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Doha, Qatar: Surging global oil and gas prices are creating a new set of economic challenges for countries worldwide. The most prominent of these challenges is the fight against stagflation, with major fears of stagflation, central banks are now facing a dilemma over raising interest rates to control inflation or lowering them to boost growth.
Energy commodities like oil and gas are essential in the production of most goods. Therefore, price hikes drive up production, transportation, and fuel costs, exacerbating inflation and negatively impacting global growth. If high prices persist, international economic reports warn of a looming imminent risk of stagflation over the global economy.
Given the current situation in the Arabian Gulf region, East Asian countries are the most affected, particularly China, India, and Japan. According to economic reports, these countries account for approximately 80 percent of the oil passing through the Strait of Hormuz, which in turn represents nearly half of East Asian countries’ oil imports.
A recent Oxford Economics study notes that if oil averages $140 per barrel for two months amid tighter financial market conditions and worsening supply chain disruptions, parts of the global economy could enter mild recession, with inflation peaking at 5.8%.
Brent crude has risen roughly 59% since March, surpassing 1990 gains, amid the closure of the Strait of Hormuz, through which about one-fifth of global oil and gas supplies pass, heightened concerns.
In this context, First Vice Chairman of the Qatar Chamber Mohamed bin Twar Al Kuwari highlighted to QNA three main effects of rising energy prices: renewed inflation pressures, slower global growth, and supply chain disruptions increasing shipping and insurance costs.
The first is the resurgence of the inflation challenge. “While the global economy entered this year with a steady, but not particularly strong, growth, with global inflation projected at 3.8% according to the International Monetary Fund, rapid energy price surges directly impact other economic sectors such as transportation, electricity, manufacturing, and agriculture, and ultimately consumer prices. This places central banks in a difficult position: either tighten monetary policy or tolerate higher inflation for a longer period,” First Vice Chairman of the Qatar Chamber said.
The second effect is the slowdown of global growth. Every dollar added to the price of oil effectively acts as a tax on energy-importing countries, reducing household liquidity, raising production costs for companies, squeezing profit margins, and delaying investment.
The third effect, according to the First Vice Chairman of the Qatar Chamber, is supply chain congestion and rising costs of trade, insurance, and shipping. He pointed out that the challenge lies in the cost of delivering energy, petrochemicals, and intermediate fuels to factories, ports, and airlines, prompting governments to take emergency measures. In this case, Australia has temporarily reduced fuel taxes, and South Korea expanded tax exemptions on fuel, implemented an emergency bond purchase, and increased the operation of nuclear and coal-fired power plants to mitigate the shock, he said.
For his part, former banker Abdulla Al Raisi said in a statement to QNA that the sudden and rapid increase in any key commodity, such as oil and gas, in global markets typically leads to economic repercussions affecting most countries worldwide.
He emphasized that the rise in oil and gas prices has brought the challenge of inflation back to the forefront, stating, “Inflation will affect all economies worldwide, but to varying degrees, given that many countries have domestic financial programs in place to mitigate such conditions for a year or two.” He noted that the countries most affected by this surge are facing stagflation.
