident parties from being denominated in or indexed to foreign currency. This includes real estate, employment, certain services, and construction contracts performed in Turkey.
Construction and infrastructure have been most severely impacted, followed by maritime trade, energy, logistics, and financial services. Fixed-price lira contracts in public-private partnership projects have generated the highest volume of disputes.
Impossibility under Article 136 extinguishes the obligation entirely. Adaptation under Article 138 preserves the contract but modifies its terms. Turkish courts strongly prefer adaptation, meaning distressed counterparties cannot simply exit contracts – they must seek judicially supervised modification.
Foreign companies that structured contracts under USD or EUR denomination have been required to convert those agreements to Turkish lira, in some cases retroactively. This creates immediate economic losses for parties expecting hard currency payment.
Vessels operating in Black Sea trade face elevated war-risk insurance costs, sanctions compliance exposure, and legal uncertainty since Russia’s 2022 invasion of Ukraine. Turkey’s control of the Bosphorus adds a geopolitical layer to every maritime contract involving Black Sea passage.
Best practice includes explicit currency exposure provisions, price adjustment mechanisms tied to Turkish inflation indices, carefully structured dispute resolution clauses with enforcement realities in mind, and engagement of Turkish legal counsel with current knowledge of adaptation doctrine.
Ahmad Subhi
As Founding Partner in Baghdad and Managing Partner in Abu Dhabi for Salt & Associates, Ahmad Subhi is recognised for his expertise in private equity, media law, and international arbitration, developed through senior roles at Clifford Chance and Herbert Smith Freehills in London and Dubai. He is well known for advising large institutional investors and UAE government-linked corporates on strategic litigation, arbitration, and complex cross-border transactions. Ahmad has been instrumental in navigating venture capital and media investment structures, leading fund and private equity operations across the Gulf, and representing clients before the ADGM Courts, all UAE arbitration bodies, and the Courts of England and Wales up to the Court of Appeal.
