By Michael O’Boyle and Glenn Somerville / Reuters
MEXICO CITY: The world’s leading economies said on Sunday they were “alert to the risks of higher oil prices” and discussed at length the impact that sanctions on Iran will have on crude supplies and global growth.
Finance ministers and central bankers from the Group of 20 said in a statement after two days of talks that they welcomed a commitment from producer countries to ensure oil supplies.
Higher prices at the gas pump could undercut the US economic recovery, push Europe deeper into recession and stoke already-high inflation in many emerging economies.
Brent crude prices rose to a nearly 10-month high of $125 a barrel on Friday as Europe and Asia cut back on buying Iranian oil and seek out supplies from elsewhere to enforce sanctions designed to curb Iran’s nuclear ambitions.
Saudi Arabia, the world’s top oil producer and a member of the G20, increased exports sharply in the past week and is offering extra supplies to its biggest customers.
“We were quite pleased to hear that some of the oil-producing countries, in particular Saudi Arabia has indicated its determination to contribute to rebalancing and mitigating of the risks but clearly we have to remain vigilant,” International Monetary Fund Managing Director Christine Lagarde said.
Other petroleum exporters in the G20 group include Russia, Canada and Mexico.
A senior G20 official said there had been considerable discussion on the sidelines of the meeting in Mexico City about the potential impact that sanctions against Iran may have on the global economic recovery.
US Treasury Secretary Timothy Geithner said on Sunday he had “encouraging conversations” with countries planning to cut Iranian oil imports and said he was also seeing cooperation to get banks to crack down on transactions with Iran.
Facing the threat of higher oil prices, Geithner said last Friday that the United States is weighing the circumstances that could warrant tapping the nation’s strategic oil reserve.
But Geithner did not openly call for other G20 countries to evaluate releasing their own reserve stockpiles during the meetings in Mexico, G20 sources said. Countries hold oil reserves as a buffer against sudden drops in supply.
Italian Economy Deputy Minister Vittorio Grilli said discussions focused on adjusting production to avoid price peaks. “There is still over-capacity on the oil market, so it is a risk stemming from the geo-political situation not from an excess of demand,” he said.
Loose policy, rising inflation
Bank of Japan Governor Masaaki Shirakawa said on Saturday policymakers are closely watching the impact of looser monetary policy on oil prices.
The Bank of Japan, the European Central Bank and the US Federal Reserve are all taking unconventional measures to pump up banks with cash in the hopes of boosting the economy.
Low interest rates and central bank asset-purchase programs can fuel higher oil prices as investors seek out higher yields in commodity markets.
While Shirakawa said the current rise in crude prices was more due to geopolitical tensions, analysts are eyeing the potential for more easing from the ECB and the Federal to bolster commodity prices.
Emerging markets are eyeing the inflationary threat of high oil prices to their economies.
“Oil is a worry for all central banks at this moment,” Brazil’s central bank chief Alexandre Tombini on Sunday.
Brazil is trying to boost flagging growth with interest rate cuts. A spike in oil prices could reverse a drop in Brazilian inflation this month and crimp policymakers hopes of lowering benchmark rates into a single digits this year.