Brent crude prices closed 2 per cent lower at $110 a barrel on Tuesday (29 March) reacting to Russia’s “assurance” to scale down military operations in Kiev. WTI crude was down to $104 before briefly breaching the $100 mark. That was over and above the 7 per cent drop on Monday due to fresh lockdown in China.
Markets across the world reacted to the ‘progress’ of peace talks. The entire bouquet of energy commodities and product prices were down. The S&P 500 index of the US rose for a fourth straight day exiting correction territory. In India, the BSE Sensex opened 400 points higher on Wednesday.
But that may not indicate a change in the economic outlook. Look closely, prices are moving like a Ping-Pong ball. Since 24 February, WTI crude prices have moved between $90 and $120 a barrel. In barely a week between 16 March and 23 March, prices increased by 23 per cent. The next week, it was down by 10 per cent.
Volatility might help traders but not businesses and/or the economy. Any position you take might prove wrong the next day. The losses or potential losses may run into millions of dollars. India recently secured a sunflower oil import deal at 32 per cent higher price. It means, even if the war stops now, the inflationary impact will not go down immediately.
However, it is questionable if the uncertainty is going to end soon. First of all, not many security experts are hopeful of a quick end to the trouble in Ukraine. Russia has already acquired strategic territory that will stop Ukraine in arm-twisting Crimea (by stopping water supply etc) in the future and a partition of the country looks fait accompli.
Moreover, any peace thus earned may be short-lived. Look at the peace talk venue, for example. It's Turkey. They control the crucial Bosporus Strait that connects the Black Sea — which is at the centre of conflict in Ukraine — to the Aegean and Mediterranean seas and finally to the Atlantic through the Strait of Gibraltar.
Turkey’s economy is in the doldrums for nearly a decade as is reflected in the sustained fall in the per capita gross domestic product or GDP (current US dollar). In 2020, Turkey was the number 19 economy in the world in terms of GDP (current US dollar) and 29th in total exports. The Turkish lira has lost roughly 47 per cent of its value in 2021 and inflation reached 54 per cent in February 2022.
However, the country is driven by strong political ambitions. President Recep Tayyip Erdogan nurses the ambition to be numero uno of the Islamic world. It is the only country in the EU with a large military. France, the only other significant power in the region, is reducing its military presence in Africa but Turkey is expanding.
That’s not all. Over the last decade, Turkey had been arm-twisting almost everyone starting from the US-led NATO (to which it’s a member), China and Russia.
In mid-2000, Turkey blocked the journey of a ship — which ended up as the first aircraft carrier of China — from Ukraine. Construction of the ship began in the end 1980s. After the collapse of the Soviet Union, China bought it on the pretext of converting it into a floating casino. In 2012, it was commissioned as the first aircraft carrier of the PLA Navy.
Only last week, the Turkish foreign minister took on China’s Wang Yi at the OIC summit in Pakistan on the genocide of Uyghur Muslims by Beijing. Turkey also questioned OIC’s silence on the issue.
But the country that shares the most complex relationship with Turkey is Russia. Turkey relies on Moscow for 45 per cent of natural gas, 17 per cent of crude oil and 40 per cent of its petrol. Ankara didn’t reduce the imports even by an ounce after the US sanction on Russia.
On the other hand, Russia surely considers Turkey a security threat.
In 2015, Turkey’s F-16s shot down a Russian SU-24 plane. Two days later, Russian President Vladimir Putin said oil from terrorist-controlled Syria was making its way across the border into Turkey.
In 2016, a Turkish policeman had shot dead Russia's ambassador, Andrei Karlov, apparently in protest at Russia's involvement in Aleppo. Early this month, it invoked an international law that enables Turkey to block the movement of Russian warships.
In short, if Russia blamed Ukraine for leveraging its strategic geography to threaten Russian interests; Turkey is a bigger threat to the Russian goal of ensuring control over the Black Sea. And, the Russia-China axis has common interests in arresting Turkish ambitions.
Yet Russia chose Turkey as the peacemaker over France (which criticised the constant hurling of abuses by the US President Joe Biden to Putin), Israel etc. Turkey also opened its doors to the Russian oligarchs, who are blackmailed by the rest of Europe.
The developments concerning Turkey will surely add to the vulnerability of the EU and NATO. But that’s only one side of it. Eventually, it should increase the importance of Turkey in geopolitics.
Any such consequence might have its trailing effect on Pakistan which had long sacrificed its economic well-being for political ambitions and are now dependent on the support of the China-Russia axis.
Add to that the unpredictability of American policies and India has a lot of concerns ahead over and above the regular India-China, Sino-Pakistani and Afghanistan-Pakistan conundrums. It’s a complete flux.
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