Global economy braces for potential financial crisis
By Majid Shakeri
Economic affairs expert
The world’s economic response to surging oil prices following regional tensions is reminiscent of the oil shocks of the 1970s. Should prices remain elevated for a sustained period, not only will global inflation be exacerbated, but the risk of a financial crisis distinct from that of 2008 looms large.
Regardless of what political pronouncements suggest, the on-the-ground reactions mirror those seen during the major oil shock of the 1970s. In Bangladesh, universities have been entirely closed to conserve energy. In the UK, drivers are being urged to curtail car usage and Germany has declared that no options for reducing energy consumption will be off the table.
While the market remains sensitive to statements from political figures – for example, when Donald Trump claims the war is largely over and prices subsequently fall – prices quickly rebound once the market confronts reality. Countries are scrambling to prepare for this emergency, which has multiple facets. The immediate concern is that current prices are underpinned by existing oil inventories in the logistical chain, at refineries and so on.
The oil currently being consumed by Japan, South Korea, and Taiwan – nations in the Far East that are 90% reliant on Persian Gulf oil – was purchased three weeks before the outbreak of hostilities. Everyone knows that once these reserves are depleted, conditions will fundamentally change.
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