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By Riccardo Puliti of the EBRD

Until recently the Nabucco pipeline, just like the chorus in Verdi’s opera of the same name, was a symbol of freedom. It was designed as an alternative route for large quantities of natural gas coming into Europe, reducing the continent’s dependency on the Soviet-built pipeline system that runs from East to West.

But the Nabucco dream did not become reality, mainly because it would not transport enough gas to make it viable and especially because Turkmenistan, a big producer of natural gas, was not part of the project. However, this vision of independence could yet live on in another guise – but only if there is the political will to drive it forward. 

Perhaps only President Recep Tayyip Erdogan of Turkey would exclaim “I am increasingly against the internet every day” in the middle of a private meeting on press freedom.

That indeed is what the outspoken Turkish leader just did, according to the Committee to Protect Journalists (CPI), which met Erdogan in Ankara this week, together with the International Press Institute (IPI). 

Turkey is in an uncomfortable place. Amid a general turn away from emerging markets, fuelled by the rise of the dollar and expectations of US rate rises, the Turkish economy is, if not in investors’ crosshairs, close to the centre of concerns.

The lira is skirting seven month lows, undermined by worries about the country’s fundamentals (notably its high current account deficit), its geopolitical position (bordering Iraq and Syria, not to mention the jihadis of Isis) and more besides.

That makes the difference between what appear to be two schools of thought within the Turkish government particularly important. 

Poor forward planning and political manipulation of energy prices look likely to leave Turkey facing gas shortages this winter, even before the prospect of regional gas cuts due to the on-going hostilities in Ukraine.

Turkey last week experienced an unexplained drop in pressure in its western import line, through which it receives 14bn cubic metres (bcm) of gas from Russia, or about 30 per cent of Turkish demand. That sparked fears of further cuts during the peak mid winter demand period should a working ceasefire not be concluded.

But Turkey’s gas woes are not confined to one import line through Ukraine. 

One of the biggest questions facing Turkey is not so much who is going to win Sunday’s inaugural presidential election – prime minister Recep Tayyip Erdogan is heavily favoured – but what kind of government the country will have afterwards.

If Erdogan does head to the presidential palace later this month, so vacating the premiership, a new government will have to take office-even though he has made clear his ambition to keep running the country. 

Here’s an example of what may pass for high finance Turkish style: talk down an asset and then try and nab it for yourself.

This may not be a path that is permitted for non-governmental actors, but then sometimes it seems that all roads lead back to the country’s government, notably its powerful prime minister Recep Tayyip Erdogan.

Last week, he was quoted as lashing out at an Islamic bank in Turkey named Bank Asya. 

Turks are divided over the Prime Minister Recep Tayyip Erdogan, according to a new poll conducted by the US think tank Pew Research Center ahead of the country’s first presidential elections.

The survey, carried out in April and May, found a majority of 51 per cent dissatisfied with the direction of the country with only 44 per cent satisfied and an even split on the question of whether Erdogan’s influence has been good or bad with 48 per cent of Turk’s taking either side. 

Investors could be forgiven for being confused by the signals coming out of Turkey’s central bank on Thursday.

Governor Erdem Başçi (pictured) suggested that rate cuts were likely to continue. Speaking at a press conference in Ankara, he said the markets were pricing in a cut in the key policy rate of about 50 basis points and that any further interest rate cuts would be “measured”. 

What is going on with Turkey’s central bank? Why, more specifically, has it just cut its benchmark interest rate by 75 basis points to 8.75 per cent when the latest figures showed inflation just shy of 10 per cent? And why did it do that in the wake of a previous 50 basis point cut in May?

According to the bank’s version of events, inflation is no longer so much of a concern, because of Turkey’s mixture of increased exports, slower domestic demand and a stabilised currency. 

Turkey and Azerbaijan have further cemented their close relations with the signing of a $3.29bn credit agreement for the Turkish subsidiary of Azeri state oil company Socar, for the construction of a 10bn tonnes a year oil refinery to be constructed at Aliaga on Turkey’s Aegean coast.

The credit package, formally agreed on Friday, is both the largest single project finance agreement in Turkish history and, at 18 years, the deal with the longest maturity to date. 

Central and Eastern European local currency bonds lifted following a widely-anticipated move by the European Central Bank to cut key interest rates in a bid to anchor the eurozone’s tentative economic recovery.

The confirmation of cheaper money across the continent sent investors searching for riskier assets, further pushing down yields on Turkish, Hungarian and Polish bonds which have rallied over the last month. 

Not everything in life is always completely and irredeemably bad, even if you happen to be running an emerging economy. In the case of currency devaluations handed to the big emerging markets over the past year, however, the silver lining has not made up for the cloud.

It was a year ago this week that the “taper tantrum” shook emerging markets, after comments from then Fed chairman Ben Bernanke raised fears of the US central bank tightening monetary policy. Exchange rates dropped sharply in the fragile fraternity of emerging markets with flexible currencies – Brazil, India, Indonesia, South Africa and Turkey. However, bad though the turbulence was – and the panic returned for a short while earlier this year – the currency movements should at least have had the benefit of handing those economies’ exports a competitive advantage through a lower exchange rate.

 

Hopes for an early release of disputed oil pumped from Kurdistan – but held in Turkey – are rising, a person familiar with the issue said. A resolution to a political impasse between the semi-autonomous Kurdistan region and Iraq could free up for sale millions of barrels of oil that have been stockpiled on the Eastern Mediterranean coast since the end of last year.

Oil has been flowing from Kurdistan – sometimes described as ‘the last great oil frontier’ with a potential 50bn barrels in reserves – through a newly-constructed pipeline to the Turkish export terminal of Ceyhan for more than five months.