Possible increase in electricity prices, risk of aborting investments from developments in the Middle East

What do economists say?

revma kalodia Electricity, MIDDLE EAST

If oil prices remain high, due to the war in the Middle East, the Cypriot consumer will pay more expensive electricity, warns, with statements to KYPE, the economist and former President of the Capital Market Commission Marios Cleridis, while the economist at KPMG Tasos Yasemidis emphasizes that Cyprus, due to its proximity to the conflict area, should manage the possibility of canceling some investments, reducing the number of visitors and generally increasing the investment risk.

Specifically, when asked if the increase in oil prices will affect Cyprus in any way, the economist Marios Cleridis told KYPE that "oil is of great importance for Cyprus because it is still the main fuel used by the EAC for the production of electricity". and "if oil prices stay high because of the war we will pay more expensive electricity."

But many times, when these kinds of events happen, the other oil producing countries say that they will draw from the oil reserves they have and that they will sell cheaper, like for example Saudi Arabia and other countries.

Usually this lowers oil prices, but the market's first reaction is to raise prices.

He said, however, that how the whole situation will develop has to do with the geopolitical scene and how long the Iran-Israel conflict will last, and he gave an example of the start of the war in Ukraine when oil prices began to rise. and then retreated because the Germans found alternative sources of energy.

Asked whether the Cypriot Government should subsidize part of the increases in the event that oil prices remain at high levels for some time, Mr. Cleridis said that the Government also has its limitations and added that if the Government proceeds to subsidize the of increased oil prices, at the end of the day it will be the taxpayer who pays.

"Many times we say that the Government should pay as if the Government is not collecting from us", he added.

However, he said that "public finances appear to be in good shape and the Government can afford" a short-term subsidy, adding that this subsidy should be targeted, ie to poor households, and not across the board, but some will eventually pay. , anyway, this subsidy, as noted.

If a Government exhausts its surpluses then it will have to make up for them, in the long run, somehow, he added.

Mr. Cleridis said that dealing with oil increases in the long term will come through the use of alternative energy sources, such as natural gas and Renewable Energy Sources (RES), adding that because Cyprus is close to the war zone it is affected a little more but many times, as he noted, some events in the region "hit us positively", as in previous conflicts the Lebanese came to Cyprus and were active for the benefit of the Cypriot economy.

In addition, when asked to comment on possible effects for Cyprus from the conflict in the Middle East and the increase in oil prices, the economist at KPMG Tasos Yasemidis told KYPE that geopolitical conflicts and disturbances in themselves are a source of volatility for the global economy and in particular the economies closest to the conflicts.

"The possible involvement of Iran more actively in the conflicts, one of the largest oil producing countries, or even worse the possibility of a regional war is expected to lead to increases in energy prices and economic slowdown", he underlined.

For now the markets, he added, despite the initial reaction, seem to be digesting the fact.

He said that financial markets are moving slightly negative while increases in energy products are limited, noting, however, that these are subject to further moves by Israel and Iran.

In the event of an increase in tension, according to Mr. Jasemidis, "economic volatility will be greater, there will be problems in international transport as far as maritime channels concerning the region are concerned, with consequent delays in deliveries and an increase in transport costs".

"These could lead to a cycle of inflationary pressures," he added.

On the other hand, Mr. Yasemidis told KYPE that "Cyprus, due to its proximity to the area of ​​conflicts, will have to manage the possibility of canceling some investments, for example in the real estate sector, a decrease in visitors - of course we are not in the tourist season - and in general increasing the risk of investing or doing business in our country".

"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, and with the normalization of the tension, possibly also on an economic level", he stressed, finally