Tao Dong: High Oil Price And Global Economy

If the United States

The Middle East has swept the Middle East.

A vegetable vendor's self Immolation fire spread like wildfire in North Africa and the Gulf region, pushing up oil prices sharply, triggering fears of inflation and growth, and the risk asset prices have fallen in full.

Predicting the political situation in the Middle East is beyond the power of the author, and the reliability of such prediction is not necessarily high in the rapidly changing regional politics.

However, some basic assumptions should be useful for judging the impact of the middle east change on the world economy and the market.

First of all, I believe that the time length of high oil prices is far more important than the high price of oil prices, which is precisely what worries us.

The Middle East pformation is the first political revolution in the history of Internet mobilization.

So far, there has been no mass movement in a country. There is a leader with overall credibility and no opposition of a mainstay.

The opposition forces do not have political leaders or lack of platform for overthrowing the existing government. There are no effective political groups and talents to fill the political vacuum.

The overthrow of a current regime is not the ultimate goal of revolution. It may be much more difficult to establish a new and credible and effective new regime.

Secondly, if the Middle East is unable to achieve orderly and effective power pfer, the political situation may continue unrest, which will lead to the withdrawal of foreign capital.

Most of the Middle East oil depends on the exploration and production of international oil conglomerates. The problem of long-term supply and stability of oil is not less than that of short term production, and it has a great impact on the economy.

The rise in oil prices is equivalent to tax increases for consumers, and their purchasing power (outside gasoline) decreases, pulling down consumption and dragging growth.

Take the United States as an example, oil prices increase by 10 US dollars per year (average annual), consumer purchasing power drops by 150 billion US dollars, plus multiplier effect, GDP growth is reduced by 0.4-0.5 percentage points.

If oil prices rise to 140 US dollars / barrel, US growth will drop to 2% instead of the original estimate of 3.5%.

If oil prices stay at US $140, global inflation is expected to rise by 1-1.5 percentage points, but the announcement of inflation and the reaction of the central bank may be different.

The impact of rising oil prices on emerging market prices is far greater in developed countries.

In emerging countries, no government subsidy is the most affected, but it is not ruled out that some countries with financial subsidies now cancel or reduce fuel subsidies due to financial burden.

Energy inflation is also emerging on food inflation, and the contraction of emerging countries is bound to accelerate.

The rise in oil prices may lead to the decision of the ECB to withdraw.

I believe that the biggest impact of rising oil prices on the economy is demand shocks (demand

Shock) lies in consumption and growth.

But now the economy's dependence on oil has been much worse than before, so it reproduced the first oil crisis in 1974 or 1980.