Turkish lira crisis reveals dependence on imported energy

Turkey is surrounded by some of the richest fossil fuel reserves in the world, in the Middle East and Central Asia, but itself produces little oil, gas or coal. The country imports 93% of the oil and 99% of the gas it consumes, a vulnerability when energy prices in dollars rise and the pound slips.

These two factors have hurt the economy of Turkey, a member of the Group of 20 and the North Atlantic Treaty Organization. Benchmark Brent oil prices have risen 45% in dollars this year. Factor in the fall of the Turkish lira, and the cost is up 150% even after the crude prices have fallen since the emergence of the Omicron variant of the coronavirus. The pound has lost more than a third of its value since Turkey’s central bank started cutting interest rates amid rising inflation in September.

Rising energy prices are putting even more strain on Turks, who are already grappling with rising prices for food, medicine and transportation. The government raised the price of gasoline by more than a lira a liter last week, causing long lines to form at gas stations before prices rose at midnight.

Turkey’s energy situation is precarious as supply contracts that cover 8 billion cubic meters of natural gas per year – nearly 15% of annual demand – are due to expire next month, just as Europe is suffering. its biggest gas price crisis in a generation.

The long-term agreements relate to gas sent by Russian company Gazprom PJSC to state-owned Botaş Petroleum Pipeline Corp. and a group of private companies. Talks to renew them are continuing.

“The situation is really worrying,” said Gulmira Rzayeva, senior visiting researcher at the Oxford Institute for Energy Studies. Turkey could experience power outages during the winter, she added.

Gazprom is a big winner from the global gas shortage, generating record profits. Sales to Turkey have helped: Gas started flowing through the TurkStream pipeline under the Black Sea in early 2020 and Gazprom says supplies to Turkey have more than doubled in the first 10 months of 2021. Ankara has tried to reduce its dependence on Russian energy, by sourcing gas from the United States and producing more electricity from renewables.

Turkish President Recep Tayyip Erdogan will want to avoid a gas shortage this winter. Russia could push Turkey away from oil-related prices and towards prices that reflect spot trading at international gas hubs like the Netherlands, which are currently higher.

Energy prices are a major factor behind Turkey’s inflation problem. Consumer prices rose nearly 20% in October from the previous year, according to the Turkish Statistical Institute. Transportation and one category of goods, including electricity, gas and other fuels, contributed 6.5 percentage points to the increase.

“Households won’t be able to spend that much on other things,” said Viktor Szabo, fund manager at Asset Manager abrdn, who has sold all of the lira-denominated assets in his emerging market debt portfolios.

The Turkish lira fell 2.5% against the dollar on Monday, trading near a record low of around 12.5 per dollar.

Gas supplies more than a quarter of the energy consumed in Turkey, and demand is expected to hit a record 60 billion cubic meters this year. Russia is the biggest supplier despite a sometimes rocky relationship between rival regional powers. Gazprom has cut off flows to private Turkish importers who owed the Russian company hundreds of millions of dollars earlier this year.

State-owned Botaş, for its part, is being severely tested by the fall in the pound. The state-owned company sells gas at government-imposed prices that are lower than the cost of the gas it imports from abroad. Adding to the urgency of renewing the contract with Gazprom, high international gas prices have dissuaded Botaş from supplementing its supplies with shipments of liquefied natural gas from the United States and elsewhere.

Ali Arif Aktürk, an energy consultant who worked at Botaş and sits on the board of two gas distribution companies, estimates that Botaş will lose between $ 4 billion and $ 5 billion this year.

A spokesperson for Botaş did not respond to requests for comment.

Mr Aktürk said the contracts will ultimately be part of discussions between Mr Erdogan and Russian President Vladimir Putin, also encompassing topics such as Syria and Ukraine.

Russia’s relations with Turkey are less frosty than its relations with the European Union, which should help Ankara access the gas it needs, said Christof Rühl, a researcher at the University’s Center on Global Energy Policy. Columbia and former chief economist at BP. The Kremlin has, however, protested in recent months against the use of Turkish drones by Ukrainian government forces fighting Russian-backed separatists.

In a way, Turkey is better placed to deal with soaring energy prices than during its last currency crisis in 2018. The country’s current account – a measure of transactions with the rest of the world – presents a rare surplus in part due to a tourism revival before the emergence of the Omicron variant.

Nonetheless, rising global energy markets are sucking dollars out of the economy which is home to companies heavily indebted in foreign currencies. Turkey spent $ 3.67 billion more on energy imports than it collected through exports in September, according to central bank data, its biggest net expenditure since December 2014.

This story was posted from a feed with no text editing

To subscribe to Mint newsletters

* Enter a valid email address

* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our app now !!

Source link

About Virginia Ahn

Check Also

The autocratic regime propagated by Putin threatens us all

Sifting through the looming challenges of the coming year, it looks like the threat of …