There is a tense tug-of-war happening in the global oil market that is about to hit the pockets of Ghanaian drivers. On one side, big oil-producing countries like OPEC+ are trying to pump more oil to keep prices down. On the other side, a growing conflict in the Middle East is making it physically difficult to move that oil to the rest of the world.
The Problem: Plenty of Oil, Nowhere to Go
On Sunday, OPEC+, led by Saudi Arabia and Russia agreed to speed up production by adding 206,000 extra barrels a day starting in April. This move was supposed to calm everyone down after US-Israeli strikes on Iran sent markets into a panic. However, there is a major catch. Most of this oil must pass through a tiny water passage called the Strait of Hormuz.
Because of the fighting, this area has become a massive bottleneck. Even though Saudi Arabia is working at a frantic pace to load tankers at major ports like Ras Tanura, many of these “supertankers” are simply sitting at anchor, waiting for it to be safe enough to sail. Experts warn that promising more oil is just a “signal”, it doesn’t help the world if the ships cannot actually leave the harbor.
The “Double Whammy” for Ghana this March
This global drama is expected to hit Ghana hard during the next fuel pricing window in mid-March. Local consumers are facing two problems at once. First, international crude costs jumped from $72 to $77 per barrel in a single day. Before this conflict, fuel prices in Ghana were already expected to go up by a manageable 3% to 5%, this week.
Second, the US Dollar is rallying as investors rush to safety during the conflict. Since Ghana buys its fuel in dollars, a stronger dollar means we need more cedis to buy the same amount of petrol. If the conflict persists, the mid-March window could bring the most significant price jump at the pumps that Ghanaians have experienced in over a year.
Why the Safety Net is Shrinking
Usually, Saudi Arabia and the UAE keep some “spare” oil in reserve for emergencies, about 2.5 million barrels a day. They are starting to use those reserves now to try and stop prices from spiraling out of control. However, spare capacity is like an emergency bank account; the more you spend now to fix the current crisis, the less you have if things get even worse.
If the Strait of Hormuz remains blocked or dangerous for a long time, even these reserves won’t be enough to stop a massive global price spike. For Ghana, this means the era of relatively stable fuel prices enjoyed over the last year is facing its toughest test yet. However with suggestions that talks may resume again between US and Iran, the strikes may cease and that could halt the current spikes oil prices.
