THE PEOPLE WILL PAY THE BILL OF WAR - THE HOT ISSUES AND WHAT THE CYPRIOT CONSUMER CAN DO - 'MEASURES FOR FUEL AT THE RIGHT TIME' SAYS MINISTER OF ENERGY - Filenews 22/3 by Ernest Moussas
The war waged by Trump and Netanyahu against the theocratic regime of Iran is evolving day by day into an energy thriller with unpredictable consequences. Geopolitical instability in the Middle East has already begun to create a chain of effects that affect – beyond energy – trade, tourism, investment and more. What is a given is that the bill will not be paid by those who drop the bombs, but by the ordinary citizens of this world, among them the Cypriots.
The magnitude of the impact will be largely determined by the intensity and duration of the conflicts. We are already in the fourth week of war, with the escalation of attacks on the oil and energy infrastructure of the Persian Gulf leading the situation into a new phase, which, according to experts, threatens to blow up the global energy market.
The Cypriot government is dealing with the data calmly, but it is on alert if and when it needs to take its measures. Despite the fact that the President of the Eurogroup, Kyriakos Pierrakakis, stated that he was open to discussing measures to protect households, in Cyprus the Minister of Finance initially estimated that there was no reason for additional actions. On the other hand, the Ministry of Energy, Commerce and Industry expressed readiness for immediate intervention in the event of unjustified price increases or fuel shortages, which will not be justified by the real market conditions.
Michalis Damianos: Measures at the right time
The Minister of Energy states to "F tis Kyriakis" that although there are increases at the moment, they are nevertheless justified by the situation in the Middle East and international fuel prices. This means that there have been, for the time being, no phenomena of profiteering by Cypriot importers or gas station owners. At the same time, Michalis Damianos emphasizes that the government is monitoring the situation and is working on measures that could be taken at the right time.
Tasos Yiasemidis: Energy fuels inflation
The escalation of tensions in the Middle East and especially the conflict in Iran have created new pressures on international energy markets, causing prices to rise and inflation to rekindle, according to economist and CEO of KPMG Cyprus, Tasos Yiasemides. This development, as he explained speaking to Filenews, affects not only the economies of the states but also the standard of living of citizens, as the increased cost of energy is gradually transferred to all sectors of economic activity.
Inflation, according to Mr. Yiasemidis, is one of the most important economic phenomena that affect the purchasing power of citizens and the stability of economies. It is the continuous increase in the general price level of goods and services within an economy. When inflation rises, money loses some of its value, so consumers can buy fewer products with the same income. Energy plays a crucial role in shaping inflation, as it is a key cost driver for manufacturing, transportation, agriculture, and industry. When energy prices rise, so do production costs, which ultimately leads to higher prices for finished products and services. When inflation rises significantly, Mr. Yiasemides explained, central banks often raise interest rates in order to limit the increase in prices. Rising interest rates make borrowing more expensive, which can reduce both consumption and investment.
Increases in electricity are coming
The president of the Electricity Authority of Cyprus, George Petrou, when asked about the cost of electricity due to the developments, said that for May based on the price of Brent oil around 102 dollars per barrel, the increase in the price of electricity is estimated at about 5%. He added, however, that due to the recent surge and the imminent cargo pickup in early April, the increase may move between 5% and 7%.
In relation to the electricity cost outlook for August, he noted that in the event that the price of oil rises to $110 to $115 per barrel, the increase could reach up to 20%.
The fuel rally is frightening
Prices at Cypriot gas stations have been on the rise since the beginning of March. According to the president of the Association of Gas Station Owners, Savvas Prokopiou, this is a normal development due to the instability caused by the conflict in the Middle East. Mr. Prokopiou describes to "F tis Kyriakis" an extremely fluid situation accompanied by continuous increases. "On average every two or three days we have new prices," he said, noting that from March 3 to the 19th of the same month, there were a total of 6 times increases in prices.
Data from the Consumer Protection Service show that from February 27 to March 19, the retail price of fuel rose by 14.3 cents per liter in unleaded 95, 22.7 cents in diesel and 18.7 cents in heating oil. The Director of the Consumer Protection Service, Konstantinos Karagiorgis, told "F" last Thursday that international fuel prices appeared dramatically increased compared to February 27. Unleaded 95 went up 57%, diesel 80% and heating oil 76%. If prices remain at the same levels or rise even more, then there is expected to be a further increase in retail sales in the immediate future, which will further increase the pressures.
Both the Association of Gas Station Owners and the Consumer Protection Service reject the possibility of imposing a ceiling, as they argue that it is a measure that cannot succeed since the problem is not profiteering but jumps in wholesale prices internationally.
On the contrary, they would be receptive to the reinstatement of the measure to reduce the consumption tax on fuel, as was done in both 2023 and 2022. Here it is worth noting that when the government decided to subsidize the fuel consumption tax in 2023, retail prices were from 7 to 10 cents higher than today.
