The oil shock hits an already fragile global economy

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In China, the economic data are bleak. Germany is on the verge of recession, and the UK could still come out of the European Union without an agreement to protect the trade.

Now, the world is struggling with the worst oil shock of recent years. This is yet another problem at a time when the pain threshold of the global economy is decreasing.

Although Saudi output may recover quickly, preventing a sustained rise in oil prices and rising inflation, this incident adds to a climate of uncertainty weighing on growth.

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

Coordinated strikes destroyed about half of the oil capacity of the Saudi kingdom, or more than 5% of the world's crude oil supply. This caused prices to rise on Monday. The global benchmark for futures on Brent, has stood at 69.02 dollars a barrel, an increase of more than 14%.
Gas prices will rise after Saudi attacks

Nobody knows how long oil prices will rise or where the economic break point is. The fact is: it's a horrible timing.

Even if higher oil prices would benefit producers, they would increase costs for companies such as airlines and could cause an acceleration in inflation. This would hinder consumer spending, which is currently offsetting declines in the manufacturing sector.

It could also threaten central banks, which are reducing interest rates around the world to boost growth. Persistent inflation has allowed central banks to lower rates. At the same time, higher inflation may hinder their ability to continue adding stimulants.

The Federal Reserve, which announced its latest rate decision on Wednesday, should still cut its key rate by 25 basis points. But if oil prices were to remain high, the Fed could find itself in a difficult situation.

"They will still cut Wednesday," Boockvar said. "But to do this, they are now playing a dangerous game."

Much depends on the speed with which Saudi Arabia can boost production, bringing prices to a range of 50 to 65 dollars per barrel in which they have traded for most of the year , according to Boockvar.

While many analysts predict a short-term shock, there are signs that Saudi production could be in trouble for an extended period. Two Saudi sources familiar with the kingdom's oil operations told CNN Business that the full recovery of production "will take weeks, not days."

The potential for escalation between the United States and Iran, which is blamed for the attacks, is also important.

US energy boom can not stop rising oil prices

"The growing tensions in the Middle East are another hurdle for the global economy in this already uncertain period," Capital Economics said in a research note.

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

After the release of new data for the month of August, analysts at Societe Generale said Monday that the industrial sector "was losing momentum at an alarming rate," and feared that the weakness would affect the spending of consumption and the service sector. Rising oil prices, which would result in soaring pork prices, is the last thing the country needs.

The disruption of oil production, if controlled, may not trigger a global recession. But we can not deny that it adds unwanted stress.

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