Turkey’s balancing act pays off as Europe prepares for cold winters

ANKARA—Turkey has not been immune to supply disruptions caused by the pandemic and skyrocketing energy costs caused by the impact of the conflict between Russia and Ukraine. This is expected to exacerbate already skyrocketing inflation in the country.

However, the situation is not as dire as it currently looks in Europe, facing the specter of a devastating energy shortage with Russia’s recent shutdown of the Nord Stream pipeline.

“Turkey is indeed suffering from high energy prices,” Mehmet Ogtuk, head of the London Energy Club, a British think tank that specializes in energy issues, told the Epoch Times. “However, Europe is facing a significant supply shortage and is set to face a very harsh winter.”

political economy

On September 1st, Turkish authorities increased the price of natural gas and electricity by 20% for domestic use and 50% for industrial use. The announcement follows similar price increases he made in January, April and June this year.

Ogutcu attributes the move to steadily rising international prices for natural gas, which have risen tenfold over the last year, amid ongoing supply disruptions. expected to rise further.

“Turkey imports 98% of its gas,” he said. “This means that global price fluctuations can be felt instantly in Turkey as well.”

As in most other countries, the recent price increase is expected to have an immediate inflationary effect.

“All major sectors of the economy will be affected, including transportation, manufacturing, services and power generation,” Oguchu said. “This will help drive prices up across the board.”

Epoch Times photo
Take an intriguing look at the fourth Turkish-built Abdulhamid Hand Drill ship in Mersin on 9 August 2022 before setting off on gas exploration for the undisputed region of the Mediterranean Sea south of the city of Gazipasa. (ADEM ALTAN/AFP via Getty Images)

Turkey is already suffering from high prices for most basic commodities. In August, the official inflation rate exceeded her 80%. This is her best in over 20 years. Many independent analysts put real inflation much higher.

Inflationary pressure has been driven by the ongoing currency crisis, with the Turkish lira depreciating nearly 60% against the US dollar since early 2021. Meanwhile, Turkey’s central bank’s continued efforts to shore up the lira have steadily weakened. its foreign exchange reserves.

But even with the latest price increases, Turkish consumers are still paying well below international energy tariffs. Last year, the government spent a whopping $100 billion on energy subsidies. This accounted for about 80% of the national gas bill.

Turkey’s energy ministry recently warned that this number could double by 2022.

“This means a huge outflow to the economy,” said Ogutuk, a former adviser to the Turkish prime minister. “But removing the subsidy would mean that the price of domestic gas would rise sevenfold for him.”

With presidential elections scheduled for next year, such a move would amount to “political suicide” for incumbent President Recep Tayyip Erdogan and the ruling Justice and Development Party, he added.

“Governments cannot afford to pass on global prices to domestic consumers for political reasons,” Ogutsk said. “At the same time, we lack the resources to fund these huge subsidies.”

Epoch Times photo
Russian President Vladimir Putin meets with Turkish President Recep Tayyip Erdogan at the Black Sea Resort in Sochi on February 14, 2019. (Photo by Sergei CHIRIKOV / POOL / AFP)

“You reap what you sow”

But while Turkey struggles to pay its gas bills, Europe faces unprecedented energy shortages and state-imposed austerity measures.

On September 2, the G7 group (US, UK, Canada, Germany, France, Italy and Japan) agreed to cap the amount they would pay for Russian crude oil.

Moscow retaliated by closing the Nord Stream pipeline, which provides a vital gas supply to northern Europe, prompting several EU countries to adopt contingency plans and austerity measures.

As a result of the pipeline closure, Ogutsk said Europe “will have a very tough winter this year and 2023 will be another tough year.” However, Turkey is relatively unaffected due to its more diverse energy sources, he added.

Along with importing natural gas via pipelines from Russia, Iran and Azerbaijan, Turkey purchases liquefied natural gas from sellers in Norway, Qatar, Nigeria, Algeria and the United States.

Moreover, unlike European capitals that have adopted a hard line against Russia over the Ukraine conflict, Ankara has done its best to maintain good relations with Moscow.

NATO member Turkey has condemned Russia’s “special military operation” launched in February, but has also refrained from backing Western-led sanctions against its impressive northern neighbor.

“Turkey’s policies toward Russia and Ukraine have been a clever balancing act,” Ogutsk said. In July, Ankara helped broker a landmark deal between Russia and Ukraine, allowing Ukraine to resume grain shipments through the Black Sea.

Erdogan met with Russian President Vladimir Putin in the Russian city of Sochi on August 5, where the two leaders agreed to strengthen bilateral cooperation in the fields of trade and energy.

Erdogan also said he was willing to pay for Russian gas, which accounts for almost half of Turkey’s total gas imports, in rubles.

The talks have stoked Western concerns about “deepening ties” between Turkey and Russia, but Ankara’s nuanced approach to the conflict now appears to be paying off.

Turkey’s president on Sept. 6 said Turkey would have enough energy to meet its domestic needs while Europe braced for difficulties this winter.

Referring to a series of Western-led sanctions against various aspects of the Russian economy, he affirmed:

Adam Morrow