A strong earthquake hit southern Turkey and northern Syria on Feb. 6, local time, with both countries reporting serious casualties and property damage.
Vice President Fuad Oktay said on February 6 that the strong earthquake that occurred in southern Turkey that day has caused 2,379 deaths and 14,483 injuries in the country. Rescuers have rescued 7,840 people from the rubble.
Turkey straddles the Asian and European continents, connecting the Black Sea and the Mediterranean Sea, is not only a romantic tourist destination, the Turkish Strait is also known as the “throat of the world” because of its unique and important geographical location.
Located in a global shipping hub, what impact will the earthquake in Turkey have on the country and the global economy and financial markets?
Turkey’s currency and stock market plunged
The strong earthquake shook the financial markets in Turkey. According to Reuters news agency on the 6th, the Turkish currency lira once fell to a record low of 18.85 in early trading on the 6th, and then recovered the lost ground to close flat. The stock market also suffered a plunge, the Istanbul Stock Exchange 100 index once fell more than 5%.
In fact, as early as before the earthquake, Turkey’s financial markets have not been optimistic, and in the past period of time repeatedly staged a “stock, debt and currency” together with the situation.
On January 5, 2023, Turkey’s Istanbul 100 Index plunged more than 5% intraday, triggering a meltdown. 30 minutes after trading resumed, the stock index continued to plunge and triggered a second meltdown. At the close of the day, the index fell 7.4%, the largest decline in 10 months. On the same day, Turkish government bond prices also plunged, with the 10-year bond yield surging more than 22%, the largest increase in history.
In terms of exchange rates, the lira “plunged” against the dollar in 2022, falling from 13.31 at the start of the year to around 18.70, a devaluation of up to 40%.
In October 2022, the Turkish inflation rate reached 85.51%, the highest level in 24 years. In that month, transportation prices in Turkey, including energy prices, rose 117% year-on-year; food prices rose 99%, the second highest rate; and prices of furniture and other household items rose 93.63%.
What impact will the earthquake have on the world economy?
In the view of many analysts, the earthquake has undoubtedly aggravated the crisis facing the Turkish economy and finance.
A report by the U.S. Geological Survey points out that the earthquake could cause widespread damage, with economic losses expected to reach 2% of Turkey’s gross domestic product (GDP).
According to foreign media reports, an explosion and fire occurred in a gas pipeline in Hatay province in southern Turkey on the 6th. In addition, the Syrian Ministry of Oil said on the 6th, due to strong earthquake caused equipment damage, located in the city of Baniyas, Syria’s largest oil refinery has suspended operations.
As of the close of business on the 6th, the price of light crude oil futures for March delivery on the New York Mercantile Exchange closed at $74.11 per barrel, up 0.98%; the price of Brent crude oil futures for April delivery in London closed at $80.99 per barrel, up 1.31%.
“The earthquake will affect the normal production and life in Turkey, and the impact to the Turkish industrial chain and supply chain will aggravate the currency devaluation and inflation in Turkey.” Bai Ming, deputy director of the International Market Research Institute of the Ministry of Commerce Research Institute, pointed out in an interview with China News Financial.
At the same time, the earthquake will also cause losses to the recovering Turkish tourism industry. The latest data released by Turkey’s Ministry of Culture and Tourism shows that Turkey received more than 51.4 million tourists in 2022, which is the third largest tourism market in the world, as compared to 2019 before the epidemic, the number of tourists received has recovered by about 99%.
However, the earthquake has now caused the destruction of thousands of buildings in Turkey. Among them was the collapse of a 1,000-year-old fortress in Gaziantep, which is a UNESCO-designated World Heritage Site.
The earthquake will undoubtedly bring more uncertainty to the normal navigation of the strait, as Turkey is located between the Black Sea and the Mediterranean Sea, and the central Bosphorus Strait is an important route for the world’s cargo.
In Bai Ming’s view, in the context of the Russia-Ukraine conflict, the Bosphorus strait near Russia and Ukraine assumes the important function of transporting food and gas to Europe. The uncertainty faced by the passage of the strait may affect the price trend of commodities and the stable operation of the international industrial chain and supply chain.