Paulwell warns of higher gas prices as Middle East crisis unfolds
Opposition spokesman on energy Phillip Paulwell.
Jamaicans will face “exponentially higher fuel prices” as a result of the growing uncertainty in the Middle East caused by Saturday’s drone and cruise missile attack on Saudi Arabia’s largest oil facility, and the decision by the Jamaican Government to discontinue the oil hedge that was put in place by the last administration.
That’s the view of Phillip Paulwell, the Opposition Shadow Minister for Energy.
Paulwell said the situation was made worse by the decision of the Government to use the funds accumulated under the hedge, for regular housekeeping matters.
The pre-dawn attacks on two of Saudi Arabia’s biggest oil facilities knocked out more than half of crude output from the world's top exporter - five per cent of the global oil supply - and cut output by 5.7 million barrels per day. The Abqaiq oil processing plant, the world's largest, and the Khurais oilfield, were targeted.
Houthi rebels in Yemen, who have been locked in a war with a Saudi-UAE-led coalition since 2015, immediately claimed responsibility for the attacks, warning Saudi Arabia that their targets will keep expanding.
However, US Secretary of State Mike Pompeo swiftly accused Iran of being behind the assault, without providing any evidence.
Since then, CBS News has reported in the last half hour that it was told by a senior official that the missiles were launched from a location in southern Iran, at the northern end of the Gulf.
Saudi air defences reportedly did not stop the drones and missiles because they were pointed southwards, to prevent attacks from Yemen, the official added.
“In relation to the situation with the price of oil escalating, this is always an eventually that we face in this industry; the industry is volatile and that’s why it is so important that we in Jamaica should always prepare for such eventualities,” Paulwell told Loop News on Tuesday.
He said it was for reasons like these that the last People’s National Party administration had established the hedge “That would enable us to intervene in the market where necessary, whenever the price escalates as it is doing now.”
Paulwell expressed that he did not believe the current crisis will be a long term problem.
But, he said,” It is still precisely why the hedge was put in place in the first place, to deal with short to medium term problems that arise in the sector.”
Paulwell explained that the hedge was two-fold.
“It ensured insurance at the particular price for oil and, if you didn’t put that in place, what you would have is a body of money being accumulated over these years from the tax that was imposed on Jamaicans. If that body of money was available, you could use that to provide subsidies now that the price has shot up.”
The Opposition spokesman said: “There is now no such hedge, there is no such body of funds available so we are going to be at the mercy of the market and, as the situation unfolds, it means that we are going to be in a precarious position, our energy security is going to be threatened but very importantly, the price of the fuel will escalate exponentially.”
Paulwell asserted that “It has been a bad decision, an unwise decision on the part of the Government, not only to have abandoned the hedge but also to be using the funds that should have been accumulated to offset these difficulties, to be using those funds as general revenues.”
Meanwhile, Paulwell reiterated that the Government’s decision to suddenly close the Petroleum Corporation of Jamaica (PCJ) is a bad one.
He noted that it was ironic that the PCJ was created 40 years ago to deal with oil crises like the one currently unfolding in the Middle East.
Paulwell said he will press Energy Minister, Fayval Williams for more details on the pending closure when the House of Representatives meets Tuesday afternoon.