By Costis Stambolis
As the day draws nearer for Americans and their British allies to start military operations against Iraq with the aim of over throwing Saddam Hussein and destroying the present regime, uncertainty in international markets increases. The Middle East, including Iran, produces some 30 percent of the world’s oil (35 percent if one adds Algeria, Egypt and Libya) amounting to 26.5 million barrels of oil per day. Thus, it is legitimate to ask what the consequences will be if some, or most, Arab countries suspend production for a few days and impose an unofficial embargo as a gesture of solidarity with Iraq.
In such a case, and despite the fact that other large producers, such as Mexico, Nigeria, Norway and Russia, will increase production, prices will skyrocket. They will certainly top $50 per barrel, maybe even reach $60. problems in transport and delivery will be come acute.
Even if there are no problems with production, the start of military operations will heighten uncertainty; foreign analysts forecast oil prices rising to between $42 and $46 per barrel. At the end of last week, oil prices were already in the mid-30s.
What is important for us is how adequately is Greece prepared to weather an oil crisis or, at the very best, a market turbulence lasting for a few days?
Officials at the Ministry of Development, as well as representatives of the three refineries operating in the country reassured us that oil reserves are adequate and that a temporary spike in the price of oil will not have a dramatic impact on consumer prices.
“The Greek market does not face a fuel deficit from a likely war in Iraq. I have already declared recently that our reserves are greater than the 90 days required by law. I remind you that, even in the unlikely event of a crisis, the Development Ministry has the means to intervene in the market,” says Giorgos Moraitis, chairman of state-controlled Hellenic Petroleum. Despite that, he called on all market agents “to act with composure and moderation.” As for Hellenic Petroleum, Moraitis, a former minister and ally of Development Minister Akis Tsochadzopoulos, said that “we do not consider crises such as these as opportunities to accumulate profits.”
Good mix of suppliers
Almost all oil reserves are held by the three refining companies –Hellenic Petroleum and privately owned Motor Oil and Petrola as required by the recently introduced oil market regulation law (N.3054/02). Another, and more crucial, factor that ensures Greece’s reserves are safe, is the mix of suppliers. For the year 2001, Greece imported most of its supplies of crude oil from Russia (5.691 million metric tons), Saudi Arabia (5.427 million), Iran (5.137 million), Iraq (1.303 million) and Libya (1.130 million). Thus, there is no dependency on any single supplier. Moreover, the three refineries, which have long-term contracts with the above-mentioned countries, often buy oil on the spot market. Motor Oil also has a very close partner in the largest supplier of crude oil in the world, Saudi Arabia’s ARAMCO, which has a 50 percent stake in Motor Oil.
“(Greece) is better prepared than at any other time to withstand a fuel crisis,” says Professor Pantelis Kapros, chairman of the Energy Regulatory Authority (RAE). It was RAE which formulated the regulations, included in a law passed in 2002, for Greece’s energy reserves. These regulations include the obligation imposed on market players to maintain reserves, spelling out the minimum amounts needed and their use during a crisis. The state has naturally been given the authority to inspect these reserves.
During a crisis, a Crisis Management Committee is set up. It is made up of the general secretary of the Development Ministry –the presiding officer- the chairman of RAE, three division heads (Oil Policy, Petroleum Products Installations and Crisis Planning) from the ministry, officials from the ministries of Economy and Finance, Transport and Communications, Merchant Marine, representatives of the armed forces as well as representatives of oil trade and retail firms. The committee proposes measures to the development minister and cooperates with the European Union and the World Trade Organization. This committee may be called upon to act very soon.
An encouraging sign is the fact that recent increases in the price of crude oil have not been passed on in their entirety to consumer products. “Since early December, the price of crude oil has risen 35 percent, whereas gasoline has gone up 12 percent and heating oil, 18 percent,” says Dimitris Makryvelios, president of the Association of Gas Station Owners of Greece. This is partly due, he explains, to the strong euro, which shields eurozone countries from the full effects of price rise.
In any case, what will be crucial is not how far prices will rise, but haw long the crisis will last. If it does last long, the government will inevitably take steps to limit consumption, because putting a cap on prices may prove too costly.