While US President, George Bush was urging Israel to end her military offensive on the Palestine, saying that “enough is enough,” the price of Brent Crude Oil futures rose on Thursday to almost $28 a barrel, its highest level for more than six months, increasing fears of petrol price increases in Ghana and upsetting the government’s monetary policy.
The Minister of Energy, Albert Kan-Dapaah in an exclusive interview with The Statesman on Thursday observed that, “the continued conflict between Israel and Palestine coupled with threats of military conflicts hreats fo military actions against Iraq would keep upward pressures on prices.” Also, inflation this year could be higher than the expected 13 per cent.
The average price of crude oil shot up from $18.68 per barrel at the end of December 2001 to a March average of $23.73. The Minister noted that by last Wednesday it had gone further up to $26.74. “It is around and above $27 today (Thursday), we expect that it will continue to rise.”
Whiles our government is yet to react to the price hikes, already in Europe fuel prices have started going up. On Thursday, BP confirmed fears of further increase amid instability in the Middle East by announcing a 1p (?160) a litre rise on unleaded fuel. Asked as to whether we are likely to see similar rises here in Ghana, the Minister was rather equivocal in his response.
“If the trend continues then we will be faced with two equally unpalatable choices: whether we should get government to suspend some of its social programmes and release the money to us to subsidise petroleum products instead,” he said, or the other choice will mean getting the consumer to bear the brunt of the cost. The Minister of Energy did not, however, reveal what his preferred approach would be.
High oil prices are an external shock of the kind that is beyond the control of our domestic monetary policy. Many who lived through the oil-induced hyperinflation of the 1970s will be wondering whether the recent oil price rise could recreate the disastrous period when the annual rate of inflation of even developed countries such as Britain, rose above 20 per cent.
During the past three months, the price of crude oil has risen 35 per cent. If nothing else the volatility of the oil price is a salutary warning that the low inflation and mild economic growth that we are enjoying may not be a permanent thing and could easily be upset by circumstances beyond our control. “First of all, the rise is going to have a serious effect on the world economy.” Going beyond his ministry’s concerns, Kan-Dapaah further warned, “It will affect the costs of imported goods to this country because prices will rise in the international market.” This could keep interest rates unexpectedly high and delay Ghana’s long awaited economic recovery.
Explaining the price hikes, Kan-Dapaah said, “what worries us is that there has been no change in the fundamentals. By which, one means, there has not been any significant change in supply. Normally, if supply goes down you expect prices to go up, or if demand goes up, we suspect prices to go up. On this occasion the fundamentals are stable. So there should be no price increases such as we are experiencing.”
Ghana’s Energy Minister cited speculation in the oil market as accounting for the rises. The markets, conscious of the ever more evident linkage between the Arab-Israeli conflict, is in no mood to be helpful, especially as new evidence emerged that OPEC’s supply curbs last Autumn are biting.
At a time of economic difficulty, George W. Bush’s talk of war is hurting oil consumer countries, such as Ghana. More sabre-rattling will certainly bring more market frights and price hikes. Currently, the pump price for premium petrol is ?2,333.33 per litre; diesel also remains at ?1,955.56. These levels have been maintained since 23 February 2001, when the price of a barrel of crude oil stood at $28.69 and the exchange rate for $1 was ?7,050.
We witnessed a $10 fall at the end of last year, pushing the National Democratic Congress (NDC) to demand for price reductions at the pumps. The government steadfastly refused to do so, citing, among other things that the Windfall gain was to be ploughed back into servicing the interest payments in the ?2.3 trillion petroleum debt accumulated under the previous regime.
The Chief Executive of VRA, Dr Wereko-Brobby who was at the Minister’s office on Thursday, chipped in that, if the government had heeded to the opposition calls “the inflationary pressures could have been much, much higher.” ?970 billion of Tema Oil Refinery’s debt was converted into long-term bonds last year. At the moment 30 per cent of gains made by TOR is used to take care of interest payments. The windfall profit for last year was ?66,378,709. In all, interest payments totalled ?417 billion of which ?87.2 billion were on the converted bonds.
Stock markets around the world, especially Wall Street, returned from Easter breaks to the potential repercussions of escalating violence in the Middle East, suffering a sharp sell-off as the price of crude oil shot higher. Since Bush broadened his “war against terrorism” to include the “axis of evil” – Iraq, Iran and North Korea, Iraq has attempted to lure Iran into an Islamic coalition to cut output in order to force Israel out of occupied Palestinian territories.
If America is to launch a new offensive on Iraq, the new war is likely to pose a very serious threat on oil prices and world economy, analysts fear. Meanwhile, top OPEC producers including Saudi Arabia and Kuwait have dismissed calls from Iraq that oil should be used as an economic weapon against the US. The continued strength of oil puts pressure on our government’s economic forecast 2002.
