Tuesday, 27 March 2012

Sanctions triggering global recession

Sanctions against Iran put cloud over global growth

26 March, 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 on Friday that tensions over Iran were "adding a USD 20 or USD 30 premium to oil prices", which are up to 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 USD 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 USD 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 USD 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.

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