ANKARA, Turkey—Turkey hasn’t been immune to skyrocketing energy costs, driven by pandemic-induced supply disruptions and the effects of the Russia–Ukraine conflict. The government recently raised domestic energy prices for the fourth time this year, in a move expected to exacerbate the country’s already soaring inflation rate.
But the situation isn’t as dire as that now seen in Europe, which faces the specter of crippling energy shortages following Russia’s recent closure of its Nord Stream pipeline.
Political Economics
On Sept. 1, the Turkish authorities raised prices for natural gas and electricity by 20 percent for households and 50 percent for industrial use. The announcement followed similar price hikes in January, April, and June.Ogutcu, a former adviser to the Turkish prime ministry, attributed the move to steadily rising international prices for natural gas, which have increased tenfold within the past year and are expected to rise even farther amid continued supply disruptions.
“Turkey imports 98 percent of its gas,” he said. “This means that any fluctuation in global prices is instantly felt in Turkey as well.”
As is the case in most other countries, the latest round of price increases is expected to have an immediate inflationary impact.
“Primary sectors of the economy—transport, manufacturing, services, and power generation—will all be affected,” Ogutcu said. “This will serve to drive prices up across the board.”
Turkey is already struggling with soaring prices on most basic commodities. In August, the official inflation rate surpassed 80 percent—the highest in more than two decades. Many independent analysts put the real inflation rate much higher.
Inflationary pressures have been driven by an ongoing currency crisis, which has seen the Turkish lira decline in value against the U.S. dollar by almost 60 percent since the beginning of 2021.
Meanwhile, continued efforts by Turkey’s central bank to shore up the lira have steadily eroded its foreign currency reserves.
Yet, even with the latest price hikes, Turkish consumers are still paying far less than the international rate for energy. Last year, the government spent a whopping $100 billion on energy subsidies, which covered roughly 80 percent of the country’s overall gas bill.
The Turkish Energy Ministry recently warned that this figure could double in 2022.
“This represents a huge drain on the economy,” Ogutcu said. “But the removal of subsidies would entail raising household gas prices sevenfold.”
With presidential polls slated for next year, he added, such a move would amount to “political suicide” for incumbent President Recep Tayyip Erdogan and his ruling Justice and Development Party.
“The government can’t afford, for political reasons, to pass global prices onto domestic consumers,” Ogutcu said. “At the same time, it lacks the resources to finance these enormous subsidies.”
‘Reaping What It Sowed’
But while Turkey struggles to pay its gas bills, Europe is facing unprecedented energy shortfalls and state-imposed austerity measures.On Sept. 2, the G-7 group of nations, which includes the United States, United Kingdom, Canada, Germany, France, Italy, and Japan, agreed to set limits on the amount they would pay for Russian crude oil.
Moscow retaliated by shutting its Nord Stream pipeline, which provides crucial gas supplies to Northern Europe, prompting several European Union countries to adopt contingency plans and austerity measures.
As a result of the pipeline closure, Europe “will suffer a very tough winter this year and another difficult year in 2023,” Ogutcu said. But Turkey, he added, would be relatively unaffected, thanks to its more diverse range of energy sources.
Along with importing natural gas from Russia, Iran, and Azerbaijan via pipelines, Turkey buys liquefied natural gas from sellers in Norway, Qatar, Nigeria, Algeria, and the United States.
What’s more, unlike European capitals—which have adopted a hard line toward Russia over the Ukraine conflict—Ankara has gone out of its way to maintain good relations with Moscow.
While Turkey, a NATO member, condemned Russia’s “special military operation” when it began in February, it has also refrained from supporting Western-led sanctions on its imposing northern neighbor.
“Turkish policy vis-à-vis Russia and Ukraine has been a clever balancing act,” one that has allowed it to mediate between the two warring sides, Ogutcu said.
In July, Ankara helped broker a landmark deal between Russia and Ukraine, allowing the latter to resume grain shipments through the Black Sea.
On Aug. 5, Erdogan met Russian President Vladimir Putin in the Russian city of Sochi, where the two leaders agreed to step up bilateral cooperation in the trade and energy fields.
Erdogan also stated his country’s willingness to pay for Russian gas, which accounts for almost half of Turkey’s total gas imports, in rubles.
While the meeting stoked Western fears of Turkey’s “deepening ties” with Moscow, Ankara’s nuanced approach to the conflict now appears to be paying dividends—a fact that Erdogan appears keen to capitalize on.
On Sept. 6, the Turkish president said that while Europe was bracing for hardships this winter, Turkey would have enough energy to meet its domestic needs.
Referring to the raft of Western-led sanctions against various aspects of Russia’s economy, Erdogan said, “Europe is reaping what it sowed.”
