Lao Dong Newspaper had an interview with Dr. Giang Chan Tay - Director of Boi Ngoc One Member Limited Company (exploiting gasoline and oil in Vinh Long) - analyzing the impact of the Middle East war on the Vietnamese gasoline and oil market.
US - Israel and Iran wars are escalating. According to you, how will this development affect world oil prices?
- The escalating war between the United States - Israel and Iran immediately created strong vibrations for the global energy market. The Middle East is considered the "heart" of the world's oil supply and plays a particularly important role in the international energy transportation chain. When conflict breaks out, the oil market does not wait until the supply is truly disrupted to react, but often fluctuates right from when risks appear.
As soon as there is a risk of supply disruption at strategic transit points such as the Strait of Hormuz, which transports about 20% of global crude oil, oil prices can rise sharply due to risk concerns. In many cases, prices rise even before material shortages occur. The market responds to expectations and expectations of instability always make prices "add" a sum called geopolitical risk premiums.
What will be the impact on the gasoline and oil market in Vietnam, sir?
- For Vietnam, the impact is inevitable. Even with domestic production, Vietnam still has to import a significant part of crude oil and finished gasoline to serve consumption and production needs. When world oil prices increase, import costs increase accordingly, putting direct pressure on domestic gasoline and oil prices through management mechanisms. This not only affects consumers but also has a profound impact on the entire economy.
Gasoline and oil are essential inputs for most manufacturing and transportation industries. When fuel prices increase, logistics costs will increase accordingly, thereby pushing product costs up. If businesses do not have time to adjust selling prices or renegotiate contracts, profits will be eroded. In the context of increasingly fierce global competition, increasing selling prices is not always feasible.
However, it is necessary to recognize that price fluctuations do not mean an immediate shortage risk. Vietnam has a mandatory gasoline and oil reserve mechanism and a relatively flexible market management system. In the short term, domestic supply is still guaranteed thanks to national reserves and sources from domestic oil refineries.
A more worrying issue lies in the prolonged scenario. If the war continues to escalate, oil prices remain high for a long time, inflationary pressure will increase. When energy costs increase, production and transportation costs both increase, creating a chain reaction effect spreading to other commodity prices. This may affect Vietnam's goal of controlling inflation and stabilizing the macroeconomy.
For businesses in the gasoline and oil distribution chain, how will the impact be different between the wholesale and retail?
- In the distribution chain, it can be divided into two main groups: key enterprises (import, production, processing) and retail enterprises. When prices fluctuate, key enterprises will be directly affected by the international market. However, the operating system of the Government and the Ministry of Industry and Trade is currently quite tight and flexible in supply management.
The issue of concern is market sentiment. When there is information about war, some businesses tend to adjust discounts and reduce commissions. In fact, in the past, there were times when retail commissions were almost zero, causing many difficulties for retail businesses. Meanwhile, national reserves are still there, not a real shortage. Deep discount reduction may make it difficult for some stores to do business, and may even have to temporarily stop selling due to insufficient profits to maintain operations. Therefore, it is important to manage market sentiment well and ensure stability in the distribution system.
If the conflict lasts, what should Vietnam do in terms of long-term strategy?
- In the long term, Vietnam needs to diversify supply sources and strengthen strategic reserves. It is possible to study raising the mandatory reserve level in sensitive periods, instead of being fixed at 20 days, it is flexible to increase to 30 days when risks increase.
In addition, it is necessary to promote energy transition, increase the proportion of biofuels such as E10 to reduce dependence on imports. Vietnam has agricultural advantages, especially raw materials such as corn, cassava, and sugarcane. If biofuels are developed well, it will contribute to reducing pressure when the oil market fluctuates. In addition, when the war is prolonged, Vietnam also needs to proactively seek and diversify import sources instead of dependence on certain areas.
- Thank you for sharing!
