4 minute read

Erdogan’s Victory, Geopolitics and Oil Markets

   4 minute read

Erdogan’s Victory, Geopolitics and Oil Markets

Turkish President Erdogan got what he wanted: a victory to reformulate the political system in Turkey, which in plain and simple words means giving himself a carte blanche to wield more power in the country. Although, main opposition parties are demanding a recount of votes, which paves the way for more uncertainties in one of the most relevant geostrategic countries for global oil markets.

Geopolitical Trade

Turkey holds the passage to the so-called Turkish Straits (Bosphorus and Dardanelles) which altogether comprise close to 80,000 barrels a day on international ships in the global oil trade. After many days of turbulence experienced by the Turkish lira in the forex markets, it has been gaining ground.

Hence, ironic as it could seem, Erdogan’s victory may have not been that disliked by international markets. This could have one explanation: Turkey represents a barrier against Islamic extremism in the region. A maintenance of the current status quo in a traditional ally of the US and a staunch rival against Syria’s Bashar al Assad, might be desired by Washington, wanting Erdogan in power instead of wanting more political turmoil.

In this respect, one might soon see a turn of relations between Washington and Ankara. As proof of the changes expected in the relationship between Ankara and Washington, after Erdogan claimed victory, President Trump was the first one to call and congratulate him for this win. Turkey is also an important ally of Riyadh and Tel Aviv, as power brokers in the the most important current hotspots in the MENA region.

In this graph by Bloomberg, it can be seen that the falling Turkish lira, strongly impacted by political instability in the country and Turkey’s involvement in Syria, got an important rebound after Erdogan’s victory – giving it some oxygen after years of high volatility.

Global Oil Connections

In global oil markets, Erdogan’s triumph will surely give him a strong boost vis-a-vis concerning other geopolitical issues. For example, better relations with Cyprus will give him leverage over the situation concerning gas supplies from Russia, which have experienced turbulence in recent months due to differences between Ankara and Moscow over Syria’s civil war.

This could also reinvigorate Erdogan to take stronger steps in the Balkans and the Central Asian countries with strong Turkish influence, which would at the same time face counterbalance of another major geopolitical influencer in this region, just as Iran wants to broaden its influence through religious ties with some Central Asian countries.

Operationally speaking, Turkey is not a major producer of oil or gas. But in terms of its location, the country has always been relevant for the many future or already-existing gas and oil pipelines between the West and Russia, like the BTC pipeline (Baku-Tbilisi-Ceyhan) sponsored by BP and Chveron, which carries up to 1,000,000 barrels of oil from the Caspian Sea to the Mediterranean and Western markets, with its last spot in the Turkish port of Ceyhan;

Another important pipeline traversing Turkey’s soil is the Kirkuk-Ceyhan, leading from Iran to the Western markets, which altogether has a combined capacity of almost up to 3 million barrels a day. It is also worth mentioning the deals between Ankara and Moscow in order to receive natural gas from Russia through the existing Blue Stream, and with the now recently approved Turkish Stream, with the main goal of supplying Russian natural gas to Turkey.

Leveraging Power

For the EU and the United States, Turkey has always represented an alternative transit route to the Europe’s otherwise high dependence on Russian gas supplies. This is the main reason why Erdogan has been leveraging between the EU, the US and Russia in his many political manoeuvrings.

In this graph elaborated by PLATTS, one can see the relevance of Turkey as a transit route for oil and gas for being one spot to carry oil to Western markets from the Caspian Sea and the Middle East.

This is why Erdogan is in a position to exert influence to make gains from both of these worlds. It will be important to see to what extent this victory gives Erdogan the power to further push into Syria and how it affects the Kurdish issue, where Kurdistan seems set to become an influential energy player on the world stage.

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