Doha, April 02 (QNA) - Surging global oil and gas prices are creating a new set of economic challenges for countries worldwide. The most prominent of these challenges is the fight against stagflation, with major fears of stagflation, central banks are now facing a dilemma over raising interest rates to control inflation or lowering them to boost growth.

Energy commodities like oil and gas are essential in the production of most goods. Therefore, price hikes drive up production, transportation, and fuel costs, exacerbating inflation and negatively impacting global growth. If high prices persist, international economic reports warn of a looming imminent risk of stagflation over the global economy.

Given the current situation in the Arabian Gulf region, East Asian countries are the most affected, particularly China, India, and Japan. According to economic reports, these countries account for approximately 80 percent of the oil passing through the Strait of Hormuz, which in turn represents nearly half of East Asian countries' oil imports.

A recent Oxford Economics study notes that if oil averages $140 per barrel for two months amid tighter financial market conditions and worsening supply chain disruptions, parts of the global economy could enter mild recession, with inflation peaking at 5.8%. Conversely, even at $100 per barrel, a decrease in global GDP growth could be observed, although a recession may be avoided, the study highlights.

Brent crude has risen roughly 59% since March, surpassing 1990 gains, amid the closure of the Strait of Hormuz, through which about one-fifth of global oil and gas supplies pass, heightened concerns.

In this context, First Vice Chairman of the Qatar Chamber Mohamed bin Twar Al Kuwari highlighted to Qatar News Agency (QNA) three main effects of rising energy prices: renewed inflation pressures, slower global growth, and supply chain disruptions increasing shipping and insurance costs.

The first is the resurgence of the inflation challenge. "While the global economy entered this year with a steady, but not particularly strong, growth, with global inflation projected at 3.8% according to the International Monetary Fund, rapid energy price surges directly impact other economic sectors such as transportation, electricity, manufacturing, and agriculture, and ultimately consumer prices. This places central banks in a difficult position: either tighten monetary policy or tolerate higher inflation for a longer period," First Vice Chairman of the Qatar Chamber said.

He noted that global markets, particularly in Asia, have begun reflecting this challenge, with rising yields and declining stocks.

The second effect is the slowdown of global growth. Every dollar added to the price of oil effectively acts as a tax on energy-importing countries, reducing household liquidity, raising production costs for companies, squeezing profit margins, and delaying investment.

He said, “The challenge is not limited to crude oil supplies, but also extends to liquefied natural gas (LNG). Any disruption in the Strait of Hormuz would create a major shock in the global gas market that cannot be addressed quickly. The International Energy Agency notes that a loss of supplies transiting the strait could reduce the global LNG supply by more than 300 million cubic meters per day, with severe difficulties in compensating for these volumes in a short period of time.”

The third effect, according to the First Vice Chairman of the Qatar Chamber, is supply chain congestion and rising costs of trade, insurance, and shipping. He pointed out that the challenge lies in the cost of delivering energy, petrochemicals, and intermediate fuels to factories, ports, and airlines, prompting governments to take emergency measures. In this case, Australia has temporarily reduced fuel taxes, and South Korea expanded tax exemptions on fuel, implemented an emergency bond purchase, and increased the operation of nuclear and coal-fired power plants to mitigate the shock, he said. These responses themselves demonstrate that the impact is no longer theoretical, but has become central to countries’ economic policies, he added.

He highlighted that the most affected are energy-importing Asian countries, with about 84% of crude oil and condensates and 83% of LNG passing through the Strait of Hormuz heading to Asia, pointing out that China, India, Japan, and South Korea are the largest destinations, accounting for 69% of total crude oil and condensate flowing through the strait, making these economies the first link in the chain of impact.

He added “Gulf exporting countries are also affected, but differently, by disrupted exports, revenue losses, and higher risks to infrastructure and energy investments.”

He continued, “In my view, a significant part of the repercussions will continue even after tensions ease, albeit to varying degrees. The first to stabilize would be spot prices if navigation resumes normally. The market may catch its breath after a resolution, but it will not immediately return to pre-crisis levels. Economic effects will remain, as shipping and insurance companies will not immediately lower risk premiums, and refineries and governments will begin rebuilding strategic reserves.”

He explained that the current shock is more serious than a mere price spike, as it exacerbates inflation and affects growth, business confidence, and supply chains at a time when the global economy has a little margin of safety.

He stressed that the most impacted by the rising oil and gas prices are major energy importers in Asia, followed by countries dependent on Gulf gas, and then energy-intensive industries worldwide. Even if the Strait of Hormuz crisis is resolved politically, the economic impact will not disappear immediately; rather, it will shift from an acute supply shock to a prolonged period of volatility, higher energy costs, and a reshaping of trade and investment patterns, he said.

For his part, former banker Abdulla Al Raisi said in a statement to QNA that the sudden and rapid increase in any key commodity, such as oil and gas, in global markets typically leads to economic repercussions affecting most countries worldwide.

He emphasized that the rise in oil and gas prices has brought the challenge of inflation back to the forefront, stating, "Inflation will affect all economies worldwide, but to varying degrees, given that many countries have domestic financial programs in place to mitigate such conditions for a year or two." He noted that the countries most affected by this surge are facing stagflation.

The surge in oil and gas prices has brought inflation back to the forefront, noting, “Inflation will affect all economies worldwide, albeit to varying degrees. Many countries have domestic fiscal programs that can help them mitigate such conditions for a year or two.” Yet, countries that are most impacted by these increases may face stagflation, he added.

He pointed out that the longer the situation persists, the more significant economic consequences will be on all sectors of the global economy.

Al Raisi also emphasized that the repercussions of the current crisis will extend beyond the reopening of the Strait of Hormuz, stating, “for conditions to return to what they were before the geopolitical crisis in the region, a period exceeding three years will be required. Therefore, the negative impacts on the global economy as it rebuilds."

Regarding the dilemma facing central banks worldwide, whether to raise interest rates to curb inflation or lower them to accelerate economic recovery, he said central banks must have sufficient capacity to assess both domestic and global market conditions and future trends, and to establish mechanisms acceptable to all economic stakeholders. He warned against rushing to raise interest rates, as this could harm small and medium-sized enterprises as well as larger companies.

He added, “decision-makers must understand the conditions businesses are facing and develop mechanisms to support all sectors without directly or indirectly harming economic activity. At the same time, companies and business owners must recognize the current circumstances and rationalize their expenditures to avoid placing additional strain on their countries.”

Al Raisi pointed out that the biggest beneficiaries of rising oil and gas prices are the exporting countries of these materials, but under the current and special circumstances, the benefit from the price increase is relatively limited, except for those countries with high debts outside the Gulf region.

He said, "The rise in oil, gold, and basic commodity prices in general helps exporting countries to pay their debts in a shorter period than expected. There may be decisions pushing in this direction to accelerate the repayment of these countries' debts, because they will not be able to commit to paying their debts unless there are price increases." (QNA)