Middle East threatens electricity price spike, economists warn
A prolonged high price of oil due to the Middle East crisis may lead to consumers paying more for electricity in Cyprus, while some investments may also be at risk, economists have warned.
Economist, former Cyprus Securities president, Marios Clerides and KPMG economist Tasos Yiasemides spoke to the Cyprus News Agency (CNA) and explained how the unrest in the Middle East may affect people’s pockets in Cyprus.
Clerides said oil was of great importance to Cyprus, as it was the main fuel used by the Electricity Authority (EAC) to produce electricity.
“If the prices of oil remain high due to the war, we will be paying more expensive electricity,” he said.
On a more positive note, Clerides said oil-producing countries, such as Saudi Arabia, may draw on their reserves and sell oil cheaper.
This usually helps prices drop, however the first reaction of the market is to put the prices up.
Clerides said how it would pan out depended on how long the Iran-Israel conflict lasted.
Asked if the government should subsidise part of the increase in electricity prices, Clerides said it would still be out of the taxpayers’ pockets at the end of the day.
Clerides said public finances seemed to be good, which meant the government was able to subsidise, preferably giving priority to low-income households.
In the long run, the increase in oil prices could be addressed with the use of renewable energy sources.
He added that Cyprus’ proximity to the warzone made it more susceptible, although in the past some incidents had a positive effect, in that the Lebanese came over to Cyprus and contributed to the economy.
Yiasemides said geopolitical conflicts and unrest were not a source of variability for the global economy, especially those closer geographically, however the involvement of Iran – one of the largest oil-producers – or even worse a regional war, could lead to a spike in energy prices and an economic slowdown.
For now, he said, the markets seem to be digesting the event.
Stock markets have slightly slowed down, while increases in energy products were restricted, he said, adding however that this could change depending on the next moves of Israel and Iran.
If tension rises, Yiasemides told CNA, then economic variability would increase, there would be problems in international transport and subsequent delays and higher dispatch prices.
“This may lead to a cycle of inflationary pressure,” he said.
On the other hand, due to Cyprus’ proximity to the region, it will have to deal with the possible loss of investments, such as in real estate, tourism and business.
“At the same, time, Cyprus is a pillar of stability in the region, so it has its own role to play on a diplomatic and humanitarian level, while defusing tension,” he said.