Recent events in the Middle East have already had a ghastly human toll and there could be much more to come. Beside such considerations, economic issues are decidedly second order.
Nevertheless, there are economic aspects to this crisis and they need to be analysed.
Naturally, how serious the economic consequences prove to be will depend greatly on what happens from here so our judgments are hedged about with uncertainty.
The most important economic variable affected by the Middle East conflict is the price of oil.
Twice in the 1970s, huge increases in the oil price caused a major spike in inflation and simultaneously sent the developed world into a recession. Both of those spikes were associated with trouble in the Middle East so, when a crisis brews up there, it is natural for people to recall what happened then and to run for cover.
More recently, following the outbreak of the Russia-Ukraine war there was a (less severe) spike in oil prices, a surge in inflation, and an accompanying hit to aggregate demand in the developed world.
In fact, the scale of the increases in oil prices in the 1970s is in a different league from both the increase in oil prices caused by the Russia-Ukraine war and recent price flurries. (Mind you, in 2022 the rise in the price of natural gas in Europe was highly significant.) In 1973/4, the oil price rose by over 300pc and in 1979/80 by nearly 200pc. What’s more, in those days the international monetary regime was a tinderbox. The sharp rise in oil prices was the match.
Moreover, GDP was much more oil intensive then than it is now.
Recent events in the Middle East have already had a ghastly human toll and there could be much more to come. Beside such considerations, economic issues are decidedly second order.
Nevertheless, there are economic aspects to this crisis and they need to be analysed.
Naturally, how serious the economic consequences prove to be will depend greatly on what happens from here so our judgments are hedged about with uncertainty.
The most important economic variable affected by the Middle East conflict is the price of oil.
Twice in the 1970s, huge increases in the oil price caused a major spike in inflation and simultaneously sent the developed world into a recession. Both of those spikes were associated with trouble in the Middle East so, when a crisis brews up there, it is natural for people to recall what happened then and to run for cover.
More recently, following the outbreak of the Russia-Ukraine war there was a (less severe) spike in oil prices, a surge in inflation, and an accompanying hit to aggregate demand in the developed world.
In fact, the scale of the increases in oil prices in the 1970s is in a different league from both the increase in oil prices caused by the Russia-Ukraine war and recent price flurries. (Mind you, in 2022 the rise in the price of natural gas in Europe was highly significant.) In 1973/4, the oil price rose by over 300pc and in 1979/80 by nearly 200pc. What’s more, in those days the international monetary regime was a tinderbox. The sharp rise in oil prices was the match.
Moreover, GDP was much more oil intensive then than it is now.