First and foremost, Turkey has a massive current account deficit and a wide portion of this is caused by its high energy spending. At the same time, the plummeting prices are one development that will also reflect positively on the inflation rate. So it is possible to state initially that the sharp decline in the price of oil is a highly positive development for Turkey.
Adverse impact on demand
for hot money
Looking at the composition of investments made in Turkey in the recent time by foreigners, it is evident that much of the incoming money has been what is widely referred to as “petro-dollars”, which come from sources such as Gulf countries and Russia. Such harsh declines in the price of oil is seriously damaging the balance sheets of the companies in these countries. As such, these companies or funds which experience significant meltdowns in their assets tend to cut down on foreign investments. So looking at the other side of the coin, although the fall in oil prices seems to be positive for Turkey initially, it might also have an influence that is quite negative. At least, many economists and experts tend to strongly highlight this negative influence. Recently, Governor of the Central Bank of Russia Elvira Nabiullina said that there is a slight risk that oil prices might fall down to as low as 35 dollars per barrel in 2019, in which case Russia would go into recession. This goes to justify these concerns.
Why did oil prices rise?
Oil prices, which stood at $ 66 in 2018 actually rose to more than $ 80 in the first half of the year, later falling to $ 70 in August. The price of oil peaked to its highest in the past four years on 3 October when it hit $ 86.75 dollars. But why exactly did the price go up ?
OPEC nations and other producer countries cutting down supply in addition to lower crude supply from US; concerns about new sanctions against Iran and higher demand for o’l lead to an increase in the prices. However, despite concerns that trade wars between the US and China might inhibit global growth,which would then lead to lower demand for oil, remained in place, the price of oil continued to rise.
Why are oil prices falling?
US President Donal Trump has accused OPEC many times during the year of artificially raising the price of oil, while OPEC continued to cut supply and stuck to its protection level of one million barrels per day. However, even news that OPEC would continue production cutback could not stop the decline in oil prices. In October, energy-commodity stocks suffered severe losses. The decrease in the price of these stocks increased demand for assets considered to safe harbor properties and for US bonds. In addition to declining energy stocks, increase in US crude production also contributed to the price of oil going down.
Another reason behind the rise in the price of oil was concern that US sanctions on Iran would make oil exports and oil trade challenging, but the sanctions allowed a six-month exemption from sanctions to China, Greece, India and Turkey, which export their oil mostly from Iran. This has alleviated concern, supporting further decline in the price of oil. Another factor that has come in was the news that Saudi Arabia was planning to up its daily production to compensate for losses caused by the Iranian sanctions and the lower production rates of OPEC countries.
