- The economist said higher oil prices are increasing inflationary pressures beyond fuel costs alone.
- He said central banks may consider limited interest rate increases to contain inflation.
- He warned that escalation in the Middle East could disrupt energy infrastructure and global supply chains.
- Strategic oil reserves have so far cushioned markets, with China reducing imports during the crisis by drawing on stockpiles.
Rising Middle East oil prices are expected to have consequences far beyond higher fuel costs, with an economist warning of mounting inflationary pressures, possible interest rate increases and risks to global supply chains.
Speaking on Sigma TV’s Mesimeri kai Kati, economist Michalis Florentiades said the increase in oil prices, driven by geopolitical tensions in the Middle East, is affecting the wider economy rather than just motorists.
Oil prices on the rise
Florentiades said Brent crude has risen by around 20% from the lows recorded after the ceasefire, climbing to close to $85 per barrel.
However, he noted that prices remain well below the peak levels of $115 to $120 per barrel seen at the height of the crisis.
Inflation concerns extend beyond fuel
Florentiades stressed that attention should not focus solely on fuel prices.
“It’s not only fuel prices that we should be paying attention to,” he said, explaining that higher oil prices feed into inflation, which could influence the decisions of central banks.
He said central banks may opt for limited interest rate increases in an effort to keep inflation under control.
ECB outlook depends on the conflict
Referring to the European Central Bank, Florentiades said one or two further interest rate increases could not be ruled out, although everything will depend on how events unfold in the Middle East.
“We are always dealing with great uncertainty over what will happen in the war,” he said.
He warned that any escalation involving attacks on energy infrastructure could have long-term consequences for global markets.
However, he emphasised that he does not consider such a scenario the most likely outcome, but cited it to illustrate the level of uncertainty facing the global economy.
Fertiliser supply also under scrutiny
Florentiades also highlighted potential risks to global supply chains, particularly in the fertiliser market.
“This is something we need to monitor,” he said, noting that the Gulf region, and especially the Strait of Hormuz, plays a crucial role in the global fertiliser trade.
Any disruption to supplies, he warned, could increase production costs and ultimately push up prices for consumers.
He also pointed out that the region is a major supplier of natural gas and helium, both of which are important to industry and the global economy.
Strategic reserves cushion the impact
Florentiades referred to the International Energy Agency’s warning about the importance of strategic oil reserves, saying markets have so far absorbed the shock because countries have been able to draw on stockpiles built up in previous years.
He cited China as an example, saying it significantly reduced oil imports during the crisis by relying on its extensive strategic reserves.
He also noted that the war in Ukraine continues to affect global energy markets, with Russian energy infrastructure also having come under attack.
Markets remain cautious
Florentiades concluded that international markets have so far reacted relatively calmly as investors wait to see how the situation develops.
“There are countless scenarios, and there is this uncertainty,” he said, summarising the current outlook for global energy markets and the wider economy.
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