How oil prices affect Czech economy
Oil prices on world markets have been growing recently mainly due to the political crisis in Venezuela and the looming war against Iraq. Although the oil prices decreased slightly after the oil cartel OPEC hinted it might increase output to compensate for the dropout in Venezuela's exports, the main risk factors remain in place. The Czech Republic is dependent on oil imports and turbulence on the oil market can seriously affect its economy. However, a favourable exchange rate for the Czech crown to the US dollar is helping to compensate for the current oil price increases. I spoke about the latest developments with economic analyst Petr Zahradnik from the Conseq Finance company and asked him first if we can we expect more turbulence on the oil market:
"Unfortunately, yes. My opinion is that especially in the time of a potential conflict the price of oil and oil products can be really very volatile and very quickly fluctuating, even over day or intraday. In my opinion, in case of a conflict, the price of oil can reach let's say 35 USD per barrel, and, of course, depending on the concrete situation, the price could fluctuate even over 40 dollars per barrel."
How will this affect the Czech economy, because it is dependant on oil imports?
"Very heavily. I think that, of course, the primary factor influencing fuel prices at petrol stations is the dollar price of oil and oil products but on the other hand, from the point of view of Czech consumers, a favourable factor is the exchange rate of the Czech crown to the US dollar. Currently the crown has been appreciating, which partly compensates the negative effect of the oil price increase."
If there is a conflict in Iraq, do you think the US dollar can weaken further or the Czech crown strengthen to the dollar?
"I am not a political strategist but it will depend on the course of the conflict itself. If there are good prospects for a smooth solution of the conflict, I think it will represent an appreciation factor for the dollar exchange rate performance. On the other hand, if there are some potential conflicts which could lead to a delay in a final solution, the effect will be opposite and could worsen the exchange rate performance of the US dollar."
So, that means if the dollar strengthens, the Czech economy will be impacted much more heavily by the oil prices
"Exactly."
Can you estimate roughly the impact on the inflation?
"It is a big question. We predict some jump in oil prices in the course of January and February, in the segment of oil products we expect a two-percent or slightly more than two-percent price increase but the impact on the overall consumer price index will be between 0.2 and 0.4 percentage points. The impact will, of course, be very much felt by the consumers of oil products but not by the average consumer of the consumer basket in the Czech Republic."
So, in fact, nothing to worry about now...
"No, generally no."
