The swift depreciation of the lira has exposed Turkey’s heavy reliance on imported energy to keep its economy running. Turkey imports 93% of the oil and 99% of the gas it consumes from its hydrocarbon-rich neighbours. This leaves the country vulnerable when energy prices in dollars surge and the lira weakens. And these two factors are what currently takes place. Benchmark Brent crude futures have climbed 42% in dollar terms this year. In lira terms, the cost is up over 140%.
Rising energy costs further fuel inflation in Turkey, where customers are already grappling with rising prices for food, medicines, and transportation. Ankara hiked the gasoline prices by more than one lira per litre last week. Energy prices contributed to a nearly 20% annualised inflation in October. Analysts said Turkish households wouldn’t be able to spend as much on other items, posing further risk to the economy.
Amid the precarious energy situation, Turkey is set to renegotiate supply contracts covering 8 Bcm/year of Russian gas supply due to expire next month. That amount equates to 15% of Turkey’s annual gas demand. Gas accounts for more than a quarter of the energy consumed in Turkey, and demand is expected to hit a record 60 Bcm this year.
The renegotiation will come at the time when cold northern hemisphere winter boosts gas prices globally. Russia’s Gazprom PJSC is expected to emerge as a winner from Turkey’s energy rout. Sales to Turkey have helped the company to post record profit, with gas flows through the TurkStream pipeline more than doubling in January-October this year. Turkey has tried to reduce its reliance on Russian energy, diversifying its gas suppliers to the US and expanding its renewable power capacity.
