Russia-Ukraine war may cause Turkish economy to fall off a cliff

Today the world has woken up to the fact that Russia is sending troops to the east of Ukraine under the name of peacekeepers, a situation which will most certainly have grave consequences for the world, as well as the Turkish economy.

This conflict is expected to push oil prices up to $120, to start off with, meaning an oil shock for the whole world. It goes without saying, one of the countries that will be most affected by the shock is Turkey as it imports a very large part of its oil and gas needs. We well know how the oil shock affected the Turkish economy since the 1970s and sky-rocketed inflation. But there is no need to go that far as we have just seen how the increase in the barrel price of oil from $ 40 to $ 80 last year was reflected in electricity bills.

Eventual hike in oil prices and the ballot box

We can clearly see the relationship between natural gas and electricity prices with inflation cart, as follows: When oil increases, electricity and natural gas prices also increase. So, what happens if there is a war and the oil price hits $ 120? A new hike in bills is not easy when the Turkish public is in revolt (almost). To do this would be to accept a major defeat at the ballot box, in advance, from the point of view of the government. But if it is not done, a big black hole in the budget would be unavoidable. The government would likely prefer to imposes new taxes on cigarettes, raccoons, cars to close the hole.

What about eventual hikes in food prices

We have only talked about electricity and natural gas prices yet. And what about prices of tomatoes, eggplants, vegetable, fruit in such a scenario? Diesel fuel is one of the most important cost items in agricultural products. Let’s imagine for a second the need for a new hike in natural gas and electricity is not reflected in the bills and it is covered from the budget. Will the oil hikes also be covered by the budget? That would be an alternative close to impossible. An increase in the price of a barrel of oil to $ 120 would mean that food inflation in Turkey would explode.

Would it be only oil? Certainly not… Russia and Ukraine are the world’s largest wheat producers. These two countries provide about a third of the world’s wheat exports. What is the country where Russia sells the most wheat? Yes you are right, Turkey.

Turkey is also the country that imports the most sunflower, barley and bran from Russia. According to the information provided by experts, we have increased the import of sunflower oil from Russia by 42 percent in 2021. $ 1.1 billion worth of sunflower oil was imported from this country.

The war will increase wheat (and corn, by the way) prices. How much? The international investment bank JP Morgan predicts that the bushel of wheat in the event of war will increase from $ 8 to $ 11.

Global food prices had increased by 28 percent in 2021. Maybe an equal amount will be added. And the conclusion would be “Inflation will climb not only in Turkey, but also in the whole world.”

Eventual movements in financial markets and impact on Turkish economy

If inflation climbs, central banks, especially the American Central Bank, the FED, will make faster-than-expected and larger rate hikes to combat inflation. This will also have negative repercussions for Turkey. On the other hand metal prices will also increase. Turkey imports the highest quantity of aluminum from Russia, as well.

Tourism sector and foreign revenues

And last but not the least, there is also tourism. The largest number of tourists to Turkey comes from Russia. Ukraine also has a serious stake.

Conclusion: So when we look at the total picture about what would happen if concerned conflict went further and led into an actual armed clash between Russia and Ukraine (supported by Western allies), it would have a major negative impact on the Turkish economy. Let us hope and pray this possibility does not turn into reality. God protect peace and Turkey as well.

(edited from article by Barış Soydan on halktv.com.tr/makale/rusya-ukrayna-savasi-turkiye-ekonomisini-ucuruma-yuvarlar-665417)