Brussels 26.10.2020 Anna van Densky OPINION Recent President Erdogan verbal attacks on France have many reasons rooted in frustrations, not least is the economic difficulty of Turkey, experiencing sharp decline of demand of fossil fuels on world markets. Related to COVID-19 pandemic reduction of demand has dropped to record 30%, however the experts explain that the trend is here to stay. Before the pandemic broke out Turkey has been gaining strength as an energy corridor, supplying oil and gas to Europe from oil-rich suppliers of the region. However now, in so rapidly changing world, will Ankara be able to preserve its plans, or following the hydrocarbons definite decline of demand, it will face the economic consequences of end of fossil fuel era?
In the beginning of the pandemic, China’s economy slowed down, impacting fossil fuel demand, subsequently the OPEC tried to negotiate with Russia the limitations of production, but failed, the price struggle erupted between Saudi Arabia and Russia, and oil prices collapsed. Moreover, end October crude oil prices sank after Libya’s National Oil Corp (NOC) announced the output would reach one (1) million barrels per day in four weeks. Futures in New York fell 2.3% to drop below $39 a barrel.
In this volatile context Turkey will begin to discuss the new long-term energy contacts with a number of suppliers – Russia, Azerbaijan, Iran, Algeria and Nigeria, of total 45 billion cubic meters of gas. Three of them are covering one third of the energy imports – with Russia, Azerbaijan and Nigeria – will expire next year. The Turkish state-owned crude oil and natural gas pipelines and trading company BOTAŞ and Russian Gazprom had to negotiate delivery of 8 billion cubic meters of gas; the contract with Azerbaijan is covering 6.6 billion cubic meters of natural gas and with Nigeria for 1.3 billion cubic meters of LNG will – all of them expire in 2021.
Till present Russia remains the largest gas supplier to Turkey – 33.6% of total imports, followed by Azerbaijan 21.2% and Iran 17.1%. The rest 28.1% is covered by the liquefied gas (LNG) from other sources. However fossil fuel companies have entered the state of “terminal decline”, and fossil fuel companies are set to face it because of falling demand and higher investment risks caused by competition from clean technologies and tougher government climate and energy security targets, according to climate finance analysts, because of falling demand accelerated by COVID-19 pandemic, and higher investment risks explained by competition from clean technologies and strict government climate and energy security targets.
In this contemporary context the belligerent rhetoric of Erdogan against President of France, reflects tensions in Turkish society, facing the economic crisis caused by the coronavirus pandemic. The government has no plan B to answer to the fossil fuel decline impact of the economy. According to official figures Turkey’s unemployment rate improved slightly to 12.8% in April despite the raging pandemic, while the alternative calculations indicate that more than 50% were jobless. These figures might grow sharply while fossil fuels demand is declining, and plans of President Erdogan to create Turkish energy hub became dim.
The exaltation of the crisis of the relations between Turkey and France did not come as a surprise: France had systematically criticised Turkey’s role in Syria and Libya, and nowadays the unfolding conflict between Armenia and Azerbaijan over the Nagorno-Karabakh region, defending human rights of the Armenian inhabitants there. This recent conflict has added to the other tactics of President Erdogan to deviate the attention of his compatriots from gravity of economic situation in Turkey to various conflicts and crisis he stirs in outside world.
But not only, the active Ankara political support of Azerbaijan in Nagorno-Karabach conflict, will certainly reflect on energy talks of next year expired contracts, the moment when Erdogan will attempt to convert his political influence into preferences and privileges enshrined in new energy energy agreements with Russia and Azerbaijan, allowing Turkey better gains from gas and oil transit.
Anna Van Densky blog 