[Iran Crisis] Oxford Economics: If oil prices stay at $140 for two months, the global economy will enter recession, and inflation will reach 5.8%

International oil prices remain high amid the Middle East Iran conflict. The Oxford Economics Research Institute believes that if global oil prices stay at an average of about $140 per barrel over the next two months, combined with a significantly tightening financial market environment, worsening supply chain disruptions, and continued deterioration of market sentiment, it could push some economies into a mild recession. The subsequent economic recovery will depend on the speed of the Strait of Hormuz shipping resumption, as well as the easing of oil prices, supply chain pressures, and financial market tightness.

“Since the 1990s, after major military conflicts in the Middle East, financial markets have generally rebounded quickly, but this recovery process may be slower this time.”

Iran conflict may cause global real GDP to shrink by 0.7% by the end of this year

The Oxford Economics Research Institute states that using the Global Economic Model (GEM) for simulation analysis, assuming Brent crude oil remains at about $140 over the next two months, with a significant rise in natural gas prices and a series of negative spillover effects, could lead to a 0.7% contraction in global real GDP by the end of this year.

Among them, the economies of the Eurozone, the UK, and Japan will experience slight recession, while the US economy will approach a temporary stagnation. Corporate layoffs will push up unemployment rates, bringing the US economy close to recession. Global CPI is expected to surge to 5.8%, still below the 8.9% seen in 2002.

“As oil prices rise, the scope of inflation impacts expands, significantly affecting disposable income and consumer spending. Rising oil prices also increase transportation costs and push up food and other commodity prices, intensifying the risk of secondary inflation and affecting medium-term inflation expectations.”

Emerging markets are less dependent on natural gas and are relatively better off

In emerging markets, overall economic performance is relatively strong, mainly because some energy producers outside the Middle East will benefit from rising oil prices. Compared to Europe and other developed Asian economies, emerging markets have a lower reliance on natural gas. China’s economy is also more resilient, aided by government energy subsidies and price controls, which reduce the direct spillover effects of rising energy prices.

The Oxford Economics Research Institute states that if oil prices remain at about $100 over the next two months, even though higher inflation may reduce global GDP by several tenths of a percentage point, a recession can be avoided.

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