The increase in oil prices on international markets will fuel inflation in Romania in the coming months and put pressure on family budgets, in the context of high dependence on fossil fuels and insufficient investment in energy alternatives, economics professor Cristian Păun told Agerpres.

The price of a barrel of Brent oil from the North Sea rose by almost 19% on Monday morning, to $111, after already rising by about 28% last week, amid investor fears that the extension of the war in the Middle East could severely disrupt energy markets and affect global economic growth.

“I expect this price to stabilize in the coming period and, slowly, if things are resolved there, the price of oil to recover. What impact does this price increase have in Romania at the moment? It will certainly fuel inflation. At least in these months of the year, inflation will be higher than forecast. We expected prices to slowly moderate, especially towards the second half of the year, and to see prices much lower than the previous year. Unfortunately, such an event shakes us more than other countries, because we are not very prepared and we do not have the energy independence from hydrocarbons that other states have, which have invested massively in electricity, in batteries and in all kinds of alternative solutions – electrified public transport, bike lanes and so on”, mentioned Cristian Păun.

According to him, Romania has not made such investments, so our country’s energy dependence on hydrocarbons is very high.

At the same time, he emphasized that the Romanian car fleet is much older than the European Union average, which means higher consumption of fossil fuels and hydrocarbons compared to other countries.

“This will certainly lead to even greater impoverishment of Romanians and, obviously, to even greater pressure on the budget of each family, and without reactions from our side, without adaptation to this situation, the problem will be quite complicated. We must understand that, little by little, urban transport will have to rely more on electric cars, bicycles, scooters, walking, public transport and less on these hydrocarbon-powered cars. An even better infrastructure of everything that means electric charging stations is needed, including in public spaces. Also, more real facilities are needed for Romanians who install solar panels and who seek this energy independence through the investments they make. For now, we are quite amateurs in everything that means public policies that can save us and make us more resilient in the face of such crises”, Cristian Păun also said.

In his opinion, if the conflict is resolved quickly, it is very likely that things will return to normal. On the other hand, if the conflict is prolonged, the price will probably stabilize somewhere around today’s values ​​for a long time, and then each of us will have to find solutions to these very high prices at the pump.

“Of course, the state can do something: it can reduce taxation for these energy, gas and fuel products, especially for agriculture; it can consider lowering the excise tax, without a doubt. It is a very good solution, but for this excise tax reduction we need to obtain approval from the European Union. Or maybe, if things go for the worse, they can rethink the application of VAT to these products and come up with a differentiated VAT, so that for a while we don’t pay this high VAT, we pay a 10% VAT, for all these products. Maybe even a lower excise tax and, in this way, we would keep prices under control and avoid an additional inflationary surge, which would generate even bigger problems than we have at the moment,” added the economics professor.

The rise in oil prices will be reflected in prices, given that products are transported, and agricultural products are produced using fuels.

“All these elements will eventually end up in the price, but not in a huge percentage, because, in addition to the cost of transportation, there are other costs. The percentage will not necessarily be very high and because Romanians can no longer afford to pay the prices that entrepreneurs are thinking about, taking into account all these increased costs. It is not easy for entrepreneurs to include all these cost increases in the price. Now the state is even discussing the idea of ​​increasing the minimum wage, which would be a wrong decision. After there is a very high pressure from energy, gas, oil and fuels, increasing the minimum wage is an extremely harmful idea,” the economist claims.

In his opinion, geopolitical crises in areas rich in energy resources show how vulnerable economies dependent on oil and gas remain.

“I don’t understand why we haven’t learned from the war in Ukraine that these nations that rely on the world’s oil and gas reserves are not at all pacifist and peaceful and that there will always be a problem, and it will become more acute as these resources become increasingly scarce. It is, how should I put it, foolish to believe that the future will always belong to cars running on hydrocarbons, on fossil fuels, and that we don’t have to do anything at all to fix this problem. From my point of view, the situation will be difficult in the coming period for every Romanian”, stressed Cristian Păun.

At the same time, he expressed his hope that the resolution of the conflict will occur quite quickly, and Iran will give in to international pressure – and we will see a change of regime, because “that terrorist, tyrannical regime is not at all a giver of peace and hope and we have seen how much harm it can do to the Middle East”.

“These blows that Iran is giving to the countries in the region today are quite illogical and heavily imbued with terrorism and terror. Iran does not produce much oil there; it produces about 10% of the Middle East’s oil production. The ones that produce the most at the moment are Saudi Arabia, together with the United Arab Emirates, Kuwait, Qatar and Iraq. Together they produce over 60% of the region’s oil, of which Saudi Arabia produces the most, but we have this problem of the strait there. We do not get our supply from that strait; we have an alternative source, Azerbaijan, which is not related to this conflict. It was more related to Russia’s attack on Ukraine, which is why prices increased more at the time, even though the increase in oil prices on the global market was not that high. We have already exceeded that maximum threshold, we are at 120 dollars a barrel, compared to 117, the maximum at that time, but then we had a much higher price increase at the pump than what we see today, precisely because our sources of supply do not depend as much on the Middle East as they did then. Then, as now, we were quite dependent on Azerbaijan, which is not necessarily in the direct conflict zone,” explained Păun.