Falling oil prices are doing a power of good in helping narrow Ankara’s current account deficit, a notorious economic weak spot.
It’s difficult to exaggerate the scale of the current oil shock. A surge in production and weaker than expected global demand for oil has triggered a rise in oil stocks and a plummet in oil prices. There are winners and losers in this rebooting of the global economy. Turkey is heavily reliant on foreign fuel so the halving of oil prices since last June is very welcome news. In our view Turkey’s energy bill may fall by US dollar 39 bn in 2015 thanks to the plunge in oil prices.
The bill last year for energy imports was US dollar 55 bn.
The graph below shows Turkey’s current account deficit as a percentage of GDP (rhs) each year since 2009. The blue columns indicate the level of Turkey’s net energy imports (with on top of the column the average price of Brent crude oil) in each of these years with estimates for 2015. With Brent crude now trading below USD 50/barrel Turkey’s current account deficit stands to fall even further than expected.
The impact of cheaper oil on Turkey’s finance gives weights to the view of Mehmet Simsek, Turkey’s finance minister, who argues his country should no longer be seen as one of the “fragile five” emerging economies — officials say the deficit narrows by more than $400m for each $10 fall in oil. Mr Simsek said of the plunge in oil prices “it’s great, not good, absolutely great” in an interview on December 3 2014.