Oil Price Hike Sparks Warning of Inflation, Interest Rate Increases, and Stock Market Downturn

The global economy is showing remarkable resilience in the face of geopolitical and energy shocks, but experts warn that prolonged oil price hikes could still have severe consequences. According to Daniel Kalt, chief economist at Swiss bank UVS, if oil prices reach $150-$200 per barrel, 'the game is on'.

Kalt notes that the global economy has become less dependent on oil compared to the 1970s, with carbon emissions decreasing from nearly a kilogram per dollar of value added to below 300 grams. This means that each dollar of economic output now requires significantly less energy from fossil fuels, making the impact of an oil shock weaker.

However, Kalt warns that if oil prices remain around $120 per barrel for six months, US inflation could rise to about 5%, forcing the Federal Reserve to tighten monetary policy and potentially sparking a stock market downturn. He predicts a 30% drop in the US stock market would curb consumer spending, increasing the likelihood of an American recession and its spread to other countries.