How is the world economy if oil prices go up to 100 USD / barrel?

The sharp increase in world oil prices recently has created a new concern for the global economy which is showing signs of deceleration. ...


The sharp increase in world oil prices recently has created a new concern for the global economy which is showing signs of deceleration.

Since the beginning of the year, world oil prices have maintained an upward momentum as the Organization of Petroleum Exporting Countries (OPEC) and its partners including Russia implemented an agreement to cut production by 1.2 million barrels / day. In addition, US sanctions against the Iranian and Venezuelan oil industries also tightened global oil supplies.

A few days ago, the administration of President Donald Trump tightened sanctions on Iran by declaring an end to the exemption that allowed 8 economies to continue buying Iranian oil for 6 months from November 2018 but not subject to US sanctions. This move is like a new catalyst, pushing oil prices to the top of 6 months.

Brent oil price has increased about 33% from the beginning of the year and currently fluctuates around 72 USD / barrel. This increase of oil price is not due to the large demand of a strong global economy, but mainly due to the worry of supply shock.

Many experts believe it is too early to talk about the price of 100 USD / barrel of oil, but this price is not impossible if the supply continues to tighten.

According to Bloomberg news, the impact of rising oil prices on the global economy will depend largely on how long the high prices remain. When oil prices escalate, oil-exporting countries will benefit from increased revenues of businesses and the state, while oil-importing countries will be adversely affected by gasoline retail prices being pushed up. , likely to blow up inflation and pull down consumer demand.

And to some extent, high oil prices can adversely affect all parties.

Here are some of the effects of high oil prices, including the price of $ 100 / barrel, for the global economy that Bloomberg points out:

1. What does that price mean for the global economy?

The impact on different economies will not be the same. High oil prices will adversely affect households' income and expenditure and could push inflation up.

As the world's largest oil importer, China will be vulnerable. Many countries in Europe also depend on imported energy.

There is also a seasonal factor. The Northern Hemisphere is entering the summer, and consumers can switch to using other energy sources or reduce oil use. Besides, the global economy is slowing down, which may limit oil demand, thus limiting the rise of oil prices.

2. How can the global economy absorb 100 USD / barrel oil prices?

Economic experts say that to cause growth damage, oil prices need to remain above $ 100 a barrel. This will depend significantly on the dollar exchange rate movement, as crude oil is priced in this currency.

An analysis by research firm and consultant Oxford Economics said that if Brent oil price reached 100 USD / barrel during the period from now to the end of the year, the global gross domestic product (GDP) by the end of 2020 will be 0.6% lower than the current forecast, while inflation will increase by 0.7 percentage points.

"We see an increased risk in the case of higher oil prices," Oxford Economics said. "In the short term, it seems that the supply problem will be overcome by the increase in oil production of some countries, but the market is still tightening and just another supply shock is oil price. can jump to 100 USD / barrel ".

3. How can Iran and Mr. Trump affect the oil market?

Conflicts between Iran and the Trump administration may continue to have a big impact on world oil prices, because the supply of oil from Iran to the global market is currently around 800,000 barrels a day. Washington has shown its determination to reduce Iran's oil exports to zero.

Trump has stated that some US allies in the Gulf such as Saudi Arabia and the United Arab Emirates (UAE) will compensate for the supply of oil loss from Iran. In addition, the US also said that the country's record oil output would help prevent oil shortages.

However, the problem lies in: for Iran's crude oil, the US daily output is only about a quarter of Iran's.

4. Which countries will benefit from high oil prices?

Emerging economies dominate the list of oil exporting countries, so this group will benefit more from oil price increases compared to developed countries. Additional revenue from oil exports will help "black-gold" exporters improve the budget balance and current account balance, allowing the government to increase public investment.

The biggest beneficiaries will include Saudi Arabia, Russia, Norway, Nigeria and Ecuador - according to a Nomura report.

5. Which countries damage?

When oil prices rise, emerging economies with large current and fiscal deficits will face the risk of foreign investors divesting and depreciating currencies, leading to strong inflation. . In such a case, the governments and central banks of those countries have to weigh between options: raising interest rates despite slowing growth; or keep the interest rate unchanged even though the capital is running.

Countries that Nomura thinks may fall into that predicament include Turkey, Ukraine and India.

6. How does high oil prices affect the US?

US oil operators are seeking to sell more oil to customers who stop buying Iranian oil. However, the US economy in general is unlikely to benefit if oil prices rise to $ 100 / barrel.

Such high oil prices will cause many consumers in the world's largest economy to "tighten their pockets", while consumption is a major contributor to US GDP. Rising world oil prices have caused gasoline retail prices in the US to rise more than 7% in April, to nearly $ 2.9 / gallon.

If oil prices continue to rise, the Trump administration may be criticized for punishing Iran. Investment activities may slow down, threatening the stability that the US economy has maintained so far.

7. Will inflation increase globally if oil prices reach $ 100 a barrel?

In assessing inflation, policy makers often consider core inflation - eliminating immediate factors as a shock in energy prices. However, if oil prices remain high for a long time and continuously, the prices of other goods and services in core inflation such as transportation, electricity and water ... are also pushed up, leading to a rise in core inflation. .

8. What does the 100 USD / barrel oil price mean to central banks?

Central banks around the world, including the US Federal Reserve (FED), have recently shifted to a soft monetary policy stance to support economic growth, in the context of many signs economy decelerated and absent from inflation. This trend is unlikely to change soon.

This International Monetary Fund (IMF) in April has lowered the forecast of global economic growth and said that the world economy is in a "fragile moment".
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High Tech Brain: How is the world economy if oil prices go up to 100 USD / barrel?
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