Mungo Soggot
THE rise in international oil prices triggered by the United States missile attacks on Iraq could have important ripple effects on the South African economy, analysts warned this week.
Increases in key international oil prices are expected to boot up the petrol and diesel pump prices next month, which will hit inflation and the already shaky balance of payments by adding to South Africa’s import bill.
In the past, South Africa could at least rely on a higher gold price as compensation, but bullion’s traditional role as a safe haven has been usurped by the dollar, which strengthened against all the major currencies this week, driving down the rand, and in turn adding to inflationary pressures.
Gold was trading in London at $385,90 to $386,20 per ounce, while the dollar hovered around DM1,48 and $1,5690 against the pound.
International oil prices have risen in the wake of the strikes because traders have pushed back the date at which they expect the United Nations to lift its embargo on Iraqi oil sales imposed after the 1991 Gulf war.
Before the crisis, October Brent crude was trading just below $21 and hit a post-Gulf war high of $23,60 in Asian trade shortly after the US’s first strike. At the time of going to press, oil was priced at $21,85.
London oil analysts said the uncertainty in the Middle East which is expected to rule out the return of Iraqi oil to the market this year and the onset of the northern hemisphere winter, which would boost demand for heating fuels, had injected bullish sentiment into the market. One analyst said he had revised upwards by $1 his forecast for the average Brent crude price in the fourth quarter.
Transnet economist Mike Schussler said if the oil price lingered around the $22 a barrel level, the country’s annual import bill for the year would rise by about – R1-billion. Schussler said these factors would encourage Reserve Bank Governor Chris – Stals to leave interest rates at their current high levels, to attract capital to pay for the increased imports. “All possible downward momentum on the prime – rate has been shot out of the water.” He calculated the petrol price would rise to between R2,25 and R2,30 a litre next – month, from its current R2,08 if the oil price remained around $22. This week’s 3 cents a litre price drop thus looks rather shortlived.
Econometrix economist Tony Twine said the peculiar pricing of South Africa’s petrol central to the regulated market could shield motorists from the effects of temporarily high crude oil prices.
South Africa’s petrol is costed according to product prices in Singapore and Bahrain, despite the fact that local refiners import crude oil from the Middle East. He said Far East product prices would take some time to react and even then the Iraq-inspired increases would have to be sustained.
Meanwhile, other analysts hope the jump in international oil prices will remind the government of the importance of a systematic energy efficiency policy, as highlighted in a recent report by the International Energy Agency.
There are no incentives for new houses to be built with insulation or constructed facing north. The police do not impose fines for faulty tyre pressures, which add millions to the country’s annual petrol bill. The government does not force motor manufacturers to improve the fuel efficiency of their cars.
Strategic Fuel Fund General Manager Kobus van Zyl, who is in charge of the state’s oil procurement, said this week’s events would probably postpone the sealing of any arrangement to buy Iraqi oil, which had been on the cards. The fund buys most of its oil from Iran and Egypt.
‘All possible downward momentum on the prime rate has been shot out of the water’