A Turkish court has rejected a case that could have unseated the leader of the main opposition, providing brief relief to investors worried about a resurgence of political instability.

Stocks reacted positively, while the lira pared its losses after earlier falling to a historic low.

The case centered on allegations of irregularities in the 2023 internal elections of the Republican People’s Party (CHP), Turkey’s main secular opposition party. Özgür Özel was elected party leader at that time and revitalized the opposition, leading the CHP to a historic victory over President Recep Tayyip Erdoğan’s party in the 2024 municipal elections.

Özel has accused the judiciary of acting under orders from the president, arguing that the prosecution aimed to remove him from leadership. The possibility of his dismissal had heightened political tensions and undermined the fragile recovery of confidence in Turkey’s economy.

Investors continue to express concern that Erdoğan’s increasingly authoritarian tactics are eroding the rule of law and raising the risk of social unrest. Moody’s warned this week that street protests have historically undermined Turkey’s investment climate.

Friday’s decision to fully dismiss the case gave markets some short-term relief but did little to dispel underlying concerns.

“Today’s verdict may provide only short-term relief for Turkish assets and is not enough to restore positive investor sentiment,” said Piotr Matys, senior FX analyst at In Touch Capital Markets. Fund managers, he added, will continue to monitor political developments closely “as Erdoğan’s government seeks to consolidate more power.”

Judicial Pressure and Political Turmoil

Since taking over the CHP, Özel has attacked the ruling party for waste and corruption, leading to an unprecedented electoral victory for the opposition. However, the party congress in which he was elected became the target of a judicial investigation over alleged vote-buying.

The arrest of Istanbul Mayor Ekrem İmamoğlu — a close ally of Özel and potential future rival to Erdoğan — sparked protests and capital flight. The Central Bank was forced to intervene with $50 billion to support the lira.

Since then, foreign investors have withdrawn a net $2 billion from Turkish markets, reversing part of the inflows seen earlier in 2025. As a result, Turkish equities and the lira have underperformed compared to other emerging markets: the MSCI EM Currency Index is up 6%, while the lira has lost 16% against the dollar and the Istanbul stock exchange is down more than 9% in dollar terms.

Özel stated that the prosecutions against him are part of a coordinated effort to “silence the opposition,” stressing that the CHP “will not bow to politically motivated decisions.” The Erdoğan government denies any interference in the judiciary.

Despite the favorable court ruling, the CHP still faces dozens of ongoing cases, and many of the party’s mayors remain imprisoned.