March 26, 2012
PARIS - Tightened sanctions by the West
have yet to dissuade Iran from pursuing its controversial nuclear programme but
have triggered an oil price spike that could trigger a global recession.
Oil prices hit a record high in euro terms earlier
this month and analysts now believe they may have already dragged the eurozone
into recession.
New sanctions by the US and EU against Iran have
ratcheted up tensions and the price of oil as traders worry about the risk of
hostilities, including an attack by Israel on Iranian nuclear facilities. US President Barack Obama conceded Friday that tensions over Iran were
“adding a $20 or $30 premium to oil prices”, which are up some 20 percent since
December.
IMF chief Christine Lagarde
warned earlier that any interruption in oil supplies from Iran could increase
oil prices by a further 20 to 30 percent and cause an economic shock.
“A sudden and brutal rise in the
price of oil” from Brent crude’s current levels of around $125 a barrel “would
have serious consequences on the global economy” until other oil-exporting
nations were able to bridge the gap, she added. Iran has threatened retaliation
against the sanctions, including a possible disruption of shipping through the
Strait of Hormuz, a Gulf chokepoint for global oil shipments.
Ernst & Young’s Eurozone
Forecast warned a spike in oil prices to a sustained level of $150 a barrel
would cause a recession of 1.0 percent in the European Union this year, double
the milder 0.5 percent contraction currently forecast.
“A new oil shock would hit an already fragile
economy,” said Marie Diron, senior economic adviser to the Ernst & Young
Eurozone Forecast.
“With their budgets already squeezed by austerity
measures and rising unemployment, many households” would likely be forced to
cut back on purchases.
That would be a blow to
businesses, which would also have to cope with higher fuel prices and would
likely cut output and jobs, increasing the number of unemployed by around
500,000 according their calculations.
Industry group IATA warned that
current fuel prices were hurting airlines and that an increase to $150 a barrel
could push some into bankruptcy.
The price of Brent crude jumped in January when the
EU said it would ban imports of Iranian crude and higher prices appear to have
already pushed the eurozone back into recession.
Eurozone private sector activity fell more sharply
than expected in March, indicating that the 17-nation single currency area slid
back into recession, according to Markit research firm’s purchasing managers’
index (PMI). The composite PMI fell to
48.7 points in March after reaching 49.3 points in February. Any score below 50
indicates contraction.
“The oil price and the weak trade environment were
key drivers behind the fall,” said Christian Schulz, senior economist at
Berenberg Bank.
Chinese manufacturing activity also fell to a
four-month low of 48.1 in March, according HSBC bank’s preliminary Purchasing
Managers’ Index (PMI), adding to concerns about slowing growth in the world’s
second largest economy. The price of Brent crude hit $128.40 on March 1, the
highest level since a peak of $147.50 of July 2008. But with the euro having
slid against the dollar, it reached a record of 94.65 euros per barrel.
“Given the existing major debt issues facing
beleaguered eurozone economies, the latest jump in oil prices adds unwelcome
inflationary and balance of payments costs with imports of dollar-denominated
oil,” the International Energy Agency commented in its latest monthly report.
“Sustained higher prices risk further undermining the pace of global economic
recovery,” the agency added, while noting that prices have risen by 20 percent
since December.
The IEA estimates that exports
from Iran could plunge by about 800,000 barrels per day to one million bpd in
the second half of the year after the tighter Western sanctions go into force.
The high oil prices have clearly become a worry to
Western governments. French energy minister Eric Besson said this past week
that France and other industrialised countries were considering releasing part
of their strategic crude reserves to keep prices down.
The previous week Obama discussed such a
possibility with visiting British Prime Minister David Cameron, the White House
had confirmed.
Industrialised nations had dipped into strategic
reserves last year to mitigate a rise in prices after Libyan exports dried up
due to the rebellion against longtime dictator Moamer Kadhafi.
However IEA director Maria van Hoeven told Dow
Jones Newswires this past week there has been no discussion of any coordintated
release of reserves by industrialised countries, which is handled via the
agency.
She added there is not currently any supply
disruption that would justify a release.
Washington and Brussels believe the sanctions are
beginning to take a toll on the Iranian economy, and Tehran last month agreed
to revive talks between it and the P5+1 group of powers — the five UN Security
Council permanent members plus Germany.
As yet no date or venue for the negotiations has
been announced, and the previous round of Iran-P5+1 talks collapsed in Istanbul
in January last year.
Iranian
officials have said they plan to make no concessions on their nuclear programme.
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