Iran Press/America: US President Donald Trump administration sent prices surging last week when the US ignited supply crunch fears by scrapping waivers on Iranian oil sanctions.
Oxford Economics predicted that if prices hit the $100 per barrel mark, global GDP growth would slow to 2.6 perent next year and inflation spike to 4 percent, the Telegraph reported.
Economists have pencilled in a global rebound in 2020, with the International Monetary Fund expecting growth of 3.6 percent.
In a new research note, the macroeconomy research firm said that it now sees “increased risks of significantly higher oil prices” as the US government’s move to end waivers on oil imports from Iran by May 1 points to a global supply crunch.
On Apr 22, the US secretary of state, Mike Pompeo claimed that Washington’s aim was to bring Iran’s crude oil exports to zero.
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It said that even if Saudi Arabia would likely boost production to partially offset the impact of the US ending waivers on Iranian imports, global spare capacity is being drained.
Pompeo said earlier that the US had reached an agreement with Saudi Arabia and the United Arab Emirates to ensure there was 'sufficient supply in the markets' once Iranian supplies are cut back.
The current oil waivers expire on May 2.
“We simulate Brent rising to $100 per barrel by the end of 2019 (corresponding to West Texas Intermediary (WTI) oil reaching $89 per barrel),” Oxford Economics said.
When this happens, global GDP growth may decline by 0.6 percent in 2020 with global inflation rising by 0.7 percentage points.
“The hardest hit economies in 2020 are large oil-importing emerging markets such as the Philippines (minus 1.2 percent to GDP), China (minus 1.1 percent), India (minus one percent), and Argentina (minus 0.9 percent).
Other countries expected to be badly affected are: Turkey (minus 0.9 percent to GDP) and Indonesia (minus 0.8 percent).
“As a proportion of their income, consumers and businesses in advanced economies tend to use oil less intensively and so are less negatively affected,” the firm said.
Oxford Economics said that while there is a possibility that the impending supply crunch would be alleviated by higher production elsewhere, a single supply shock could easily send oil prices to shoot up to $100 per barrel.
But there is hope for longer-term price easing as expectations of high prices in the short term can encourage excess production.
“It is likely that supply impact will be offset by higher production elsewhere, but the market is tightening and all it would take is one more shock to supply (e.g. Nigeria) and oil could reach $100 per barrel,” the firm said.
“Over the longer term, however, we recognize that higher short-term prices could encourage market over-supply and result in lower prices,” it added.
On Apr 22, the Trump administration announced that the United States will not be renewing waivers for several countries that were previously exempt from US sanctions on Iranian oil imports.
The end of the exemptions sparked fears of supply shortages, pushing prices to near six-month highs.
Eight countries including China, India, and Turkey had been given temporary waivers by the US when it re-imposed sanctions on Iran last year. 101/211/201
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