Tags: Strike | Iran | Recession | oil

Oxford Analytica: Strike on Iran Could Spark Another Recession

Tuesday, 28 Feb 2012 01:51 PM

By Michael Kling

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A strike on Iran could lead to another recession, warns Oxford Analytica, a global analysis and advisory firm.

If an attack on Iran leads to a wider regional conflict or otherwise significantly disrupts oil supply from the region, prices will soar to record levels, warns Oxford Analytica in an article summarized on a CNN blog.

A global double-dip recession also would be pretty much inevitable.

Editor's Note: Meltdown on Main Street Coming, Prepare Now

Iran produces about 5 percent of the world's oil and exports only about 2 million barrels a day, but its region is responsible for about a third of the world's oil, the firm notes.

Targeted military action might send Brent crude prices to $150 a barrel, undermining global economic recovery, the company predicts. Countries would probably open their strategic reserves to ease price increases.

If tensions with Iran ease, prices would probably fall back to about $100 a barrel, boosting economic growth.

Prices have already increased due to worries about a conflict with Iran and an escalating regional conflict.

Oil supply has remained tight even as demand dropped, and rising oil prices threaten another recession, the firm says. Although rising oil prices haven't yet caused wider inflation, persistent increases will prompt a rising consumer price index that will stifle consumer demand and economic growth.

If inflation reaches its 2011 peak, a global recession is likely in late 2012 to early 2013.

"With the global economy still fragile and OECD monetary policy extremely loose, the consequences for inflation and growth could tip the world back into recession by late 2012," the firm states.

Some analysts predict oil prices will drop because Iran will probably not carry through its threat to shut down the Strait of Hormuz, the passage way for one much of the world's oil, according to the Associated Press.

Economic problems in Europe will also push down demand.

"We therefore continue to expect oil prices to drop back sharply this year as weakening demand more than offsets concerns over Iran, which are likely to fade too," states a report from Capital Economics, according to the AP.

Editor's Note: Meltdown on Main Street Coming, Prepare Now

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