WASHINGTON, April 23: The biggest threat to an otherwise stable global economy may come from a US military strike against Iran which will send oil prices out of reach for many nations, warn world’s top economists and government officials attending the spring meetings of the World Bank and the IMF here.
“Pakistan will have to take extraordinary measures to deal with such a scenario,” says Dr Slaman Shah, adviser to the prime minister on finance who is leading the Pakistani delegation to the two-day meetings that began on Saturday.
“These will include diversifying our sources of energy and that’s why it’s absolutely necessary to build pipelines to gas fields in Iran and Central Asia,” adds Dr Ashfaq Hassan Khan, economic adviser of the finance ministry.
The crude oil is already selling at an unprecedented $75 a barrel and experts attending the IMF and World Bank meetings fear that a US military strike on Iran can cause it to go beyond $100 a barrel, a price which will be “simply unaffordable for most nations,” as one expert said.
“Our strategy is to reduce our reliance on oil,” said Dr Shah. “We need to develop alternative sources such as using our rivers for producing more energy.” But developing hydel energy, he pointed out, “takes time and that’s why gas pipelines are so important.”
The pipelines, he said, would bring the much-needed energy security for Pakistan “without which everything can be destabilised”.
Dr Khan said that this year Pakistan would spend $5-6 billion on importing oil, which was a big burden on the national economy. He said the share of oil in energy consumption had declined from 40 per cent in mid-1990s to 27-28 per cent but “it’s still very high”.
A joint communiqué issued after the first day of meetings, puts ‘continued high and volatile oil prices’ on the top of a list of ‘downside risks’ to the world economy. Other risks include: “the potential for an abrupt shift in global financial market conditions, a rise in protectionism, and a possible avian flu pandemic.”
The International Monetary and Financial Committee, which issued the communiqué, notes that “major risks posed by underlying vulnerabilities, including from widening global imbalances, have yet to be comprehensively addressed.”
A leading IMF official said that given the current supply-and-demand ratio, the world oil price should stabilise at $30 a barrel, with $20 per barrel added as refining costs and another $25 due to ‘regional risks,’ such as wars and conflicts in the Middle East.
Other experts emphasised that the risk factor could add an additional $25-30 to a barrel if Iran is attacked.
Almost all participants, however, praised the current health of the world economy.
The communiqué, read out at a joint press briefing at the IMF headquarters by Chairman Gordon Brown and Managing Director Rodrigo de Rato, welcomed the ‘continued strong expansion’ of the global economy despite higher oil prices.
Finance ministers and governors of central banks of the member countries, who attended the meetings, noted that the expansion of the world economy was becoming geographically more broad-based and the global growth was expected to remain strong in the next couple of years.
“Inflation and inflationary expectations remain well contained — although with excess capacity diminishing — continued vigilance will be required,” the communique adds.
The Pakistan delegation included State Bank Governor Dr Shamshad Akhtar, Secretary-General Finance Nawid Ahsan, Dr Khan, Dr Shah and Finance Secretary Tanvir Ali Agha.
