site.btaUNWE International Economic Relations Department Head Petkov: Red Sea Crisis Puts Fuel Prices Here to Test

In an interview for BTA, Assoc Prof Vasil Petkov, head of the International Economic Relations and Business Department at Sofia’s University of National and World Economy (UNWE), commented that the complicated situation in the Red Sea could affect Bulgaria indirectly. Should the difficulties along the supply chain deepen for a continuous period of time, the oil imported in Bulgaria might appreciate by up to 10%; natural gas supplies might appreciate, too. 

Over the years, the share of world trade that passes through this region has varied between 10% and 12%. The share of goods for Bulgaria that pass through the Red Sea is negligible, he said. Bulgaria's main trading partner is the EU, and Bulgarian imports from China account for between 9% and 10% of the total imports. In this sense, the expert does not expect a direct effect of the conflict on Bulgaria; this country will feel it indirectly if producers of goods in the EU from which Bulgaria imports are affected.

"My concerns are mainly related to oil, because so far we have been importing it mostly from Russian ports, but because of the diversification non-Russian oil will be coming into the country," the expert noted. The main transport artery through which oil and natural gas flow, for example from Qatar, is the Suez Canal, and there is a pipeline running parallel to it and there is no access to it at the moment, he added. In this sense, the problem for Bulgaria will rather be fuels, which will become more expensive due to increased transport costs. The insurance of transported cargo will also go up, and that will result in an increase of fuel prices. If the conflict continues and other countries get involved, there could even be a suspension of fuel exports, for example from Iran, and from other countries it will simply be unable to reach the end users, Assoc Prof Petkov argued.

According to him, Bulgaria currently has enough Russian oil reserves, but should the conflict continue, the effect of the oil price increase on Bulgaria will be felt in May-June. However, it will not be significant.

The expert listed as sectors to be affected in Bulgaria the manufacture of car parts and components, and machine building as a whole. Consumers will feel the crisis in the prices of new cars and the delays in their delivery. Certain investment goods will appreciate, too, but not those Bulgaria produces, including food and products for short-term use.

Assoc Prof Petkov expects the recession in developed countries to continue this year and early next year, and it will not significantly affect developing economies. Bulgaria will go into recession six to twelve months after Germany, where the data for the third and fourth quarter indicate a looming recession.  The reduced economic activity in Germany will have negative effects for Bulgaria, because Bulgaria supplies that country will certain goods and if the German factories are not working, Bulgaria will not have a market for its production. 

The effects of rising interest rates and decreasing economic activity on the labour market always appear with a lag of six to twelve months. At the moment, in the US, the eurozone (even the EU reported record-low unemployment), and Bulgaria, the labour market remains stable. Some strain can be expected from the recession-caused return to Bulgaria of lower-qualified workers who are now working in Germany and the Netherlands, for example, but with what businesses in Bulgaria see as a chronic staffing problem, the expert expects that some of the newly returned will find jobs. 

According to Assoc. Petkov, Bulgaria did not gain anything from joining Schengen by air and sea, because the goods are mainly transported by road and rail, and the losses from not being in Schengen by land lead to an increase in product prices by about 1%. For businesses, the losses amount to approximately BGN 1 million per day.