The rise in oil prices negatively affects and slows the global economy after Donald Trump declared an economic war on Iran and delivered a blow to the Persian oil’s exports. Bloomberg wonders who wins and who loses with a barrel of Brent at $100.
The price of the barrel has risen 33% since the beginning of the year and is close to being the highest in the last six months, explains the portal. Bloomberg recalls that normally the price of hydrocarbons is linked to global economic growth and, therefore, to its consumption, but that hasn’t happened this time. On the contrary: the price of crude grows while the world economy slows down. The scenario is due to the limits set for oil production and the policies of the Federal Reserve System of the United States.
“The income of the corporations and governments of the [oil] exporting nations will enjoy a good monetary injection while the importing nations will bear the costs, which can increase inflation and damage demand. In the end there will come a time when high prices could negatively impact the whole world,” says Bloomberg.
That impact will vary. Expensive oil will hurt the purchasing power of households and could accelerate inflation. This will be the case of China, the largest importer of crude, and many other countries in Europe that are also importers. But as mid-year in the northern hemisphere is summer, consumers reduce the use of fuels.
Bloomberg cites data from Oxford Economics, which shows that, by the end of 2019, the 100 dollars a barrel of Brent will reduce world gross domestic product by 0.6% and that inflation will grow by an average of 0.7%.
As emerging economies fill the list of oil-producing nations, they will be more affected – positively – than developed ones. The increase in revenues will help plug the holes in their budgets and this will allow governments to increase spending and, with it, investments. Among the winners are Saudi Arabia, Russia, Norway, Nigeria and Ecuador, according to the Japanese financial group Nomura.
Once again, emerging economies. But this time, those that are importers of hydrocarbons. This will be the case of Turkey, Ukraine and India. Those $100 will force their governments and central banks to opt for two options: raise interest rates even if growth is slowing or resisting or risking capital flight.
While US oil producers are trying to take over companies leaving Iran in the wake of sanctions, the US economy will not necessarily see profits from a $100 barrel.
To all this is added that the International Monetary Fund lowered its global growth forecast in May and said that the world is in a “delicate moment”.
Translated by: EF