By Santhosh V Perumal
DOHA: Global reinsurance major Swiss Re has indicated that high oil prices may not fall far below $100 a barrel, an estimation that could send shocks to the world’s largest economy US.
Though higher oil prices will translate into weaker greenback and thus higher imported inflation for the GCC economies, Swiss Re, which has kept options open on setting up an office here, said that Qatar could brave the odds since gas constituted bulk of its energy portfolio.
“I think oil prices will not go far below $100 (a barrel) level,” Swiss Reinsurance Company’s senior management member Heinz Arnold told Gulf Times on the sidelines of a function to mark the inauguration of Doha Bank Assurance Company.
Having ticked $100 a barrel in the first week of January, oil prices have mellowed down, now hovering around $96, in view of fears over unemployment and recession in the US economy, which otherwise has been rattled by the credit crunch brought about by crisis in its mortgage market.
US Labour Department statistics showed that the unemployment rate jumped to 5% in December (its highest level in more than two years) from 4.7% in November.
Opec president Chakib Khelil had recently said he expected oil prices to keep rising during the first quarter of this year before stabilising in the following quarter.
Asked whether high oil prices were sustainable, Arnold said it was the function of supply and demand and that there was excessive demand from the fast growing China and India.
According to a recent international energy outlook of the US Energy Department, worldwide demand for oil is projected to climb 47% between 2003 and 2030, largely driven by economic expansion and continued demand for the fuel in China and India.
Opec member Qatar has been repeatedly telling that there were no supply shortages and its Deputy Premier and Energy Minister HE Abdullah bin Hamad al-Attiyah said the price rise was due to geopolitical tensions and speculators.
Arnold said high oil prices have led to a boom in the Gulf economies as can be seen from the projected high capital expenditure for various development works and hence called for higher risk covers for both the energy and non-energy sectors.
He said though the general insurance market was saturated, there was still a plenty of room for the life and health insurance segments, for which there was a need for increasing awareness in the Middle East region.
However, he highlighted that high oil prices have also brought with it “discomforts” such as inflation, which the Middle Eastern economies are facing now.
The severe drop in the rate of the dollar-pegged riyal against other major currencies has increased the cost of imports in Qatar, whose inflation hit a record 13.73% in September with soaring rents having a cascading effect on the prices of commodities and services.
According to economists, higher prices would lead to further slowdown in the US economy, thereby further weakening the greenback, which in turn, would jack up the imported inflation component in the economy.
However, Arnold did not see any “problematic issues” for Qatar since the Gulf country, which has 900tcf of proven reserves in the North Field, was in an advantageous position since it has more gas and said “so it’s a kind of niche (market) they are operating in.”
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