While we all new the oil price spike was here, ECB President Jean Claude Trichet confirmed the fact this morning when he said the eurozone’s central bank would be willing to raise rates to combat the “shock” as soon as next month.
But just who’s in the crosshairs of this spike?
This chart from Morgan Stanley details what country’s spend the most of their GDP on oil imports. And while Morgan Stanley’s Spyros Andreopoulos and Joachim Fels don’t think that this price rise in oil is going to crash the global economy, there are some risks if the supply shock gets more severe.
The price of oil merely acts like an elastic leash on the dog that is the global economy. If the dog surges ahead too quickly, the constricting effect of the leash will make sure it slows down – but it will not stop. Between 2003 and 2007, the real price of oil roughly doubled, with little evident harm to the global economy. But exogenous, supply- induced shocks tend to be stagflationary in nature. In the dog metaphor, an oil supply shock could act as a jerk on the leash, which could bring the dog to a halt.
South Korea and India are notable worries, with both already grappling with inflation problems.
Photo: Morgan Stanley