What will happen to the world economy if oil rises to $100?
12 October 2018 09:52 PM
Edit سالي إسماعيل
Mubasher: The rise in oil prices in the past boosted expectations of returning to $100 a barrel for the first time since 2014, leading to the existence of losers and winners in the global economy.
Crude exporters may benefit from the returns, giving a boost to companies and governments in those countries. In contrast, consumer nations will bear the cost, which will exacerbate inflation and hurt demand, according to an analysis published by Bloomberg.
The good news is that economists at the agency have found that the price of a barrel of oil at $100 may be less harmful to the growth of the global economy in 2018 compared to the pain that limited in 2011.
In part, the economies are less energy-dependent, and because the oil-rock revolution is easing up for the United States.
In the end, much of the reason for rising oil prices is due to the shock of supply restraints, while other explanations are driven by strong demand reflecting the momentum of economic growth.
Currently, both forces are in the oil field, driving Brent crude for gains of about 22% since the beginning of this year.
The first question: What does this mean for the growth of the global economy?
High oil prices could hurt household income and consumer spending but the impact could be uneven.
Europe is at risk as many countries in the region are importers of oil.
China is the world's biggest crude importer and can expect inflation to accelerate.
There are also seasonal effects that must be taken into consideration as the winter season approaches in the northern hemisphere.
Consumers can replace energy sources in an effort to keep costs low, such as biofuels or natural gas, although it may not be quickly.
Indonesia has already put in place measures to boost the use of biofuels and reduce the economy's dependence on imported fuel.
As for the potential for a sustained blow to global economic growth, the report says that this will need oil to continue above $100.
The dollar gains this year also do not provide support because the crude is greenback, meaning that the rise of the dollar raises the cost of buying crude for other countries.
The second question: How can the global economy absorb oil at $100?
The Bloomberg Economics report found that oil at $100 a barrel would do more harm than good for global economic growth.
However, there are significant differences in the state of the world economy today compared to 2011.
According to a recent Bloomberg Economic Survey report, led by Jimmy Murray, the rocky oil revolution, low energy intensity and high general price levels mean the impact will be less than it was then.
And the price of a barrel of oil will need to rise to much higher levels before the global economic growth is reduced by this factor.
Question 3: How far does Iran and Trump affect the market?
Geopolitical Matters The most important paper is still here, as the renewed US sanctions against Iran have already disrupted oil exports to Tehran.
While US President Donald Trump is pressing the Organization of Petroleum Exporting Countries (OPEC) to pump more supplies, there is limited spare capacity.
In addition, supplies from countries including Venezuela, Libya and Nigeria are facing a backlash due to economic collapse or civil unrest.
Goldman Sachs analysts still expect oil prices not to rise at $100 a barrel.
The fourth question .. Who is the winner of high oil prices?
The majority of major oil producers are emerging economies, with Saudi Arabia leading the way with net crude production of about 21 percent of GDP in 2016, twice as much as Russia, the second of 15 major developing markets rated by Bloomberg Economics.
Other winners may include Nigeria and Colombia.
Increased revenues will help tackle the current budget deficit and current account, allowing governments to increase spending and stimulate investment.
The fifth question .. Who is the loser?
India, China, Taiwan, Chile, Turkey, Egypt and Ukraine are among the countries that may receive a blow from high oil prices.
Translating more money for oil translates into pressure on the current account of nations and makes economies more vulnerable to higher US interest rates.
Bloomberg Economics ranked the major emerging markets on weakness due to changes in oil prices, US interest rates and protectionism raised by the United States.
The top winners are likely to find themselves among the losers as Norway's central bank governor, Ustin Olsen, warned that Europe's biggest oil producer is at risk if the industry loses control of costs.
Question 6: What do you mean for the world's largest economy?
The sharp rise in oil prices poses a much lower risk to the US than in the past due to the boom in oil production.
It was widely accepted among economists that the steady increase of $10 a barrel would shrink US GDP by about 0.3% the following year, but now, including Moody's chief economist Mark Zandi, was less than 0.1%.
While the declining US dependence on imported oil has positive economic consequences at the industry level, poorer households may feel the effects of high prices.
The poorest households spend about 8 percent of their income before taxes on gasoline, compared with about 1 percent for high incomes.
The seventh question: Will it lead to the acceleration of inflation around the world?
Energy prices often affect consumer price indices, prompting policy makers, including the Fed, to focus on key indicators that exclude the impact of volatile energy costs.
But the surge in oil prices could lead to a more robust acceleration of core inflation if the costs move to transport and services.
Question 8: What do you mean to central banks?
If strong oil prices boost inflation, central bankers will have less reason to keep monetary policy loose.
Increased public price pressures may accelerate monetary tightening in economies such as Thailand, Indonesia, the Philippines and South Africa.