Iran nuclear deal offers debt tailwind on imports
(c) 2013, Bloomberg News.
ISTANBUL — Turkey's current account stands to benefit from lower oil prices and improved prospects for trade after neighboring Iran won relief from some sanctions following an agreement to limit its nuclear program.
The yield on Turkey's 10-year bond fell six basis points Monday to 9.15 percent, the biggest decline among 21 emerging markets, after Iran agreed to measures including improving cooperation with United Nations monitors. Stocks advanced and credit risk declined.
Turkey, dubbed one of the "Fragile Five" countries by Morgan Stanley because of its large current-account deficit, imports more than 90 percent of its oil. The nation's annual oil import bill may drop by about $5 billion should crude prices drop by $10 a barrel, according to Burak Kanli, chief economist at Finans Invest in Istanbul.
"Every step forward in the agreement between Iran and the West will be a new positive for Turkey," Kanli said by phone Monday. The prospect of increased exports to Iran and lower oil prices may narrow Turkey's current-account gap by as much as $5.3 billion next year, almost 10 percent of the total, he said.
The deal between Iran and the so-called P5+1 nations — the United States, Britain, China, Russia, France and Germany — will ease some sanctions on oil, auto parts, gold and precious metals for a period of six months.
"We will lift the barrier put in front of us by sanctions," Economy Minister Zafer Caglayan was cited as saying in Istanbul by the state-run Anatolia news agency Monday. "Turkey will be able to send export products, including gold and precious metals, to Iran again." Caglayan will be visiting Iran on Jan. 15 and Jan. 16, he said.
Turkey's credit-default swaps, contracts insuring the nation's debt against non-payment, fell four basis points Monday to 197, data compiled by Bloomberg show. That compares with 213 basis points for Indonesia. Both countries are rated Baa3, the lowest investment grade, at Moody's Investors Service.
"This historic deal reduces the risk premium on Turkey," Isik Okte, a strategist at Turkiye Halk Bankasi's investment unit in Istanbul, said in emailed comments Monday. "That's because Turkey, more than any other major emerging market, is affected by geopolitical risks in the Middle East."
Brent crude futures slumped as much as 2.7 percent to $108.05 per barrel, before paring losses to trade 0.3 percent lower. For a significant move lower in oil prices, "the market will likely require a little more evidence that this initial resolution goes through," said Mark Keenan, the head of commodities research for Asia at Societe Generale in Singapore.
The accord may allow crude imports to Turkey from Iran to rise by as much as 33 percent to 140,000 barrels per day, Energy Minister Taner Yildiz said in the interview with CNBC-e television Monday. Every $10 increase in crude oil prices raises Turkey's annual oil payments by $4 billion, he said.
Turkey's energy imports climbed 11 percent to $60.1 billion last year, more than double the 2009 bill, data from the statistics office show. This year's nine-month import bill is $41.4 billion, compared with a current-account shortfall of $49 billion.
The current-account gap widened 28 percent from the same period last year. It will probably reach 6.9 percent of gross domestic product this year, up from 6.1 percent in 2012, according data compiled by Bloomberg and a survey of economists.
Turkish exports to Iran slumped to $3.4 billion in the first nine months of this year, compared with $9.9 billion in the whole of 2012, as sanctions barred Tehran from accepting gold as payment for oil, according data from statistics office. Precious metals accounted for 66 percent of direct exports to Iran in 2012, the data show.
The lira was little changed at 2.0045 per dollar at 6:45 p.m. in Istanbul yesterday, after strengthening as much as 0.6 percent. That compared with a 0.6 percent slide in the Russian ruble. Russia is the world's biggest energy exporter.
In a best-case scenario, the lira may appreciate to its 100-day moving average of 1.9836 per dollar, according to Tugberk Citilci, deputy manager at Sanko Securities in Istanbul.
"Foreign investors may revisit the buy Turkey-sell Russia concept on oil-price developments," he said by phone Monday.