Turks suffer a lot from the war in Ukraine, but crisis? There is not according to Erdogan

People who see each other hurry trample to get a discounted can of sunflower oil. Long, ribbon-lined lines in the supermarket. Empty shelves. In Turkey, many people are hoarding sunflower oil for fear that it will rise further in price due to the war in Ukraine. Video images of desperate scenes in supermarkets have surfaced from countless places around the country in recent weeks.

Turkey is the world’s largest importer of sunflower oil and sunflower seeds. Most of them come from Russia (51 percent) and Ukraine (15 percent). The kernels are intended for the domestic production of sunflower oil, which amounts to 1.8 million tons per year. Nevertheless, Turkey has to import sunflower oil to meet domestic demand. The cheap cooking oil is an indispensable part of Turkish cuisine.

But due to the war in Ukraine, supplies are stalling. Most sunflower oil for Turkey is transported from the Russian port of Rostov. And that came to an abrupt end when Russia closed the Sea of ​​Azov to merchant ships in February over the alleged mines. As a result, dozens of Turkish ships have been waiting in Rostov for weeks.

Reports about this led to a run on supermarkets. Since the beginning of the war, the price of a tonne of sunflower crude oil has already risen from $1,400 to $2,000, and to take advantage of future price increases, some retailers are now holding their stocks behind† In order to combat this type of practice, the police are now carrying out unannounced checks in shops.

Important trading partners

The war in Ukraine is causing major problems for the Turkish economy, which is already struggling due to the current inflation (54.4 percent) and the weak lira (16.4 per euro). Because Russia and Ukraine are important trading partners; Turkey trades with these countries for 34.7 billion dollars and 7.4 billion dollars (6.7 billion euros) respectively. From fruit and vegetables, oil and natural gas, to machines and metals.

The rise in oil prices and loss of tourism revenue alone could cost Turkey $30 billion a year, prominent Turkish economist Mahfi Egilmez calculated. That is about 4 percent of Turkey’s gross domestic product. “If we add to that the rise in the price of natural gas and the price of other imported goods, the bill continues to rise,” wrote Egilmez. on his blog†

Since the start of the war, the price of oil has risen from $76 to $115 a barrel. That is a huge problem for a country like Turkey, which imports almost all of its energy. Turkish consumers have struggled to keep up with the trend in recent weeks, with six price increases for petrol in as many days.

Also read: War ends Turkey’s international isolation

Fuel has become more than 100 percent more expensive in the first three months of this year. This month’s price increases are likely to add about 2 percentage points to inflation. There is also an indirect inflationary effect. The Meat and Dairy Institute, for example, raised the price of beef by 48 percent this week due to the higher costs of feed, electricity and fuel. This led to long rows people who wanted to buy some more meat.

Every $10 per barrel rise in oil prices makes Turkish imports $4.4 billion more expensive, Egilmez calculates. As a result, more and more money is flowing out of Turkey, further widening the deficit on the current account of the balance of payments. If the oil price remains at its current level, the deficit will increase by about 15 billion dollars this year.

Clap for tourism

Incidentally, not only has sunflower oil become much more expensive as a result of the war, it also applies to imported goods such as grain. 85 percent of Turkish grain imports come from Russia and Ukraine. Experts expect that the price of bread will rise sharply in the coming period. Turkey’s sizeable pasta industry will also face growing shortages and rising costs.

Increasing expenditure is accompanied by declining income. For example, the war has dealt a major blow to the Turkish tourism sector. Last year’s 4.7 million Russian visitors formed the largest group of foreign tourists in Turkey. There were also 2 million Ukrainians. But due to the fall of the ruble, many Russians will no longer be able to afford a holiday in Turkey. Moreover is it difficult to pay now that Visa and Mastercard have suspended their services for Russians.

Tourism is expected to bring Turkey about $35 billion this year, according to the initial forecast. Egilmez estimates that the war will reduce it by 15 billion. To avoid such a severe setback, Turkey is trying to help Russia evade Western sanctions. so there is a plan to register aircraft of Russian airlines in Turkey.

According to President Erdogan does the war also offer opportunities for banks and tourism in Turkey† After all, rich Russians are more likely to go on holiday in a neutral country like Turkey than in hostile Europe, is the reasoning. The billionaire Roman Abramovich sent both his superyachts this week to Turkey, where they do not run the risk of being confiscated. And There are indications that Russians are trying to get out of Western sanctions through Turkish banks.

Ghost of ‘stagflation’

It seems unlikely that Turkey will be able to avert a recession with this. The country’s economy was expected to grow by about 3 to 3.5 percent this year. But that was before the war broke out. The Institute for International Finance calculated that every $10 a barrel of oil becomes more expensive results in 0.4 percentage point less growth.

For example, the specter of ‘stagflation’ is looming in Turkey: stagnant growth combined with inflation that is already high and rising further. Normally, the central bank would tame inflation by raising interest rates. But this monetary authority kept interest rates at 14 percent again last week, under pressure from Erdogan, who is an outspoken opponent of high interest rates.

The Turkish currency is also coming under pressure again. The troubled lira was relatively stable this year, partly thanks to unorthodox interventions by the central bank. She gave preferably in December $7.3 billion foreign reserves to support the lira exchange rate. But given the meager reserves, the bank cannot sustain such support for long.

For example, the coming Ramadan threatens to be dominated by price increases and shortages. The Association of Vegetable Oil Producers wrote a letter to the government this month requesting that sufficient stocks be built up to prevent shortages. A bright spot was that last week four ships with sunflower oil from Rostov reached Turkey. The government also swears that there are no shortages, but has nevertheless banned the export of sunflower oil.

The opposition, meanwhile, argues that the government has exacerbated the crisis by neglecting agriculture. As a result, Turkey does not produce enough food itself and is dependent on imports. Erdogan contradicts that. According to the president, there is no problem at all with sunflower oil. “It’s just an opposition campaign, pretending our country is in crisis.”