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Feature: Oil price hikes squeeze Israelis, but market largely immune
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11:13, November 11, 2007

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Workers at a petrol station in Jerusalem are convinced that an increasing number of drivers will opt for alternative forms of transportation as oil is stepping up to 100 U.S. dollars a barrel while officials and analysts expect that the increase in oil prices would not have much influence on Israel's general economy.


"There are already a lot less customers than before," Shuki, a worker at a Delek petrol station in the suburbs of Jerusalem told Xinhua. "It's an undeniable fact that more and more people will decide to cut down on trips with their cars as gas gets more expensive," he said.

The price for benzine is regulated by Israel's Ministry of National Infrastructure and was set at a maximum of 6.25 shekels (about 1.59 dollars) a litre for full service, and 6.13 shekels for self-service for the month of November.

"Price-regulation is in place to ensure that retailers don't sell benzine over a certain price. But they are free to sell at any price below that," Chen Bar-Yosef, a representative at the ministry told Xinhua by phone.

The regulated price of benzine is based on an international quote from Platts, a leading provider of energy information, calculated over the last five days of each month, and includes additional taxes, marketing and retail costs.

Rafet, a worker with a petrol station in the downtown of Jerusalem, told Xinhua that what he is concerned about is "the possible effects of benzine price hiking to the prices of other consumer goods such as the daily necessities including water, electricity, and telephone."

"I have to stop thinking about vacation abroad with my family this year" in case of financial trouble due to the possible price hiking of the consumer goods, he said.

Aliza Peleg, a data analyst at Israel's Central Bureau of Statistics, noted that the effects of the higher oil price could also be felt in people's homes.

"The price of oil for central heating increased significantly over the first nine months of the year. From 4,299 shekels per 1000 litres in January, to 5,069 shekels in September," she told Xinhua in a phone interview.

Buildings in Israel are traditionally heated through diesel fuel, and many have been forced to look into alternative options.

"Our building committee, like several others in the neighborhood, decided to cancel central heating as the costs became too high," Shira B., a resident of Jerusalem's upscale Rechavia neighborhood, told Xinhua.

Though diesel fuel has traditionally been cheaper than benzine, the price of diesel increased from 4.86 shekels a litre in January to 5.79 shekels in September.

Nonetheless, there is no clear indication at this point that the price of public transportation would increase accordingly.

"The price of oil to the public transportation sector is based on the consumer price index, so the increase in price of oil only affects the costs to the public transportation sector indirectly, "Avner Ovadia, spokesman at Israel's Ministry of Transportation told Xinhua in a phone interview.

He noted that prices at Israel's intercity bus company Egged are subsidized, but that it is the price of the tickets rather than the price of the fuel that is subsidized.


"The taxes are set to help immunize the market from volatility in oil prices," Doron Weissbrod, an economist at Bank Hapoalim, Israel's largest bank, told Xinhua in a phone interview.

"Sixty-five percent of the price are taxes, so when the price of oil increases, the overall price is less affected," Weissbrod said, noting that oil prices were more volatile in the United States where taxes are lower.

He noted that prices were still somewhat subject to inflation, as value added taxes were calculated over the entire amount. He also said that the hike in oil prices was an important factor in overall inflation.

"Oil and electricity make up about 7.5 percent of the consumer price index, so if the price of oil increases, it will push up inflation accordingly," Weissbrod said.

Despite propping up inflation levels, the increase in oil prices over the past couple of years have not had much of an influence on the general economy.

"In the 1970s and 1980s when the price of oil increased, it resulted in a balance of payment (BOP) crisis - today there's a current account surplus despite a tripling in the price of oil," he said. "This shows that the Israeli market has come a long way, and is strong and able to swallow up the higher oil price."

Inon Dafni, an economist at Israel Discount Bank, noted that the composition of the Israeli industry had a lot to do with the economy's relative immunization to higher prices.

"The Israeli industry is not energy intensive so our sensitivity to the rise in oil prices is lower," Dafni told Xinhuain a phone interview, noting that high-tech industries had long replaced more energy intensive manufacturing industries.

"Though the higher oil price does push up inflation, that is generally offset by the shekel's strength versus the dollar," he said. (1 U.S. dollar=3.943 Israeli shekels)

Source: Xinhua

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