Rising Oil Prices Amidst Increasing Trade Risks: Implications for Omani Businesses and Investors
Muscat: Omani economist Dr. Nasser Al-Maawali has cautioned that the increase in oil prices, driven by tensions in the Strait of Hormuz, may only offer temporary financial relief. He emphasized that the greater economic risks for businesses lie in escalating shipping and insurance costs, along with potential disruptions to supply chains.
Speaking during a recent Ramadan gathering organized by the Oman Chamber of Commerce and Industry (OCCI), Dr. Al-Maawali expressed skepticism about potential “gains” from conflict. He noted that any benefits from rising crude prices are likely to be offset by the associated costs impacting trade and logistics.
“Disruptions in the Strait of Hormuz inevitably affect global oil and gas supplies,” he stated, highlighting the strategic importance of the waterway for energy distribution and broader commerce.
The oil markets have responded swiftly, with Oman’s official selling price for crude oil for May delivery rising to $85.93 a barrel on March 4, up from $82.09 the previous day and $80.40 on March 2.
However, Dr. Al-Maawali stressed that the implications extend beyond oil prices alone. “The larger risks lie in supply chain interruptions, increasing shipping costs, and heightened insurance premiums,” he warned.
The Strait of Hormuz is critical to the world’s energy supply, with the US Energy Information Administration (EIA) reporting that oil flows through the strait averaged 20 million barrels per day in 2024, accounting for approximately one-fifth of global petroleum liquids consumption. Furthermore, about 20% of global liquefied natural gas (LNG) trade, primarily from Qatar, also transits this vital passage.
In response to the rising risks, shipping and insurance markets have begun to adjust. According to Reuters, certain marine insurers have withdrawn specific war-risk coverage, prompting an increase in operational costs for tankers and other vessels operating in the Gulf.
For Oman’s business sector, the repercussions are expected to manifest in the mechanics of trade, including tighter insurance requirements, restructured freight contracts, longer lead times, and elevated “landed costs” for imported goods. These factors could lead to increased working-capital needs for importers, wholesalers, and manufacturers, resulting in more cautious procurement strategies until shipping routes and premiums stabilize.
Dr. Al-Maawali also cautioned that prolonged instability might deter investors from the region, potentially increasing the risk premium on new projects, even if energy exporters enjoy higher crude prices in the short term.
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The current rise in oil prices offers only a fleeting advantage for businesses in Oman, overshadowed by the more significant risks of disrupted supply chains and increased shipping costs. Smart investors should focus on assessing procurement strategies and preparing for tighter insurance requirements, as these factors may necessitate elevated working capital and cautious decision-making in the near term. Ultimately, the potential for increased investor caution could hinder new project developments amid regional instability.
