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Home / Business / The oil shock hits a global economy that is already on shaky ground

The oil shock hits a global economy that is already on shaky ground



China's economic data is bleak. Germany is facing a recession and there is still the possibility that Britain will break out without an agreement to protect trade from the European Union.

Now the world is struggling with the worst oil shock in years. It is another problem at a time when the pain threshold of the world economy is decreasing.

Although Saudi production could quickly get back on track to prevent a continued rise in oil prices and a leap in inflation, the incident is creating an environment of uncertainty that weighs on growth.

"I'm not sure if the world economy is in a state where it will be able to absorb [higher oil prices] if [they] remains elevated," said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Coordinated strikes destroyed about half of Saudi Arabia's oil capacity or more than 5% of world crude oil supplies. That caused prices to rise on Monday. Brent crude futures, the global benchmark, fell more than 1
4% to $ 69.02 a barrel.
  Gas Prices Will Rise After Saudi Attacks

Nobody knows how long higher oil prices will last or where the economic Turning point lies. The point is: It's a terrible timing.

Although higher oil prices would benefit producers, they would increase costs for companies such as airlines and trigger an increase in inflation. This would affect consumer spending, which is currently offsetting declines in manufacturing.

It could also handcuff central banks, which cut interest rates around the world to boost growth. Persistently low inflation has given central banks room to cut interest rates. Higher inflation could hamper their ability to stimulate further.

The Federal Reserve, which announces its latest interest rate decision on Wednesday, is expected to continue lowering its key interest rate by 25 basis points. But if the oil price stays high, the Fed could be in a difficult position.

"They will still lower on Wednesday," Boockvar said. "But for that matter, they're playing a dangerous game now."

Much depends on how fast Saudi Arabia can revive production by lowering prices back to $ 50 a barrel to $ 65 a barrel. Boockvar says it spans most of the time Have acted during the year.

While many analysts predict a short-term shock, there is evidence that Saudi production could be in trouble for a long time. Two Saudi sources, familiar with Kingdom operations, told CNN Business that "full recovery of production will take weeks and not days."

The potential for further escalation between the US and Iran blamed for the attacks is also huge.

  America's Energy Boom Can not Stop the Oil Price Rise

"Growing tensions in the Middle East are another headwind in already uncertain times the global economy, "said a research note from Capital Economics.

The situation certainly carries risks for China, the world's largest importer of crude oil.

Following the release of new data for August, analysts at Societe Generale said on Monday that the industrial sector is "losing momentum at an alarming rate", expressing concern that the weakness could spill over into consumer spending and services. Higher oil prices, which would go along with the rise in pork prices, are the last thing the country needs.

The disruption of oil production, if limited, may not trigger a global recession. But there are no arguments that it causes unwanted stress.


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