There is this overselling of energy issue for more than half a decade. Even in the academic circles it has become so popular that everybody has something to say and really curious about it. There are several dimensions of this issue, such as geopolitics, economics and social repercussions.

A couple of years ago, on BBC Turkish there was a program that lasted for a couple of weeks and during this series specialists commented on energy issue and repercussions of this on world’s citizens. They claim that if prices continue to increase the life style of people has to change and the area that they are active or mobile will be limited. It is logical up to a point and we even see some tendency that gradually people trying to decrease the frequency of using their private vehicles. However, I am not among those pessimists, on the contrary hoping to see new energy resources and technologies to be presented for the use of humankind in the medium and long term and believing the area of mobility will continue to expand.

Until research and development endeavours reach to a solution, it would be naïve to deny the dominance of hydrocarbon resources and mainly oil in our lives. The main problem is that oil is not a simple commodity anymore and as a result it is not only seasonal neither production or consumption dynamics that have the role in drawing oil’s path in the fancy graphics of NYMEX. It is true that people are consuming this commodity, but due to decreasing and dull profits that gained from other financial instruments such as bonds or the market, oil has become a safe heaven or a new opportunity for brokers and big investors.

It is wrong to claim that oil is the sole commodity that helps people to accumulate wealth recently. Materials such as cement, steel, copper, aluminium and others have important share in this increasing inflation in global scale. It is true that incredible growth rates especially in China and India cause a high consumption and prices to soar. Increase in consumption in this extend also prepares a good basis for speculation. However, it is oil that an ordinary person has to consume in his everyday life and has to resist its price when that person’s tight budget is taken into account. On the other hand, in countries, which are not capable of meeting their consumption with existing reserves, inflation in energy prices cause constraints in financial terms.

Turkey and Economics in the Shed of Increasing Oil Prices

As known since the crisis of 2002 Turkey has implemented economic reforms in a disciplined manner. In this framework, it is following tight fiscal and monetary policies. (The recent critics is that in the last economic program the tightness of fiscal policies has loosened whereas due to high interest rates of Central Bank the monetary policy of Turkey is well too tight, but here I will not asses these critics)

Thanks to these reforms and also the favourable international environment Turkey has entered a trend of growth after the crisis and also it succeeded to reduce inflation rate from double digit numbers to single digits (in 2003 CPI was 25.3% and in 2007 it was 8.76%). Even though Turkish monetary elite overshoots the inflation target of 4% for a couple of years, it would be harsh not to appreciate the success of Turkish economy. Fluctuations in international markets especially in oil and food prices have negative repercussions on Turkish economy just like in many other countries around the world. Moreover, Turkey draws a profile of a stronger economy when regional and domestic instabilities considered in the region.

Current account deficit is one of the main problems and defined as one of the fragile indicators of Turkish economy. In 2003 it was $8 billion, but reached to $38 billion in 2007. However, this number should not lead misunderstandings since also the average growth rate of Turkish economy was 6.9% in this period. According to Turkish Statistical Institute, GDP of Turkey was $639 billion in 2007 and just a couple of years ago it was only $230 billion[1].

As suggested energy import is one of the black holes of Turkey and the paid bill was $28 billion in 2007[2]. This year oil prices are well above $100 and it is assumed that the cost of energy can reach to 50 billion for Turkey in 2008.

Turkey and Great Expectations

Dependence on oil is one of the dimensions of security and economic concerns. It is a reality that under current circumstances Turkey has to export its oil and gas and is not capable of producing enough oil or gas to cover its own consumption.

However, two weeks ago high level bureaucrats of Turkish Petroleum Cooperation (TPAO) and PM stated that Turkey will be capable of producing around half of its own oil consumption by the year 2015. Even more optimistic statements were that Turkey would become an energy exporter.[3]

As known, Brazilian company Petrobras is making exploration in Black Sea in the north eastern shores of Turkey. Chief executive of TPAO Mehmet Uysal in his interview with Financial Times stated that this company has a five year contract with Turkey and invested around $400 million until now.[4] Moreover, Uysal claims that “Seismic surveys have indicated reserves of around 10 billion barrels”. This predictions are well above the reserves of Azerbaijan, which is estimated around 7 billion barrels. After these statements in Turkey everybody asked himself “Are we sitting on rich oil reserves?”

In fact, it is not only Black Sea region that TPAO looking for oil. The cooperation is also expanding its operations in the southern part of Turkey as well as there are initiatives for new investments in neighbouring countries. As known Turkey is negotiating on exploitations in Iran’s South Pars region for natural gas as well as there are new initiatives in Syria.

Moreover, this week PM Erdogan visited Iraq and signed a new agreement with Iraqi authorities which allows TPAO to operate in this country within a consortium. However, I will discuss this agreement and its details in another article.

To sum up, I believe all these developments have to be appreciated. In Black Sea region, the first results can be misleading and it can be oil, natural gas and even air. Before making detailed analysis and finalizing drilling surveys, it might be better to be sceptical. Some experts like Necdet Pamir also advocate that looking at the results of seismic surveys it is hard to say that Turkey would have that much oil before seeing drilling results. However, if Turkey can produce its own oil, it is for sure that this would have positive repercussions on Turkish economy.

On the other hand, it seems that TPAO is also trying to evolve into an internationally proactive company and aims to grow in operational sense. Today national companies have become as popular as private ones like BP and Chevron. It is hard to deny the expertise of Gazprom or Saudi Aramco and their benefits in political and economic terms. If TPAO succeeds to operate in aforementioned countries and within the framework of its contract can get the right of marketing of oil or gas it exploited this would have positive impacts in the name of energy security of the country and its economy.