Risk level: Blue
RED: Severe (+/- 4%) ORANGE: High (+/- 3%) YELLOW: Elevated (+/- 2%) BLUE: Guarded (+/- 1%)
THE BOOSTER SHOT
-Turkey tries its hand at dominance through energy.
-The Mediterranean map is looking World War I-ish
Turkey late last week issued an advisory to mariners notifying them of a “gunner exercise” in the waters offshore Cyprus from Saturday to Sept. 11. On Thursday, the Turkish military said it thwarted Greek jet maneuvers and frigates from both sides collided mid-September while Turkey was shadowing a vessel surveying for oil and gas deposits. Frustrations over Turkish claims to drill off Cyprus span at least a decade, though neo-Ottoman ambitions are growing stronger. With a glut of natural gas on the market, Turkish claims may be more territorial in nature. If Ankara wins or it if fails, it already has profound ramifications for the Mediterranean region.
Hurricane Laura in the Gulf of Mexico was the primary driver behind the price of oil last week. The storm unsettled oil and gas production offshore and prompted several refiners to shut down as a precautionary measure. The storm quickly lost strength after making landfall, and much of the impact was already baked into the price of oil early in the week. Brent crude oil managed a 1.5% gain on the week, more or less in line with the Yellow alert, to finish trading Friday at $45.05 per barrel.
Mustafa Sentop, the speaker of the Turkish Parliament, said Friday that that Ankara would stand up for its territorial rights both on land and offshore. Ankara has long sought to advance its drilling rights off Cyprus, though Sentop said Turkey now had more economic and military power to advance its regional interests.
“As the Turkish Republic, we will be the guard and follower of all our rights and authority that belongs to us both in our land and water according to international law,” he said.
The same day, the Turkish government issued a maritime advisory notifying mariners of military drills in the Mediterranean through Sept. 11. Houston-based Noble Energy started exploratory drilling in the region’s Aphrodite gas field in 2011, hoping to exploit the estimated 7 trillion cubic feet in natural gas reserves. Solon Kassinis, who was the energy chief for Cyprus at the time, told NPR in 2012 that those reserves could translate to $25 billion a year in sales, roughly the same value as the total economy. At issue then, and at issue today, is territorial rights. Turkey does not recognize Cyprus and has occupied the northern half of the island republic since 1974. The issue has enveloped Egypt and Israel, which have vast gas reserves of their own, and has obvious geopolitical ramifications in Europe. After Turkey renewed drilling activity in the Eastern Mediterranean, EU foreign policy chief Josep Borrell said enough was enough. (See Platts for an infographic on the Eastern Mediterranean)
“I call on the Turkish authorities to end these activities immediately and to engage fully and in good faith in a broad dialogue with the European Union,” he stated mid-August.
Greece, Egypt, Turkey and Libya all have competing claims to economic zones in the Eastern Mediterranean and disputes are nothing new. What is new is the strengthened neo-Ottoman ambitions of Turkish President Recep Tayyip Erdoğan. A term used first by Greece when Turkish forces claimed parts of Cyprus in 1974, Erdoğan has been advancing neo-Ottomanism deep into the Mediterranean and parts of the Middle East for much of the year. Conquest runs deep in the veins of neo-Ottomanism and the president’s decision to turn the historic Hagia Sophia into a working mosque must be seen through that lens. Deeply unpopular, Erdogan’s move on the Byzantine cathedral was largely a display of power.
“It seems that Erdoğan thought this step, a demonstration of force to the domestic public and to the world, would help him show that he is still able to make radical decisions despite opposition,” Stanford University historian Ali Yaycıoğlu said.
Populism and nationalism are on the rise, eroding the links that moderated the liberal world order since the end of World War II. From President Trump to President Bolsonaro, the Turkish president is part of an emerging theme of national pride. As Russia longs for its Soviet dominance by casting its power across Anatolia, Erdoğan’s government is pining for the glory of the Ottoman Empire, whose disintegration in the late 19th century helped usher in the events that triggered the first world war. But Turkish expansionary aims are fraught with risk. An op-ed in Turkey’s Anadolu news agency finds support for Ottoman expansion in the claims that France is on its backfoot after losing a battle for influence in Libya, lending credence to Ankara’s shared maritime interests with Tripoli in the Eastern Mediterranean. That, in turn, collides with French efforts to usher in real political change in Lebanon, where French President Emmanuel Macron stands accused of advancing his own colonial ambitions. Turkish and Lebanese interests collide, meanwhile, in Syria, where Turkish military support is sparking concerns from northern Lebanon.
In May, Turkey’s president accused Cyprus, Egypt, France, Greece and the United Arab Emirates of forming an “alliance of evil” because of their stance on Ankara’s claims in the Eastern Mediterranean. The situation now is ripening for open conflict, though it may be disastrous well beyond the human element. The Emirati role, strengthened now by its warming to Israel, opens the door to Sunni ascendancy in the Shiite Crescent, a door that Iranian proxy Hezbollah would almost certainly try to close by force. Pegging a geopolitical rise to natural gas, meanwhile, is the wrong strategy at the wrong time. The United States has seen its ambitions to contain Russia by way of liquefied natural gas squashed by the quarantine economy, while continental interests in Europe remain keen on Russia’s Nord Stream pipeline. Turkey then may suffer the same fate as the United States. The International Gas Union in early August estimated global gas use will fall around 4% this year because of the pandemic, after growing by more than 2% last year. A return to growth depends in large part on the resiliency of the pandemic. Gas production from offshore Cyprus, meanwhile, isn’t expected until 2024 at the earliest, and with the political poles shifting quickly, that leaves Turkish ambitions on life support. But without an economic foothold, the alternative may be a military one. Often quoted by Cordell Hull, President Franklin Roosevelt’s secretary of state for 11 years, it was 19th century French economist Frederick Bastiat who warned of the consequences of failed economic ambitions. “If goods cannot cross borders,” he said, “armies will.”
Crude oil prices were up early Monday on developments in Asia, with India expected to move deeper into growth territory with its latest PMI reading. Trade levels, however, will be on the thin side due to a banking holiday in the United Kingdom. For Europe, its PMI reading is expected to stand still. Elsewhere, Brazil is expected to post a 10% slump in GDP for the second quarter on Tuesday. Wednesday brings the usual inventory data from the United States, though that data will be skewed by the impact of Hurricane Laura. While largely a look in the rear-view mirror, traders won’t be able to help themselves by looking at OPEC+ compliance levels from August. And speaking of the United States, do not discount the toxicity of the political climate and social unrest, which could bruise the dollar. The Beige Book is always fun, though the big fireworks come on Friday, when the United States reports on August payrolls. Those are expected to come in lower than July. Sandwiched between the UK bank holiday and the long Labor Day weekend in the United States, it could be a slow week. Expect Brent to keep trading around the $45 per barrel line, but wavering in Blue territory, moving by +/- 1% on the week.