With oil at $70, it challenges world’s economic recovery

With stoking fears of inflation, the spike in oil prices has threatened to create a drag on the global economic recovery. Oil surged more than 30 per cent this year on supply constraints by major exporters. While the demand returned from the depths of the COVID-19 crisis.

A missile was attacked on Sunday on a key Saudi Arabian export facility. Which thereafter, sent Brent crude, the international benchmark, above $70 a barrel for the first time since January 2020. The responsibility for Sunday’s attack was claimed by Houthi fighters in Yemen, who are backed by Iran, and comes as the Biden administration has started to revise US relationships in the region.

While prices have since pulled back, the impact on inflation and the overall global recovery depends on how sustained the underlying rally proves to be.

Morgan Stanley economists estimate that oil would need to average $85 a barrel for the global oil burden to rise above longer-term averages.

Those emerging economies that rely on imported energy could see their current-account positions and fiscal deficits come under pressure. That could trigger capital outflows and weaker currencies, laying the groundwork for inflation and potentially forcing governments and central banks to consider raising interest rates despite a slow growth. That includes Turkey, Ukraine and India. As the world’s biggest oil importer, China is also vulnerable to higher prices.

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