Kolkata: Thanks to the US-Iran war, fuel and fertiliser prices are likely to remain high for a prolonged period, the IMF, World Bank and the IEA (International
Energy Agency) have said jointly. The statement comes against the backdrop of the representatives from the US and Iran keep searching for mutually acceptable way of ending the hostilities in West Asia. The chief of the IMF, World Bank and the International Energy Agency have met as they are a part of a group set up to coordinate and reach a joint response to the energy and economic impact of the West Asia crisis. The statement from the three influential personalities has stated the war has already caused widespread misery by affecting livelihood, displacing people and denting the tourism and travel sector. “As we noted earlier this month, the impact of the war is substantial, global, and highly asymmetric, disproportionately affecting energy importers, in particular low-income countries,” the statement said. Higher oil prices, higher gas and fertiliser prices that have been caused by the war have, in turn, triggered concerns about job losses even the spectre of food insecurity.
All eyes on the Strait of Hormuz
Almost the entire focus of the world is on the partial closure of the Strait of Hormuz, through which 20% of the world’s maritime crude oil shipments takes place. While Iran has sought to impose a tariff of $1 per barrel on crude movements through this important waterway to generate funds for rebuilding parts destroyed in the war, the US has objected to it. “Even after a resumption of regular shipping flows through the Strait, it will take time for global supplies of key commodities to move back towards their pre-conflict levels – and fuel and fertilizer prices may remain high for a prolonged period given the damage to infrastructure,” the joint statement has said. The leaders of the three multilateral institutions offered their assessments on the eve of the release of IEA’s monthly Oil Market Report and IMF’s World Economic Outlook.
Situation in India
India has resisted any price rise in petrol and diesel to prevent a surge in retail inflation, though inflationary pressuresare already visible in the economy. The government has taken a knock belieeved to be well over rs 1 lakh crore by allowing a excise cut of Rs 10/litre of petrol and diesel in order to reduce stress on the oil maketing companies. However, the government had to allow raising the price of domestic and commercial LPG cylinders as well as jet fuel. The rise in retail inflation in March to 3.4% has been partly attributed to the US-Iran war by analysts.
HSBC chairman’s warning
Chairman of HSBC Brendan Nelson has said that a peace deal was essential so that resumption of global energy flows takes place. Oil prices have surged since the Iran war began on Feb 28, and prices have surged from $70 to stay above $100 a barrel. “The longer the disruption continues, the more the indirect effects from higher energy costs will lift inflation and depress growth,” Nelson said. According to an estimate by analysts from ANZ, the war has removed about 10 million barrels of crde per day from the global market.
Continue to monitor
“We also discussed the situations of the countries most affected by the shock as well as the responses by our institutions. Our teams are working closely, including at country level, to leverage our respective expertise and help countries through tailored policy advice and, in the case of the IMF and World Bank, financial support where needed,” the joint statement said. The heads of the institutions said they will keep a close vigil on the impact of the war on global energy markets, the economy and the economy of different countries to coordinate their response and support. Recently IMF chief had said under the current conditions that central banks around the world should focus on inflation management even if it meant sacrificing growth.
EU energy commissioner warned earlier
The apprehension that petroleum and natural gas prices are not going to recede to pre-war levels despite a quick end to the conflict was sounded by senior EU officials a fortnight ago. “What I find extremely important is to state as clearly as I can, that even if that peace is here tomorrow, still we will not go back to normal in a foreseeable future,” EU energy commissioner Dan Jorgensen said in after a meeting of EU energy ministers in end March.
