Global Economy May Slide Into Recession With Oil Price At $125, Moody’s Warns

Global economists have warned that sustained elevated oil prices would tip the global economy into a recession.

This was shared by Moody’s Analytics’ head of international economics, Gaurav Ganguly, who spoke to CNBC, pegging the game-changing price at $125 per barrel of Brent crude.

If prices go that high and stay that high long enough, the world will enter a recession, but it will be a shallow one, Ganguly noted, adding that for now, Moody’s was reasonably optimistic, assuming the war in the Middle East would come to a swift end soon.

Most analysts appear to share the same assumption, although some have become cautiously pessimistic, suggesting a prolonged disruption of normal tanker traffic in the Strait of Hormuz.

Meanwhile, oil prices retreated from last week’s highs after the latest plan of U.S. President Donald Trump to unblock tanker traffic in Hormuz. The plan involves guiding tankers via the strait, although the guiding, it appears, will not involve the U.S. Navy, which is currently blockading traffic from and to Iranian ports.

In the same post that contained the announcement of what the U.S. president dubbed “Project Freedom”, Trump also signaled peace discussions with Iran were progressing in a “very positive” way.

“Even if this allows vessels to leave the Persian Gulf, we’re likely to see little inbound traffic. This would only amount to temporary relief, as floating storage leaves the Persian Gulf,” ING commodity analysts said in a note following the announcement of Trump’s plan.

The decline in oil prices was indeed modest, as traders appear to take a more cautious stance with regard to their oil decisions, failing to be particularly impressed with OPEC’s latest announcement that featured an agreement to ramp up production further next month.

At 188,000 barrels daily, the output increase is a fraction of the amount of oil production lost amid the war between the United States, Israel, and Iran since the start of March.