Region
warned about oil prices:Jamaica, Barbados, Grenada
most vulnerable to price surge - Bear Stearns
TG
Prime Minister Patrick Manning with Jamaica’s
Prime Minister Portia Simpson-Miller, who recently
paid a visit to T&T to discuss natural gas.
By
Sherwin Long
Trinidad Guardian
Port
Spain
Petroleumworld.com,
06 11 06
With
the price of oil projected to rise above its current
US$70 per barrel cost, Barbados, Belize, Grenada
and Jamaica have been pegged as countries most vulnerable
to a price surge.
This
is according to a report from leading global investment
banking, securities trading and brokerage firm,
Bear Stearns.
The
report looked at how small countries in Central
America and the Caribbean are currently coping with
the high oil price.
The
study focused on Barbados, Belize, Costa Rica, the
Dominican Republic, El Salvador, Grenada, Guatemala
and Panama.
The
report tackles how the oil price is affecting inflation,
political decision making and balance of payment
accounts in the region. And how governments plan
to cope with the current high oil price and the
prospect of the price rising to US$100 per barrel
is also examined.
According
to the report, most policymakers in the region had
a laissez-faire approach to the spike in oil prices
over the past four years and viewed the increase
as short term.
“We
believe that policymakers have few, if any, contingency
plans for a sudden spike in oil prices, to say,
US$100 per barrel. Most are just hoping it doesn’t
happen,” the report said.
Oil
prices for 2006 have been 15 to 20 per cent higher
than the 2005 average.
Over
the past four years, the oil price surge caused
not only a higher import bill but also lowered real
disposable income.
In
the report, Bear Stearns estimates that with continuing
tensions in the Persian Gulf and a higher demand
for oil in China and India, oil prices were more
likely to rise than fall.
The
impact of oil prices on the inflation rates in the
region is not cause for concern in regards to creditworthiness
or macroeconomic policy management, the report said.
But
Bear Stearns did not completely rule out the role
of oil prices in inflation.
“Most
of the increment in inflation rates in 2005 can
be accounted for by oil. These countries are not
particularly large consumers of other products,”
the report observed.
Apart
from inflation, Bear Stearns noted that the oil
bill was pivotal when reviewing the current account
of the balance of payments for Caribbean countries.
For
instance, in Jamaica, due to the price of oil their
current account deficit nearly doubled in 2005,
the report added.
In
fact, the report also projected how the Caribbean
countries’ current account balance would be
affected with a US$100 per barrel price of oil in
2007.
Barbados,
Belize, Grenada and Jamaica were labeled as highly
vulnerable should the price of oil climb any further.
“In
all cases, current account deficits would likely
rise by more than three percentage points of GDP,
with the added risk that all of these countries
already have very high deficits,” the report
said.
In
comparison, the Central American countries, Costa
Rica, Guatemala and Panama were deemed less vulnerable
to a simulated $100 per barrel oil price.
Costa
Rica and Panama generate most of their electricity
needs from hydro-generation therefore they rely
less on oil, the report said.
In
these two countries, oil accounts for less than
ten per cent of their total imports.
Conversely,
Barbados, Grenada and Jamaica generate nearly all
of their electricity with fuels, the report added.
In
April, Jamaica’s Prime Minister Portia Simpson-Miller
visited this country to discuss an agreement where
T&T would supply natural gas to Jamaica.
Similarly,
Bear Stearns also noted that these four Caribbean
countries were already taking steps to absorb the
current and future high price of oil.
The
report said these countries were looking into their
own oil supplies. High quality oil was discovered
in Belize last year.
Jamaica
and Barbados are also trying to promote offshore
exploration.
Bear
Stearns also listed accepting Venezuela’s
PetroCaribe as another remedial measure to cope
with rising oil prices.
In
the PetroCaribe arrangement, oil is sold to some
Caribbean and Central American countries with concessional
financing for “that part of the purchase price
in excess of US$40 per barrel.”
This
is already being met with approval as in Jamaica
the Finance Ministry estimated that PetroCaribe
could save the country US$150 million this year.
The
report also listed using alternative energy (solar,
wind and tidal) from renewable resources as another
stopgap measure.
But
in concluding, Bear Stearns sounded a warning for
countries pussyfooting on these actions.
“These
remedial measures might serve to mitigate the effects
of sharply higher oil prices but the measures will
certainly not eliminate them,” the report
observed.
“Most
of these initiatives have very long gestation periods
and the countries are only in the early stages of
developing them so timing will be an important concern.”
Trinidad
Guardian
Thursday 8th June 2006
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©2006 Trinodad Guardian. All Rights Reserved.
