Switzerland braced for oil shock

Switzerland's oil reserves can last four and a half months Keystone Archive

Fears of a United States military strike on Iraq have driven up oil prices to their highest level in more than a year.

This content was published on September 12, 2002 - 19:42

But market jitters that a prolonged war could trigger a recession in Switzerland remain unfounded, according to economic observers.

On Thursday, US president George W Bush warned the United Nations that the time for action against Iraq was now imminent.

While experts fall well short of predicting a 1970s-style oil crisis, many warn that ordinary Swiss consumers should expect to feel some pain in the event of war.

Recent speculation about a conflict with Iraq has pushed prices for North Sea crude oil to around $28 per barrel.

Oil analysts believe the inflated prices include a "war premium" of up to $10 per barrel.

Impact on Switzerland

"When the United States marches into Iraq, then a new round of prices increases is to be expected," says Kurt Rüegg, from the Swiss Petroleum Association.

Rüegg told swissinfo that oil prices were only expected to increase over the short-term, as they did during the Gulf War and after the September 11 attacks.

However, should the war become protracted, deeper economic impacts were to be expected.

"The size of [such a recession] cannot be foreseen at the moment," says Rüegg.

Switzerland ready to cope

Despite the nervous talk among many observers, Rüegg says Switzerland is well prepared for an oil crisis, pointing to well-stocked reserves.

"Comparisons with similar situations during the last Gulf War and after September 11, 2001, showed that Switzerland did not use its reserves to cope," says Rüegg.

Sonja Studer, vice director of Switzerland's central office for fuel imports, agrees.

"In the majority of cases, oil reserves are fully stocked," Studer told swissinfo.

Swiss law requires the maintenance of substantial reserves. Studer says they include four and a half months' worth of petrol, diesel and heating oil, along with three months' worth of aviation fuel.

Jeremy Baker, an analyst with Credit Suisse Financial Services, says consumers have no reason to be worried at this stage.

"I don't think there's any reason at the moment to get overly concerned about the situation," Baker told swissinfo.

"Consumers need to get concerned when there is some kind of action. If we do see a long-term period of higher prices, then we need to get really concerned."

Baker also believes Switzerland's economy is well placed to cope with any financial crisis.

"Whether it causes a double-dip recession is just speculation," Baker says.

Oil inventories critical

Much of the recent nervousness has been fuelled by speculation over an invasion of Iraq, along with warnings from the International Energy Agency that the global oil supply is reaching critical levels.

According to the IEA, global inventories have depleted to levels last seen in 1999, when shortfalls triggered price hikes a year later and forced then president Bill Clinton to dip into US oil stocks usually reserved for times of crisis.

Switzerland, like most European nations, is entirely dependent on exports for its oil supplies - which account for more than 60 per cent of the country's energy requirements.

Half of Switzerland's oil imports originate in Libya, with a third from Nigeria, ten per cent from Algeria and eight per cent from the Middle East.


Key facts

Speculation about a war with Iraq has pushed North Sea crude oil prices to around $28 per barrel.
Switzerland's economy will suffer if a protracted war againt Iraq is waged.
Switzerland's oil reserves can last four and a half months.

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In compliance with the JTI standards

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