Tensions over Iran’s nuclear program continue to fester, unsettling oil markets, raising prices, and adding uncertainty to fragile global economic prospects. Jorg Decressin of the International Monetary Fund, Jamie Webster of PFC Energy, and Carnegie’s Karim Sadjadpour discussed the likelihood of a military attack on Iran, the impact of sanctions, and the macroeconomic implications of high oil prices. Carnegie’s Uri Dadush moderated the discussion.
Iran is showing some signs of softening, but it is unlikely that a meaningful deal will be reached, said Sadjadpour.
Although oil prices have shown some decline recently, they will remain elevated, predicted Webster.
Decressin discussed five factors that contributed to the fact that high oil prices in the 2000s did not have a strong negative effect on the global economy.
The global economy’s resilience in the face of high oil prices gives some cause for optimism about further increases in oil prices, suggested Decressin. He argued that, for example, the impact of an Iran-related oil supply shock (or full disruption with no offset elsewhere, which could cause oil prices to rise by 20-30 percent) can be managed by the global economy. However, the effects could be much larger if the tensions were accompanied by significant financial volatility and loss in confidence.
Decressin concluded by warning that the world should still be worried about high oil prices, given the fragile recoveries in advanced economies and consequences of oil price fluctuations on the world’s poor. Moreover, oil supply responds sluggishly to price changes as a result of limited investment in oil production, high cost of oil extraction, and tight environmental regulations.
The Carnegie Middle East Program combines in-depth local knowledge with incisive comparative analysis to examine economic, sociopolitical, and strategic interests in the Arab world. Through detailed country studies and the exploration of key crosscutting themes, the Carnegie Middle East Program, in coordination with the Carnegie Middle East Center in Beirut, provides analysis and recommendations in both English and Arabic that are deeply informed by knowledge and views from the region. The program has special expertise in political reform and Islamist participation in pluralistic politics.
The Carnegie International Economics Program monitors and analyzes short- and long-term trends in the global economy, including macroeconomic developments, trade, commodities, and capital flows, drawing out their policy implications. The current focus of the program is the global financial crisis and its related policy issues. The program also examines the ramifications of the rising weight of developing countries in the global economy among other areas of research.
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