Meanwhile, energy expert Charles Ellinas estimated speaking to Filenews that if the price of Brent remains at $105, then gasoline in Cyprus can reach €1.65 per liter. In the nightmare scenario that Israel does not stop the strikes on natural gas and oil facilities, the price of Brent may reach 150 dollars and by extension gasoline in Cyprus €2.15 per liter.
The most powerful Iranian weapon
The war in its current phase focuses on the energy and by extension the economic part. Exactly where Iran aimed to lead developments from the beginning. Everything shows that the theocratic regime is holding out and will remain in power for the time being, despite the severe US-Israeli blows aimed at neutralizing every high-ranking official.
A particularly important role in this geopolitical equation is played by the Strait of Hormuz, one of the most important sea passages in the world for the transport of oil. A large percentage of the world's oil and liquefied natural gas production is traded through this strait. Any disruption to the region's navigation or energy facilities can directly affect the global energy supply.
Associate professor at King's College London, Andreas Krieg, told Al Jazeera that Iran relies heavily on its geographical location. According to him, Tehran is using endurance tactics, trying to extract concessions and exert pressure wherever it can. Its most powerful tool is the control of the northern coast of the Strait of Hormuz. This gives him influence in the world economy and the US and allows him to maintain pressure for a long time, making it very difficult to find a rapid military solution.
Stavros Stavrou (CCCI): Serious risk of prolonged high prices
"The war in Iran and the intense destabilization in the wider region create a new environment of increased risk for the Cypriot economy, with two main burdens: energy and tourism. The de facto blockade of navigation in the Strait of Hormuz has already begun to affect the global economy, as it is an extremely critical maritime corridor through which significant amounts of the world's oil and gas pass.
This turmoil leads to immediate upward pressures on international energy commodity prices, with a serious risk of prolonged high prices if the crisis continues. For Cyprus, this translates into more expensive fuels, increased electricity production costs, transport costs and a general increase in business operating costs. Unfortunately, additional increases in fares, transport prices and ultimately import costs are expected, and consequently imported inflation and pressure on the competitiveness of our businesses.
At the same time, as we know, tourism is the most direct and sensitive indicator in times of geopolitical tension. International experience shows that when conflicts break out in our wider neighbourhood, the psychology of travellers, booking decisions and, above all, air mobility are directly affected. At this moment, when the tourist season for Cyprus is actually beginning, we are already seeing the first effects on the market: in some cases cancellations, but also slower flows of bookings for the summer. This in itself is a warning bell.
For Cyprus, the priority is to protect the momentum of this season. Emphasis should be placed on the stability and security image of our country, immediate and reliable information to our partners abroad, close cooperation with airlines and tourism organizations, and continuous monitoring of trends in bookings. Tourism is based on trust and trust is built with consistency, seriousness and timely action by all involved.
As CCCI, we call on all relevant bodies to act with speed, coordination and a clear message: Cyprus remains a safe, organized and welcoming destination. Cyprus continues in its daily life."
Marios Drousiotis (Consumers' Association): What the Cypriot consumer can do
"The war in the Gulf has direct and indirect effects on consumers, mainly through rising fuel prices, energy and disruptions in supply chains. In particular, the following can be mentioned:
1. Increase in fuel and energy prices
Conflicts in the Gulf directly affect the price of oil, as the region is critical for global energy production and transportation.
Cyprus does not have sufficient alternative energy sources, so the burden is quickly passed on to the consumer. This translates into more expensive fuel, electricity and heating for households.
2. Disruptions in supply chains
Threats to sea routes and ports increase transportation and insurance costs. Not only fuel is affected, but also products that depend on international transport, such as food and raw materials.
3. Inflationary pressures
The increase in the cost of fuel and energy leads to generalized price increases and an increase in inflation. Consumers are seeing their shopping basket become more expensive, while wages remain stable.
4. Impact
Cyprus is directly dependent on fuel and energy and is therefore strongly affected by:
Increase in fuel and energy prices with a direct burden on consumers and businesses.
More expensive imports with increases in food, building materials, etc.
Pressure on tourism if the region is considered unstable.
Uncertainty in businesses, which may delay new investments
5. Accuracy in food & imported products
Cyprus is dependent on imports of food, raw materials and consumer goods.
Disruptions in international transport and rising freight costs are driving up prices on the shelves.
Cyprus, as a small open economy, is rapidly transferring external price increases to the internal market.
6. Impact on tourism and services.
Tourism is a key pillar of the Cypriot economy. Geopolitical instability in the region can negatively impact bookings.
7. What can the Cypriot consumer do?
-Comparison of fuel prices and selection of cheaper gas stations.
-Reduction of energy consumption, transportation and avoidance of any form of waste.
-Preference of Cypriot products where possible. Cypriot products are less affected than imported ones. In addition, with the preference of consumers for domestic products, Cypriot businesses are strengthened, which are also affected by the effects of the war.
-Planning purchases and avoiding expenses that are not absolutely necessary."
