The latest revolutionary events in the Middle East in general and in Libya in particular have already lead to a sharp rise in oil price, raising the bar above the key level of $100 per bbl just in a matter of days. But many analysts are now warning about a further increase which could bring the whole situation to a third oil shock in the event things take a turn for the worse. Some of experts are already anticipating a new astronomical target of $220 per bbl.
In my judgment even so sharp a spike in oil prices in the near future would hit China and some other industrializing economies by far the worst. Of course, $220 per bbl would be no birthday gift for Western developed economies, but it would be an 'apocalypse now' either - nothing even mildly comparable with the oil crisis 1973.
Pundits in their gloomy forecasts are pointing to 1) extra inflationary pressure associated with the corresponding oil price jump and 2) the fragile post crises period of recovery in the West which still continues down a bumpy road, slowly and painfully making its way through a jobless phase. They are also pointing out the fact that Western governments up to now have spent all their special stimulus packages, so there is little one can do in terms of extra emergency measures.
But, I don't think it's all doom and gloom. In the US inflation is still very low due to still low demand - structurally low demand. While a sharp increase in oil prices will draw discontent of the American consumer and rise the costs of the American producer and trader, the overall consumer price hike will be much less than many would expect. The problems of Western economies are structural in character including the tenacious joblessness and sluggish demand. On the other hand productivity continues to rise despite already very high oil prices and rather sharp dynamics of their growth in the recent past in the recent past. Oil does seem to take a very small part of the added value created in the wealthy economies of the West now.
On the other hand every cloud has a silver lining: in case of a major oil price spike, the positive processes of transition to a greener, less oil-dependent economy due to investment in new technology in the West will gain extra momentum and urgency. The world is close to the energy revolution as it is, and any lack of urgency and political will here is going to be eliminated by another oil crisis. Additional redistribution of cash flow into the alternative energy sources industry would come in handy indeed in case of oil crisis.
On the other hand China have already started testing long term sustainability of its industrialization model. Before the Middle East events inflation in China had already reached rather dangerous levels and continue to rise. The part of oil and other raw materials expenses in the creation of the Chinese GDP is already huge and the pain threshold is not so very far. I am sure, that the biggest danger that potential 'oil shock' presents to China, whose export dependent, heavily subsidized and energy extremely ineffective economy would be dealt a hefty blow and lose much of its competitiveness. Consumer demand in China also depends incomparably more on the price oil and other raw materials than that of Western economies.
For China an oil shock would be a real test and a real shock. How China will be able to handle it remains to be seen.
And last but not least, quite contrary to what many sages like to foretell, I am sure, that an economic crisis in China would do much more good than harm for the global economy in general and for the Western economies in particular in that it would make the long awaited and much talked-about 'rebalancing' of trade, monetary and investment unbalances, much closer and realer. Contrary to what is thought by many experts I am sure, that at this point quasi-market China does more damage than good to the developed economies and to the whole global economy in general, in effect parasitically "stealing" from other really market economies growth (including her closest neighbors).
Having said that, I still think that the current jump in oil price is more a reflection of speculators' grip on commodities market and their wish to bull and capitalize on the moment, than of real fundamental problems of an inadequate supply.
In my judgment even so sharp a spike in oil prices in the near future would hit China and some other industrializing economies by far the worst. Of course, $220 per bbl would be no birthday gift for Western developed economies, but it would be an 'apocalypse now' either - nothing even mildly comparable with the oil crisis 1973.
Pundits in their gloomy forecasts are pointing to 1) extra inflationary pressure associated with the corresponding oil price jump and 2) the fragile post crises period of recovery in the West which still continues down a bumpy road, slowly and painfully making its way through a jobless phase. They are also pointing out the fact that Western governments up to now have spent all their special stimulus packages, so there is little one can do in terms of extra emergency measures.
But, I don't think it's all doom and gloom. In the US inflation is still very low due to still low demand - structurally low demand. While a sharp increase in oil prices will draw discontent of the American consumer and rise the costs of the American producer and trader, the overall consumer price hike will be much less than many would expect. The problems of Western economies are structural in character including the tenacious joblessness and sluggish demand. On the other hand productivity continues to rise despite already very high oil prices and rather sharp dynamics of their growth in the recent past in the recent past. Oil does seem to take a very small part of the added value created in the wealthy economies of the West now.
On the other hand every cloud has a silver lining: in case of a major oil price spike, the positive processes of transition to a greener, less oil-dependent economy due to investment in new technology in the West will gain extra momentum and urgency. The world is close to the energy revolution as it is, and any lack of urgency and political will here is going to be eliminated by another oil crisis. Additional redistribution of cash flow into the alternative energy sources industry would come in handy indeed in case of oil crisis.
On the other hand China have already started testing long term sustainability of its industrialization model. Before the Middle East events inflation in China had already reached rather dangerous levels and continue to rise. The part of oil and other raw materials expenses in the creation of the Chinese GDP is already huge and the pain threshold is not so very far. I am sure, that the biggest danger that potential 'oil shock' presents to China, whose export dependent, heavily subsidized and energy extremely ineffective economy would be dealt a hefty blow and lose much of its competitiveness. Consumer demand in China also depends incomparably more on the price oil and other raw materials than that of Western economies.
For China an oil shock would be a real test and a real shock. How China will be able to handle it remains to be seen.
And last but not least, quite contrary to what many sages like to foretell, I am sure, that an economic crisis in China would do much more good than harm for the global economy in general and for the Western economies in particular in that it would make the long awaited and much talked-about 'rebalancing' of trade, monetary and investment unbalances, much closer and realer. Contrary to what is thought by many experts I am sure, that at this point quasi-market China does more damage than good to the developed economies and to the whole global economy in general, in effect parasitically "stealing" from other really market economies growth (including her closest neighbors).
Having said that, I still think that the current jump in oil price is more a reflection of speculators' grip on commodities market and their wish to bull and capitalize on the moment, than of real fundamental problems of an inadequate supply.
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