Aftermath of the Energy Crisis – Russia Still Dominant in the Market!

Every year starts with new hopes, great expectations, and efforts to forget bad memories of the past. While nobly intended, I feel that we only change the calendar and begin, once again, counting down each day until the New Year.

Unfortunately, this feeling of mine failed to change once again due to two crises which broke out just next door of Turkey. One of them was the gas dispute between Russia and Ukraine, which has become a tradition, and the other one was Israel’s Gaza operation, the effects of which were felt even in the Davos Summit. Even though the second one is not in the framework of this article, I still/continue to wish a long lasting peace would come to the Middle East, bringing stability and prosperity to the region.

A Ritual or the Rules of the Game?

So, what do Russia and Ukraine want from each other? Peter Rutland describes the ongoing dispute as an annual ritual that breaks out in January between Russia and Ukraine, as Ukraine complains about the transit payments and being overcharged by Russia for its natural gas consumption.[1] The book was published in 1999, but the main discourse has not changed in 10 year time period.

In the past few years, Russia has followed a more pragmatic policy while selling its natural gas to major consumers in Europe. It can be described as multi-vector market domination, since Russia follows a pro-active policy having both economic and political concerns. While conducting this policy, Russia is also well aware its comparative advantages. It is a known fact that Russia has the richest natural gas reserves in the world, and it has inherited not modern, but well established distribution and extraction infrastructure.So, what are the pillars of Russia’s multi-vector market domination? First, Russia is gradually increasing the price of natural gas. Gazprom executives talk about market prices, but it is mainly the Russian locomotive that gives signals to the market to increase prices. Here is the question: what are the dynamics of the market, and who decides the prices? .......... for the rest of the story click here!

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The US, Economic Crisis and Politics

It has been more than a month that the conflict in Georgia broke out and since then the diplomacy has gained impetus in the region. Even though different reactions have been shown against Russia it has become clear that there is a dispersion of hegemonic power of the US in the world politics. Multipolarity and chaos have become the new popular keywords. However, it seems rather difficult to say certainly that the power getting concentrated on a specific country as in Cold War era or the 20th century.

Especially, beginning with the Iraq war and negotiations beforehand carried out by the US diplomats to get the support of its allies has been one of the major milestones in this process of dispersion of power. Or maybe the reality has become more obvious. After the end of the Cold War in spite of the main rhetoric that the US is the only superpower, it was really hard for this country to change the minds of its allies in terms of opening a new front in Iraq. Turkey and many countries in the EU did not support this adventure of Bush government.
One can claim that Afghanistan and Iraq operations could ....(for the rest of the story please click here!)

Oil: A Global Perspective and Turkey

There is this overselling of energy issue for more than half a decade. Even in the academic circles it has become so popular that everybody has something to say and really curious about it. There are several dimensions of this issue, such as geopolitics, economics and social repercussions.
A couple of years ago, on BBC Turkish there was a program that lasted for a couple of weeks and during this series specialists commented on energy issue and repercussions of this on world’s citizens. They claim that if prices continue to increase the life style of people has to change and the area that they are active or mobile will be limited. It is logical up to a point and we even see some tendency that gradually people trying to decrease the frequency of using their private vehicles. However, I am not among those pessimists, on the contrary hoping to see new energy resources and technologies to be presented for the use of humankind in the medium and long term and believing the area of mobility will continue to expand.
Until research and development endeavours reach to a solution, it would be naïve to deny the dominance of hydrocarbon resources and mainly oil in our lives. The main problem is that oil is not a simple commodity anymore and as a result it is not only seasonal neither production or consumption dynamics that have the role in drawing oil’s path in the fancy graphics of NYMEX. It is true that people are consuming this commodity, but due to decreasing and dull profits that gained from other financial instruments such as bonds or the market, oil has become a safe heaven or a new opportunity for brokers and big investors.
It is wrong to claim that oil is the sole commodity that helps people to accumulate wealth recently. Materials such as cement, steel, copper, aluminium and others have important share in this increasing inflation in global scale. It is true that incredible growth rates especially in China and India cause a high consumption and prices to soar. Increase in consumption in this extend also prepares a good basis for speculation. However, it is oil that an ordinary person has to consume in his everyday life and has to resist its price when that person’s tight budget is taken into account. On the other hand, in countries, which are not capable of meeting their consumption with existing reserves, inflation in energy prices cause constraints in financial terms.

Turkey and Economics in the Shed of Increasing Oil Prices
As known since the crisis of 2002 Turkey has implemented economic reforms in a disciplined manner. In this framework, it is following tight fiscal and monetary policies. (The recent critics is that in the last economic program the tightness of fiscal policies has loosened whereas due to high interest rates of Central Bank the monetary policy of Turkey is well too tight, but here I will not asses these critics)

Thanks to these reforms and also the favourable international environment Turkey has entered a trend of growth after the crisis and also it succeeded to reduce inflation rate from double digit numbers to single digits (in 2003 CPI was 25.3% and in 2007 it was 8.76%). Even though Turkish monetary elite overshoots the inflation target of 4% for a couple of years, it would be harsh not to appreciate the success of Turkish economy. Fluctuations in international markets especially in oil and food prices have negative repercussions on Turkish economy just like in many other countries around the world. Moreover, Turkey draws a profile of a stronger economy when regional and domestic instabilities considered in the region.

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