An oil tanker discharges petroleum products at a fuel depot in the commercial city of Lagos, Nigeria, June 5. Nigeria will increase its oil output by 1.5 million barrels per day by next year, contributing to OPEC's spare capacity, OPEC President and Nigerian Oil Minister Edmund Daukoru said last week. - REUTERS
PORT-OF-SPAIN (Trinidad Guardian):
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, Jamaica 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.
FEW CONTINGENCY PLANS
"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.
