HSBC’s recent report compares the condition of the oil market with the economic situation in Greece. The report’s title is “Oil Is the New Greece.” One of the main reasons for this comparison is the ups and downs in the oil market. Recently oil prices have skyrocketed in the spot market and left the $125 limit behind in Brent oil. This upward direction also negatively affects the consumers in Turkey since the oil price is around $2.5 per liter. It should be underlined here that the oil price in Turkey is the highest in Europe and two-thirds of the price is a result of taxes levied by the government.
Even though this policy is harshly criticized in Turkey, apart from its social dimension it contributes to Turkey’s efficiency policies. According to World Bank statistics, Turkey, having the second highest growth rate in 2010 after Argentina, consumes only 116.6 kg of oil equivalent energy per $1000 of GDP.
This performance is very interesting in that Turkey ranks third in terms of efficient oil use among G20 nations, after Britain and Italy. On the other hand, it is one of the main revenue elements for the budget because each gas station is acting like a tax office for the government.
Being a resource-poor country, Turkey is not resistant to the rising prices in the oil market. Its dependence on imported oil is around 92 percent and this value is 98 percent for natural gas. Consequently, Turkey has to pay large amounts of import bills for oil and gas. It is estimated that each ten dollar increase in the average oil price is placing an extra $4 billion burden on Turkey’s current account deficit. As a result, one of the fragile indicators of the Turkish economy is becoming more problematic due to the unstable nature of the market. However, the problem regarding the oil market is not only limited to the price. The turmoil in the Middle East and particularly Iran’s policies in the region are bringing more risks for Turkey.
It is argued that the recent increase in the oil price is not due to the simple supply and demand dynamics in the market. The price of Brent oil increased almost 15 percent in the last month. However, due to the global financial crisis the main demand is rising in the emerging markets and it is limited in OECD countries. Moreover, it is a fact that most of the Central Banks in the West pursue policies of monetary expansion and low interest rates. Thus, high liquidity in the market is causing oil prices to increase. Nevertheless, Goldman Sachs experts argue that the dynamics of supply and demand were influential up until $118 per barrel. The remaining element is due to the situation created by Iran. As is known, Tehran threatens the security of the Hormuz Strait since the sanctions on Iran’s oil industry have become effective. Yet, along with threats, Iran began a disinformation campaign regarding the Gulf region’s infrastructure. Press TV’s report regarding a pipeline system’s destruction in Saudi Arabia caused oil prices to soar $5 per barrel in a day on March 1.
It should be emphasized here that Tehran explicitly warned the Saudi administration in different platforms not to compensate for the oil deficit that would emerge due to sanctions on Iran. Maybe these kinds of reports by Iranian news agencies are ultimatums regarding security in the Gulf.
To conclude, the oil market currently seems to be unstable and as the summer season gets closer it will not only be the weather getting hotter, but also the geopolitics in the Middle East. As a result, there is a risk for Turkey not only in economic, but also in political terms. It seems that the oil prices have the capacity to determine the inflation and growth rates in global terms this year as well. This means that not only Turks, but most drivers will be sparing more from their budgets to protect the “luxury” of their mobility.
Hasan Selim Özertem
USAK - Center for Energy Security Studies
Note: This piece was firstly published at Hurriyet Daily News on 26 September 2012.