Turkey's national currency, the lira, has tumbled by nearly 40% against the US dollar so far this year.
Relations between the two countries reached a low point on Friday, as US President Donald Trump approved the doubling of tariffs on Turkish steel and aluminium in response to Turkey's refusal to release Andrew Brunson -- an American pastor who is under house arrest in Turkey and facing terror charges.
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Turkey's President, Recep Tayyip Erdogan, has so far resisted pressure to implement monetary and fiscal orthodoxy, choosing instead to lash out at both the financial markets and the US.
He has suggested that there is a global plot that aims to destroy Turkey's political and economic achievements.
So far, his domestic popularity has been on the rise, as he taps into the anti-US sentiment (and willingness to believe in conspiracy theories) that exists among much of the Turkish population.
Erdogan's stubborn response to Turkey's economic meltdown has resembled the populist playbook of Venezuelan President Nicolás Maduro, rather than the market-friendly posturing of Argentinian President Mauricio Macri.
Turkey, unlike Argentina, does not seem poised to turn to the International Monetary Fund in order to stave off financial collapse, nor to mend relations with Washington.
If anything, the Turkish President looks to be doubling down in challenging the US and the global financial markets -- two formidable opponents.
In all likelihood, Turkey will lose any fight it picks with New York, London, Singapore and other bastions of finance -- unless a ceasefire is declared. And the lira's collapse will translate into a financial and economic meltdown for Turkey.
As that process unfolds, it will likely undermine Erdogan's domestic appeal, even among his most committed ideological supporters, and unleash political instability in its wake.
But the outcome will be a long, drawn-out and complex affair that could promote military interference in politics and generate ramifications beyond Turkey's borders.
Turkey would probably no longer view the US as a reliable partner and strategic ally.
Whoever ends up leading the country, a wounded Turkey would most likely seek to shift the center of gravity away from the West and toward Russia, Iran and Eurasia.
It would make Turkey less in tune with US and European objectives in the Middle East, meaning Turkey would seek to assert a more independent security and defense policy.
In extreme circumstances, it could even contemplate withdrawing from NATO and terminate -- or radically amend -- its customs union with the EU.
No scenario can be overlooked should the worst happen and political and economic turmoil leaves devastation in a country as geopolitically critical as Turkey.
Given the potential calamitous outcome, it would be very sensible for the West to prepare an ambitious package to alleviate the aftereffects of the financial tsunami and to ensure that Turkey does not drift from the Western norms and institutions.
Turkey's EU accession ambitions need to be urgently revived to encourage liberalizing reforms. Otherwise, the West will pay a heavy price for losing such an important country as an ally.
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