The Turkish economy’s big dilemma

As the global economy has recently entered another crazy era with the plunging oil prices down to $60 per barrel, the Turkish economy is again in the middle of opposing trends; old and new “norms.”

The tumbling oil prices are good for the Turkish economy, which has been suffering from very high current account deficits due to its high dependence to foreign energy sources. The fall in oil prices enable the country to decrease its deficit. Even the government has cut its deficit expectation down to around 5 percent of the GDP for the next year.

While the International Energy Agency (IEA) said this week oil prices will begin to increase by the next year with the expected decreases in energy investments of the U.S. and Brazil, no one is really sure what will happen.

Even to some analysts, Saudi Arabia, the world’s second biggest oil producer, just after Russia upon the IEA data, could afford its production costs even when oil prices drop down to almost $20 per barrel, as its own oil costs very little at around $5-6 per barrel to be taken out of the ground.

It is also highly unknown as to which point the U.S. will continue to increase its oil production, which is now the third biggest in the world, and is expected to export oil in the coming years.

The problem here is to which point Russia and other oil producer countries, most of which are just next to Turkey, could endure. With Russia already hit by Western sanctions and its firms facing $500 billion in external debt, the country needs the price of oil to reach $100 per barrel to meet its budget goals, and Iran, hit even harder by sanctions, needs the price to reach $160 to break even, according to Deutsche Bank.

The worst seems to be happening for Russia...