Energy costs threaten to irritate Turkey’s financial woes

Turks woke as much as an enormous hike in pure fuel costs Nov. 1, the newest in a collection of vitality worth will increase that threaten to additional stoke inflation and well-liked frustration with Ankara’s financial administration. 

The worth of pure fuel utilized by energy crops was raised by 46.8% and the worth of fuel utilized by industrial enterprises by 48.4%. Consumer costs remained unchanged, however customers can hardly escape the inflationary impression the hikes may have throughout an economic system that’s already grappling with a nearly 20% inflation and a nosediving foreign money.

The fuel worth hikes comply with a collection of worth will increase on gas. The worth of gasoline was raised 4 occasions in October alone, resulting in protests by taxi drivers and lengthy queues at filling stations earlier than the hikes took impact at midnight.

Turkey’s heavy reliance on international vitality sources — it imports greater than 93% of its oil wants and 98% of its fuel — lies on the core of the issue. Unlike different nations, nevertheless, Turkey’s worth hikes have been pushed not solely by the uptick in world vitality costs but additionally the dramatic depreciation of the Turkish lira. The foreign money misplaced nearly 7% of its worth in opposition to the greenback in October alone, in accordance with Central Bank knowledge

On the worldwide oil and fuel market, the provision has failed to fulfill the rise in vitality demand amid vitality transitions and financial restoration from the COVID-19 pandemic. The bottleneck on the pure fuel market has prompted a swap to grease. In an October report, the International Energy Agency estimates a rise of 500,000 barrels per day within the world demand for oil. Yet, OPEC+ members agreed to improve manufacturing by solely 400,000 barrels per day at their assembly in early October. Responding to stress on oil producers to speed up output will increase, Saudi Arabia’s vitality minister informed Bloomberg Oct. 23 that the pandemic was not over but and will nonetheless hit demand, thus oil producers needs to be cautious in elevating output. The minister argued that extra barrels from OPEC+ would do little to curb prices of fuel in Europe and Asia or gasoline within the United States, signaling that OPEC+ would stick with its current technique in November.

Oil costs climbed to multi-year highs Oct. 24, with Brent crude futures hitting $86.7 a barrel and West Texas Intermediate crude futures reaching $85.Four a barrel. Both benchmarks have elevated by round 20% for the reason that begin of September. According to US funding financial institution Goldman Sachs, Brent crude costs might exceed $90 per barrel by the tip of the yr.

Turkey’s vitality imports price $41 billion in 2019, accounting for almost 20% of its $210 billion complete imports, international commerce statistics present. The invoice of fuel importation stood at $12 billion. In the primary 9 months of 2021, vitality imports reached $21.5 billion, together with $6.Three billion price of fuel, as general imports totaled $193 billion.

According to the Turkish Gas Distributors Union, households accounted for 32.3% of the fuel utilized final yr, adopted by gas-powered energy crops with 28.6% and the trade with 26.7%. Energy Ministry knowledge from September present that 25.6% of Turkey’s put in energy capability depends on pure fuel to provide electrical energy. In different phrases, pure fuel is important not just for heating but additionally for industrial manufacturing and energy era.

A harsh winter would push up residential fuel and electrical energy wants and thus fuel consumption. Turkey has been making an attempt to safe ample fuel provides, with its fuel consumption estimated to reach 60 billion cubic meters this yr. According to official figures, Turkey’s fuel consumption stood at 48.2 billion cubic meters in 2020, which means that the nation wants extra provides of about $12 billion cubic meters.

The bulk of Turkey’s fuel imports comes by way of pipelines from Russia, Azerbaijan and Iran, along with smaller purchases of liquefied pure fuel from different suppliers. Russia’s fuel big Gazprom stated in late October that its provides to Turkey would complete as much as 25 billion cubic meters by the tip of the yr. The worth is estimated to common $270 per 1,000 cubic meters. Meanwhile, Turkey’s contract with Gazprom for provides by the so-called Western Line conduit by way of Bulgaria expires on the finish of this yr. The two sides have launched talks to increase the deal however have but to make a press release on the problem. Given the worldwide fuel disaster, Gazprom is broadly anticipated to push for a worth improve.

As for Azerbaijan, its fuel flows to Turkey by two pipelines — one which connects Baku and the jap Turkish province of Erzurum by way of Georgia’s capital Tbilisi and one other referred to as the Trans-Anatolian Natural Gas Pipeline (TANAP) that runs to Europe by way of Turkey. Under a deal renewed for 20 years in September, Azerbaijan will pump not less than 6 billion cubic meters of fuel to Turkey per yr by the Baku-Tbilisi-Erzurum pipeline. Turkey’s vitality minister introduced in mid-October a deal for an extra 11 billion cubic meters by the identical conduit over the subsequent three years. It signifies that Turkey might depend on not less than 9 billion cubic meters of fuel from that pipeline subsequent yr, along with 6.6 billion cubic meters from the TANAP. 

Turkey’s fuel imports from Iran, Algeria and Nigeria totaled 12.Three billion cubic meters final yr, and that quantity is just not anticipated to vary.

Yet Gazprom’s 25 billion cubic meters, the additional quantity agreed with Azerbaijan and the provides below different long-term contracts would complete some 50 billion cubic meters at most. Turkey is more likely to flip to Gazprom to request a further quantity, and the corporate’s worth coverage could be tougher to foretell. An extension of the Blue Line contract on an inexpensive worth might permit Turkey to fulfill its extra wants from that conduit. 

In gentle of all these parameters, the worst-case state of affairs for Turkey could be to show to the spot market once more to bridge the gaps. To alleviate its vitality invoice, Turkey has sought to cut back purchases from the spot market, the place costs are risky and have elevated 4 occasions this yr. Yet given the bounds to pipeline provides, spot purchases are exhausting to keep away from altogether, even when their quantities are lowered. 

In sum, the worldwide vitality woes coupled with the meltdown of the Turkish lira pose a significant monetary predicament to Turkey. The hovering vitality costs bode not solely larger inflation and additional financial hassle for the nation but additionally tougher negotiations with vitality suppliers.


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