RISING tensions in the Middle East could soon be felt at the fuel pump in Fiji, with an economist warning that any prolonged disruption to global oil supply may drive up local fuel prices.
Senior lecturer in economics at the University of the South Pacific (USP), Neelesh Gounder, said growing instability around key shipping routes was already creating uncertainty in global energy markets.
“The Strait of Hormuz is a crucial shipping route for crude oil, and this route is under threat after the US and Israel launched an attack on Iran and Iran retaliated,” Mr Gounder said.
He said the impact of the conflict and uncertainty was already emerging as shipping premiums increased and vessels began rerouting.
“Amidst this, if there is a supply shock due to a reduction in oil and gas production and distribution from countries such as Saudi Arabia, UAE and Qatar, it could put upward pressure crude oil prices and thus fuel prices.”
Mr Gounder said global data already showed upward pressure on crude oil prices, largely driven by market concerns and speculation.
“As of now, global data shows that there is an upward pressure on prices of crude oil, mainly due to market concerns and speculation. It is early days, but a prolonged conflict could raise prices higher as supply and distribution are also impacted.”
He explained that the bulk of what Fijians paid at the pump was based on the price of refined petrol purchased through Singapore, using the Means of Platts Singapore benchmark.
Much of Singapore’s crude supply for its refineries comes from the UAE, Qatar, Saudi Arabia and Kuwait.
“While crude oil and refined fuel markets are closely connected, other factors such as freight rates and exchange rates also contribute to what we pay at the pump.
“Nonetheless, a quick analysis of SGX Gasoil Swap FOB Singapore and SGX Platts Gasoil FOB Singapore Index Futures indicate that refined fuel markets are expecting price spikes if the conflict is prolonged.”
