Will conflict affect Costa Rican gas prices?

February 17, 2012

Iran has staked its claim as international pariah during the first six weeks of 2012. Given the country’s decision not halt a nuclear development program – which the government claims is for  peaceful purposes – the international community has responded with a series of steps to pressure Iran into cooling its nuclear ambitions. 

Last week, U.S. President Barack Obama signed an executive order to sanction transactions from the Iranian Central Bank.

In late January, the European Union did the same, as well as adopting an embargo to cease new oil imports from Iran. These sanctions followed Iran’s threat in early January to close the Strait of Hormuz, a vital oil transportation channel off the east coast of the country where 20 percent of the world’s oil exports pass.

While the concern of nuclear weapons tops the list of international worries out of Iran, the more immediate fear, and one that could batter international economies this year, is the possible increase in worldwide fuel prices. Iran provides oil to some of the largest countries in the world – namely China, India and Japan – and if their supply is trimmed, oil prices could potentially double, with some estimates as high as $200 per barrel.

So should Costa Rica be worried? Yes and no. The potential surge in fuel prices is disconcerting for Costa Ricans already facing high gas prices, but as is the case with many other countries, Costa Rica has few mechanisms to control oil-price fluctuations. 

A Market of Regional Imports

According to the National Oil Refinery (RECOPE), Costa Rica imported 18.5 million barrels of oil in 2010. None of the oil that arrived at Costa Rican ports passed through the Strait of Hormuz. RECOPE reports that over 85 percent of all national oil is imported from North and South America and the Caribbean. Small percentages of oil are shipped in from Europe, North Africa, India and Singapore.  

Because Costa Rica is not a direct recipient of Iranian oil, as sanctions tighten, it appears Costa Rica would not receive the brunt of the escalated fuel prices, as least not immediately. 

“If sanctions continue, international prices will rise as countries have to go to different sources to provide oil,” said Hernán Varela, trader and analyst at the Costa Rican consulting firm Aldesa. “That will affect national fuel prices, though because Costa Rica receives a small percentage of their oil from the Middle East, the impact will be smaller.”

The Trickle-Down Effect

RECOPE reports that in 2010, the United States accounted for more than 58 percent (10.7 million barrels) of Costa Rican oil imports. Colombia was a distant second, responsible for about 12 percent of national oil supply. 

The U.S. is one of Iran’s biggest critics, along with Israel, which has been rumored to be contemplating military action against Iran (TT, Feb. 10). As U.S. sanctions and pressure mount, Iranian oil shipments will be reduced, and international supply will diminish. With lessened reserves, countries that import from Iran and then export will most likely drive international costs up as they tap other sources to replenish lost supply, resulting in a worldwide trickle-down effect in prices. 

“Since we are not a producer of oil, all of our supply is imported. That means we are at the mercy of the international market price,” Varela said. “If political conflicts in Europe and the Middle East result in elevated international oil costs, we will be affected.”

Eyes on the Exchange Rate 

When the international per-barrel price of oil hit a record average-high of $109 in Costa Rica in 2008, the country spent nearly $2.1 billion on imports, the largest petroleum price tag in the country’s history. Costa Rica pays for oil with dollars. When the demand for dollars increased in 2008, the exchange rate jumped from 500 on Jan. 1 to 560 by Dec. 31. 

Varela warned that should international oil prices increase in 2012, a similar jump would be observed in the exchange rate.

“With more demand for dollars, the exchange rate goes up,” he said. “There is a direct effect.”  

$100 Per Barrel 

According to the U.S. Energy Information Administration, the average international price per barrel of oil on Feb. 9 was $99.62. The $100 range for oil prices has been constant during the last six months. Economists have predicted that the price per barrel will hover near that figure in 2012, barring external conflict.  

“It’s really all speculation at this point,” said RECOPE spokesman Manuel Salazar. “Nothing can really be predicted, though prices here would definitely be affected should an external crisis occur.”

Facebook Comments

You may be interested

UN Committee Against Torture concerned by prison overcrowding in Costa Rica
Prisons
209 views
Prisons
209 views

UN Committee Against Torture concerned by prison overcrowding in Costa Rica

Luis Fernando Cascante / Semanario Universidad - March 20, 2019

A United Nations committee expressed its concern regarding the high rate of incarceration in the country's prisons. The committee in…

The Tico Times on Radio Dos: Community organizes to fight fires
The Tico Times
2801 views
The Tico Times
2801 views

The Tico Times on Radio Dos: Community organizes to fight fires

The Tico Times - March 20, 2019

Did you hear The Tico Times on Radio Dos this morning? The Tico Times has teamed with Radio Dos to…

Venezuelan diplomat in Costa Rica accuses Guaidó-appointed ambassador of usurping embassy
Costa Rica
437 views
Costa Rica
437 views

Venezuelan diplomat in Costa Rica accuses Guaidó-appointed ambassador of usurping embassy

AFP and The Tico Times - March 20, 2019

The diplomatic representation of Venezuela in Costa Rica accused in court the ambassador appointed by Juan Guaidó of usurpation after…