Show Hide image

Rising oil prices threaten global economic recovery

Brent crude reached $120 on Monday, triggering fears over inflation and weakened growth.

Oil prices reached their highest level since before the beginning of the financial crisis on Monday, with Brent crude approaching $121 per barrel.

Rising prices have been blamed on the on-going conflict in Libya, which produces over 1.6 million barrels a day. Though Saudi Arabia has replaced the missing amount of oil so far, fears of the markets vulnerability remain as prices continue to rise. Other disrupting factors came from a strike amongst oil workers in Gabon.

However, there was speculation as to whether the Libyan rebels which currently control the east of the country could restart production.

Analysts say that prices of $120 per barrel present an increasing danger to the global recovery. At this point, oil becomes 5.5 per cent of the global economic output. This, the Deutsche Bank argued, "has historically been an environment where global growth has come under pressure".

The International Monetary Fun estimates that for every extra $10 on the price of oil barrels, 0.2 per cent of global growth is lost.

In the UK, economists fear that the increasing oil prices could strengthen inflation, which currently stands at 4 per cent, twice as much as the 2 per cent target set by the Bank of England's Monetary Policy Committee. Higher inflation would imply a stifled growth, which has lead HSBC to lower its growth forecasts for the UK from 1.7 per cent to 1.4 per cent in 2011, and from 1.8 per cent to 1.6 per cent.