The attack on Saudi Aramco, the world's largest oil producer and supplier, had an obvious impact on global energy prices and energy markets. The international energy markets, which have experienced significant events and fluctuations to date, particularly the two oil crises of the 1970s, experienced a severe break in the global oil prices for the first time in history, where the prices increased by 20% in one day. However, the effects of the attack on Aramco are not limited to global oil prices.
The fact that Saudi Arabia, who has taken serious precautions with their U.S. air defense systems with Patriot missile systems and AWACS early warning systems, could not prevent the attack on its two critical energy facilities has fueled discussions on whether other critically important oil and energy facilities worldwide are also vulnerable to similar attacks.
Even though Saudi Arabia lost an estimated 50% of its production and supply capacity due to the attack, it is not expected that there will be problems in supplying the daily needs of the world economy, as Saudi Arabia will be using its own stocks and will be supported by other oil-exporting countries.
However, economic circles are now contemplating the chaos the global economy could face if attacks are carried out on facilities of other major oil-producing countries, and what happens when the world's energy needs suddenly go unmet and oil prices spiral out of control? Moreover, with debates of "recession" in the world economy intensifying, the risk of recession can deepen with the rise in global oil and energy prices that would lead to frugal measures in both households and companies.
On one hand, we have the EU and Russia in favor of continuing the nuclear agreement with Iran; on the other hand, there is the U.S., which has increased the pressure on Iran by withdrawing from the agreement. Furthermore, we have Israel, who had the greatest level of support from the U.S. administration in history, attacking Iranian targets in Syria and its critical election coming up; and finally, the tension between some Gulf countries and Iran and even more tension between some countries and Iran about seizing each other's ships.
Clearly, the world is rapidly being dragged into geopolitical tensions, even though economists continue to focus on economic tensions from global trade and exchange wars. Turkey will accelerate measures to protect itself from this "fire circle."
Even if the Fed has its tail up
Last year, in which global geopolitical tensions escalated in addition to global trade and foreign exchange wars, the world's leading central banks have undergone a significant change in course to protect the respective countries' economies from global difficulties and adversity. In this regard, it was Mario Draghi, a rare head of the European Central Bank (ECB), who, since the first day he took office, insisted on "expanding," "supportive" monetary policy in order to keep Europe within a certain growth dynamism, despite the pressure from conservative countries, such as Germany and the Netherlands. During this period, the central banks of England, Switzerland, Canada, Japan, China, Australia and India preferred to stay close to expansionary monetary paths or tended to move in that direction.
However, with the decisive stance of Janet Yellen, who was the president of the U.S. Federal Reserve (Fed) until early February 2018, the Fed has raised interest rates four times in 2018 and continued steps to shrink the balance sheet. Therefore, exactly one year ago, the professionals of the global financial markets and economists of financial institutions were convinced that the Fed would continue with monetary tightening in 2019 with decisive steps and that other central banks would eventually have to keep up with them.
Therefore, it was being said the euro-dollar parity will fall to $1.05 in the fall of 2019 and that gold price could not stand against the strong dollar. At the end of the year, almost all the glorious international financial institutions were fooled. Regarding the uncertainty and performance risks reflected in the U.S. economy due to the ailment in global growth and trade caused by the global trade wars and foreign exchange rate wars, the Fed had to lower its policy rate by 0.25 percentage points in its July 31 and Sept. 18 meetings.
Although Fed President Jerome Powell, in order to "keep the tail up" against U.S. President Donald Trump's heavy criticism and comments, stated that the Fed will not move toward a balance sheet expansion or bond purchase program, it is possible that there may not be any interest rate cuts at every meeting, and that the expectations of the U.S. economy are still positive, the U.S.-China dispute and the increasing global uncertainties will put the U.S. economy's dynamism at risk.
Therefore, despite the Fed putting in efforts to manage its perception to save its honor, the next six months for the world economy will also bring the Fed closer to a softer monetary policy path. This, in addition to the euro, will mean that global resources in dollar terms will get cheaper and leading developing countries, such as Turkey, will be able to more easily attract international capital inflows. For this reason, we have entered a path where the Central Bank of the Republic of Turkey (CBRT) can cut interest rates by 2 points by the end of the year.
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