Two wars, double risk for prices

The war in Palestine comes on top of the one in Ukraine. The double whammy multiplies the worst part of it, the direct humanitarian disasters. It also doubles the risk for the global economy, especially from a general rise in prices.

This is happening just as energy costs, which had skyrocketed due to the invasion of Ukraine, had begun to consistently decline. This was moderating inflation, so that the central banks were eyeing an end to their persistent interest rate hikes: the Fed, with its first pause; the European Central Bank, by suggesting that the September hike would be the last. An eventual “soft landing” of inflation (without a recession) was gaining (timid) ground.

Indeed, Brent oil was priced at $99.08 on February 24, 2022; it rose to $119.7 a hundred days later; and on the 13th, it had dropped to $90.3, after 10 months oscillating between $70 and $90. And European natural gas was priced on the same day at €55 per megawatt hour, compared to the €300 it reached on August 26 of last year. So the escalation of base energy prices derived from Putin’s war was in the process of being digested.

The return to conflict in the Middle East is sending alarm signals. Oil prices have risen 4% in a few days. And gas has increased by 44% in one week (also due to suspicion of sabotage in the Finland/Estonia gas pipeline), a concern tempered by the fact that European reserves already exceed 90%, 14 points more than a year ago.

The International Monetary Fund has distributed doses of caution in Marrakech: it is “too early to reach a hasty conclusion.” And various operators are avoiding alarmist messages, appealing to the fact that this initial increase could trigger a sequence of ups and downs: a temporary rise in prices, an easing of the uncertainty, a return to the original prices.

Everything now depends on the evolution and scope of the disaster in Gaza, and the reactions of its neighbors. The more bitter the confrontation, the worse the prices. The focus is on the barrier of $100 per barrel. And on the degree of Iran’s involvement: whether it will intervene to a greater extent, whether the U.S. will punish it by restricting its exports (which would increase prices). And on the still unclear role of Saudi Arabia. History does not repeat itself. But it does send warnings. Fifty years ago, the Yom Kippur War (1973) and the Ayatollahs’ coup (1979), cumulatively, triggered a rise of 11.3% in average global inflation until 1983.

Sign up for our weekly newsletter to get more English-language news coverage from EL PAÍS USA Edition