Northern Cyprus to ‘feel impact’ of global oil price war

By Salman Siddiqui

Consumers in the TRNC might see oil and gas prices eventually go down this year as the global oil price war between Russia and Saudi Arabia intensified over the week.

Oil and gas prices in the country have remained quite stable over the year. On Wednesday, the websites of the oil and gas companies – Kıbrıs Türk Petrolleri Limited and Alpet Kıbrıs – maintained the prices of gas at 4.9TL/litre, diesel 4.96TL/litre and high-octane oil 5.36TL/litre. In 2019, the gas price was 4.9TL per litre while diesel was 4.96TL per litre, according to ALPET.

A leading global energy expert told the Cyprus Today that the impact of the global oil price war will be felt on small island nations like the TRNC gradually, not immediately. 

Last Monday, international crude oil prices had made a steep fall, dropping over 30 percent, when Saudi Arabia decided to slash its oil prices in response to what analysts believe was Russia’s fall out with members of the Organization of the Petroleum Exporting Countries, also known as OPEC, in Vienna earlier this month. 

The OPEC meeting in Vienna was supposed to draw up with a joint plan to deal with the overall lower global demand of oil products, especially in the aftermath of the coronavirus outbreak that continues to cause economic disruptions in several countries, including China that imports about 28 per cent of the world’s global oil supply; Russia had reportedly stepped away without an agreement at the meeting.

Saudi Arabia then decided to counter the Russian move by slashing oil prices to 30$ per barrel, which was a drastic drop that had not been seen as far back as the 1990-91 Persian Gulf War crisis. The idea behind the move was, among many things, to give an even more cheaper rate of oil to markets that depend on Russia.     

Global energy market expert Cyril Widdershoven said even though the TRNC is a small island nation, it too was going to get affected by the oil price war.

“The impact will be felt, as overall oil and gas prices have plunged to extreme low levels. The impact on energy prices or gasoline will be clear, but could take some days or even weeks, as current volumes in storage are done with oil/gas bought at higher prices,” Widdershoven said.

“When taking longer, gasoline prices will be lower, diesel and others too. The latter also needs to be looked at from the side of contracts: If you have a contract on set prices then changes will take longer to be seen. When you are going to look at gasoline at gas stations, prices could go down very quick.”

In theory, a lower demand for oil would mean lower prices and a cause for celebration for the average consumer, but it also indicates that globally economic activities are slowing down, which eventually could lead to an economic depression. 

The coronavirus has already made a huge impact on economies across the world as multiple cities go on partial or full lockdown. The TRNC on Tuesday saw its first coronavirus case, with the prime minister announcing a set of precautionary measures to deal with the developing situation, which included cancellation of charter flights, shutting down of schools and universities in the country.  

While consumers would be happy to see prices go down to what they were in 2017, when gas used to be at 3.4TL/litre, diesel 3.63TL/litre and high-octane oil 3.87TL/litre, it is hard to predict at exactly what level the prices would come down to once the global impact is realized.

So far, the TRNC government has not announced any changes to the oil and gas prices. But whether the prices would go further down would eventually be dictated by the country’s suppliers, the expert added.

“It will depend how much leverage your deliveries are being given by the suppliers, which in the case of TRNC will be Turkish operators. They will have to buy on the international markets, so it will depend on the specific parties they have contacts with,” Widdershoven said. 

About whether it makes a difference that countries like the TRNC are a smaller market for oil producers, he said: “The size of the market matters, but overall every market will witness lower prices except if the market is fully being subsidized by the respective government. Then a price change depends on the willingness of the government (TRNC or Ankara) to put a lower price in place too.”

This story was first published in the Cyprus Today in March 2020.