The Dominican Government is holding talks with investment banks to acquire financial insurance that will mitigate the impact on the public finances of possible increases in crude oil, given the recent increase in international oil prices amid geopolitical tensions in the Middle East, revealed the Minister of Finance, Magín Díaz.
“The country did it in past years and it did quite well. We are in talks to buy insurance for eventualities like this,” he said.
When asked about the economic effects of an escalation of the conflict between United States and Iranthe official indicated that the main transmission channel would be the oil market.
He explained that, although Iran does not concentrate a high proportion of world production, about 20% of global crude oil trade passes through the Strait of Hormuz, which generates high price sensitivity. He indicated that the barrel recently registered an increase close to 8% and was located above 70 dollars.
He maintained that, although it is early to measure the extent of the impact, the Government is prepared to face external shocks, as occurred in 2021 and 2022, when strong increases in fuel and food prices were recorded.
Díaz specified that the strategy does not contemplate the purchase of physical oil reserves, but rather the acquisition of financial hedging instruments.
“Buying reserves is more complex. What the country has to do is buy insurance against unforeseen price increases,” he said.
He explained that this type of mechanism works in a similar way to health insurance, by paying a premium to reduce vulnerability to unexpected events. Countries like Chile and Mexico They use oil hedges regularly to protect their budgets.
He noted that the scope of coverage will depend on the negotiated conditions and that the details will be informed to the population in a timely manner.
The minister highlighted that the country has sufficient international reserves in the Central Bank and with fiscal margin to absorb temporary increases in subsidies, in case international prices remain high.
