$120 Oil Doesn't Mean Recession Just Yet
The recent Iran oil shock has seen Brent crude rise to over $120 per barrel, a 70% increase since February 28. However, global equity markets have been surprisingly resilient, with most back above pre-war levels. According to Fatih Birol, head of the International Energy Agency, this is the worst oil shock ever, but when adjusted for inflation and energy consumption as a percentage of GDP, it doesn't look as severe.
The key difference lies in math. In the 1970s, global oil consumption was around 50 million barrels per day, compared to double that now. Additionally, the global economy has become less oil-intensive, with the 'oil intensity' ratio currently about a third of what it was in 1973.
The US economy appears particularly well-positioned to withstand an oil shock. Our analysis suggests that while a 50% crude price shock in the 1970s had a negative 1.0% impact on US GDP over eight quarters, it would likely only have a negative 0.2% impact today.