According to Bloomberg News, it is pretty likely that the global economy will not be able to keep at bay a recession if there is no resumption of Russian energy exports in the current year, as per a study conducted by the economists of the Federal Reserve Bank of Dallas.
The looming recession upon the world
Suppose the significant portion of the energy exports of Russia is out of the market for the rest of 2022. There might likely be a global economic crunch that cannot be avoided, stated Lutz Kilian and Michael Plante, the economist mentioned in an article Tuesday posted by Dallas Fed. They also said that this slowdown is likely to be protracted compared to what it was in 1991.
The authors drew a parallel at the time of the global recession triggered when Iraq invaded Kuwait and in the year before that gave rise to an oil supply shock. Saudi Arabia back then had reduced the impact partially as it pledged to gear up production, thereby ensuring what researchers had called a brief recession in the US that lasted less than twelve months.
The fact that financial institutions have refused to offer support to the Russian energy exports is the main factor imposing pressure on the shipments, as per Dallas Fed economists. This outcome was not expected, as European and US sanctions intentionally excluded the export of Russian energy.
Barter arrangement
It may appear challenging to replace the supply since the United Arab Emirates and Saudi Arabia have expressed that they will not offer relief, stated researchers. They also said that due to the disruptions in the supply chain, the US shale producers are already facing trouble, shortage of labor, and insisting capital discipline on public investors.
In the absence of supply response, the stoppage of Russian exports will lead to an inflationary hit that contracts to spend, as per the authors.
The economists also said that unless the supply shortfall of Russian petroleum can be managed, it will be necessary for the price of oil to escalate substantially and might as well stay elevated for quite some time to meet the oil demand.
Bloomberg News reports that the International Monetary Fund is still seeing the global economy stretching in the current year. The managing director of the International Monetary Fund, Kristalina Georgieva, said Tuesday that although there is a potential risk of recession in a few economies, others recovering faster from the coronavirus pandemic are better positioned to face the ripple effects of the Ukraine war.
