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Crude oil prices are another hurdle for the global economy after President Trump's "zero" promise on Iranian oil sales.
Brent has increased about 33% this year and is close to its highest level in six months. While rising prices due to strong demand generally reflect a robust global economy, a limited supply shock is a negative factor.
Everything will depend on maintaining the point. Exporting countries will benefit from increased business and government revenues, while consuming countries will bear the costs at the pump, thereby reducing inflation and depressing demand. In the end, there comes a time when higher prices can be damaging for everyone.
1. What does this mean for global growth?
The impact will vary. Rising oil prices will hurt household incomes and spending and could accelerate inflation. As the world's largest importer of oil, China is vulnerable and many European countries also depend on imported energy.
Seasonal effects will also have an impact. With the approach of the northern hemisphere, consumers can change their source of energy and reduce their consumption. The slowdown in the global economy will also weigh on demand and, by extension, limit prices.
2. How can the world economy absorb oil at $ 100?
Economists estimate that oil should remain above $ 100 for growth to be hit hard. It also depends on the strength or the weakness of the dollar, since crude oil is denominated in dollars. An badysis by Oxford Economics found that Brent ($ 100 per barrel at the end of 2019) means that the level of world gross domestic product would be 0.6% below the projected level by the end of the year. 2020, with average inflation higher by 0.7 points.
"We are seeing increased risks of significant increases in oil prices," Oxford economists John Payne and Gabriel Sterne wrote in a note. "In the short term, it is likely that the impact on the supply will be offset by increased production elsewhere, but the market is narrowing and it would be enough of an additional shock for the supply and oil reaches 100 dollars. "
3. What will be the impact of Iran and Trump on the market?
An increase in world oil trade around the Iran-Trump core could continue to have a significant impact on the financial markets, with the affected supply reaching up to 800,000 barrels a day. Uncertainties about availability have already swept the oil markets. And the political sensitivity of these developments has other markets that are preparing for volatility.
Trump is committed to helping, alongside Saudi Arabia and the United States, those who need to transfer their orders from Iran to another supplier. But the United States claims that its domestic supply can help offset this loss, which is a big hurdle, since daily US production for a similar crude is about a quarter of Iran's.
4. Who wins with rising oil prices?
Emerging economies dominate the list of oil-producing countries, which is why they are more affected than developed countries. The increase in revenues will help restore current account budgets and deficits, allowing governments to increase their spending, which will boost investment. The winners are Saudi Arabia, Russia, Norway, Nigeria and Ecuador, according to Nomura's badysis.
5. Who loses?
Emerging economies with current account deficits and budget deficits run the risk of large outflows of capital and weaker currencies, leading to inflation. In turn, this will force governments and central banks to weigh their options: raising interest rates even when growth slows or fades and capital flight at risk. Nomura's list of losers includes Turkey, Ukraine and India.
6. What does this mean for the world's largest economy?
While US oil producers are trying to take advantage of the increased sales of customers moving away from Iran, the wider US economy will not necessarily see any benefits with an oil price tag to reach 100 dollars a barrel.
This would be a drag on American consumers who are the backbone of ever-stable economic growth. Gasoline pump prices have already risen more than 7% this month, reaching $ 2.89 a gallon, which could weigh on retail sales, which have jumped to the peak in March since 2017.
And if things go wrong in the global oil markets, there is a risk that the sanctions will return to the United States, which could lead to negative reactions via investments or other channels threatening economic stability.
7. Will this result in higher inflation around the world?
Given that energy plays a major role in consumer price indicators, decision-makers are turning to key indices that eliminate volatile components. If price increases prove to be substantial and sustainable, these costs will have repercussions on transport and public services.
8. What does this mean for central banks?
Under the stimulus of the Federal Reserve, central banks around the world have taken a decisive turn, the absence of inflation allowing policy makers to focus more on slowing growth. It is unlikely that this will change quickly.
This month, the International Monetary Fund lowered its global growth forecast and said the world was in a "delicate moment."
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