INSUBCONTINENT EXCLUSIVE:
Rising oil prices are a double-edged sword for the world economy.
Rising oil prices are a double-edged sword for the world economy
With the price of crude up 14 percent this year and now trading at the highest since 2014, exporters of the fuel get to enjoy a windfall
while consuming nations get hurt.Much ultimately depends on the reason why prices are pushing higher
An oil shock on the back of constrained supply is a negative though higher prices due to robust demand may just reflect solid global
Countries who rely on imported energy will be squeezed as costs go up, balances of payments become strained and inflation accelerates
For exporters, government coffers will get a fillip.United States President Donald Trump's plan to withdraw from the 2015 accord to curb
Iran's nuclear program poses fresh uncertainty although Bloomberg Economics reckons that and similar supply shocks account for half of
What does it mean for global growthThe world economy is enjoying its broadest upswing since 2011 and higher oil prices would drag on
household incomes and consumer spending, but the impact will vary
Europe is vulnerable given that growth and industrial activity already are moderating and many of the region's countries are oil importers
China is the world's biggest importer of oil and could expect an uptick in inflation -- prices already are tipped to increase 2.3 percent
in 2018 from 1.6 percent in 2017
For a sustained hit to global growth, economists say oil would need to push higher and hold those levels
Seasonal effects mean energy costs often increase during the first half of the year before easing
Consumers can also switch energy sources to keep costs down, such as biofuels or natural gas.2
How will Iran impact the the marketOil prices have risen 14 percent this year -- half of this increase reflects stronger global demand, a
Bloomberg Economics model suggests
The rest is likely due to heightened tensions with Iran and other supply shocks
The return of United States sanctions could crimp Iranian oil exports, but the global supply shock might be mitigated by increased pumping
elsewhere, according to the analysis
Who wins from higher oil pricesMost of the biggest oil-producing nations are emerging economies
Saudi Arabia leads the way with a net oil production that's almost 21 percent of gross domestic product as of 2016 -- more than twice that
of Russia, which is the next among 15 major emerging markets ranked by Bloomberg Economics.Other winners could include Nigeria and Colombia
The increase in revenues will help to repair budgets and current account deficits, allowing governments to increase spending that will spur
Who losesIndia, China, Taiwan, Chile, Turkey, Egypt and Ukraine are among those on the worry list
Paying more for oil will pressure current accounts and make economies more vulnerable to rising United States interest rates
Bloomberg Economics has ranked major emerging markets based on vulnerability to shifts in oil prices, United States rates and
protectionism.Analysts at RBC Capital Markets created an "oil sensitivity index" to judge the economies most exposed in Asia
They warn that Malaysia, Thailand, China and Indonesia could face the most volatility from an oil-price spike.5
What does it mean for the United States economy, the world's biggestA run-up in oil prices poses a lot less of a risk to the United
States economy than it used to, thanks to the boom in shale oil production
The old rule of thumb among economists was that a sustained $10 per barrel rise in oil prices would shave about 0.3 percent off of United
States GDP the following year
Now, says Mark Zandi, chief economist at Moody's Analytics, the hit is around 0.1 percent
And that all but dissipates in subsequent years as shale oil production is ramped up in response to the higher prices
The Baker Hughes United States rig count already is at a three-year high.As the United States nears the tipping point between net oil
importer and exporter, some forecasts are less upbeat
Gregory Daco, the United States chief for Oxford Economics, estimates that if WTI crude prices average $70 a barrel this year, United
States growth will lose half the 0.7 percentage point gain it would otherwise earn from tax cuts passed earlier in 2018.Oil-producing
states such as North Dakota, Texas and Wyoming should benefit from higher extraction activity, though Daco warns that productivity
enhancements could limit that upside
Poorer households have the most to lose
Will it lead to higher inflation around the worldWhile the influence of energy prices in overall consumer price baskets varies widely by
economy, the category claims a double-digit share in economies such as Indonesia, Malaysia and New Zealand, according to RBC Capital Markets
tallies.Energy prices often carry a heavy weight in consumer price gauges, prompting policy makers including those at the Fed to focus
simultaneously on core indexes that remove volatile food and energy costs
But a substantial run-up in oil prices could provide a more durable uptick for overall inflation as the costs filter through to
transportation and utilities and other associated industries.What Our Economists Say:"Pass-through from oil prices to inflation is less than
At a country level, the oil share in the energy mix, degree of slack in the economy, and use of price controls and subsidies all modulate
What does it mean for central banksIf stronger oil prices substantially boost inflation, central bankers on balance will have one less (big)
reason to keep monetary policy on hold while the Fed moves ahead in its tightening cycle.Among the most-exposed economies, central bankers
in India could have a big headache from a surge in crude oil prices
Alongside sharp weakness in the rupee, economists already are pushing forward their forecasts for the Reserve Bank of India's
interest-rate increases as India's biggest import item gets more expensive.Greater overall price pressures also could prompt faster
monetary policy tightening in economies such as Thailand and Indonesia, which otherwise have used benign inflation as among reasons to stay
patient on interest rate.(This story has not been edited by TheIndianSubcontinent staff and is auto-generated from a syndicated feed.)
