Monday, 7 March 2011

Middle East unrest puts oil on a slippery slope

It seems a little callous when watching violence and death unfold in the Middle
East for so much concern to be paid to the oil market.

However, no one should underestimate the possible consequences of a rocketing
oil price given the strong correlation between spikes and recessions.

A growing number of experts and policy-makers, including Chris Huhne, the Energy
Secretary, have this week been warning of the real possibility of an “oil shock”
that could have deep effects on economic recovery –

potentially plunging the world back into financial hardship.

Dragan Trajkov, oil and gas analyst at Renaissance Capital, points out that
there have been only two occasions in the past 40 years – in 1980 and 2008 –
when global oil costs were above 5pc of global GDP. Both times this resulted in
a severe economic crisis and a consequent severe drop in oil demand leading to
an oil price crash, he points out.

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