Dallas Federal Reserve: A global recession is inevitable without Russian oil

The world economy will probably not be able to avoid a recession without a resumption of Russian energy exports this year, according to a study by economists at the Federal Reserve Bank of Dallas, quoted by Bloomberg.

“If most of Russia’s energy exports are out of the market by the end of 2022, a contraction in the global economy seems inevitable,” economists Lutz Killian and Michael Plante wrote in an article published by the Fed on Tuesday. “This delay may be longer than in 1991,” they added.

The authors draw a parallel with the 1991 global recession caused by Iraq’s invasion of Kuwait the previous year, which shocked oil supplies.

Saudi Arabia then partially alleviated supply problems by promising to increase production. This led to a “brief recession in the United States” that lasted less than a year.

According to Fed economists in Dallas, the refusal of financial institutions to participate in Russian energy exports is the main reason why oil supplies are at risk. “This result was largely unexpected, as US and European Union sanctions deliberately did not affect Russia’s energy exports,” they said.

Replacing Russian supplies could be quite a challenge, given that Saudi Arabia and the United Arab Emirates have signaled that they will not help make up for these shortfalls. Researchers also stressed that shale oil producers are “limited due to supply chain problems, labor shortages, and public investors’ requirements for capital discipline.”

“There are indications that some oil-importing countries are exploring alternative payment schemes that avoid the use of trade credit, circumvent current financial sanctions or rely on alternative currencies,” Killian and Plante wrote. According to them, this should help alleviate the situation.

They say that if it is not compensated, the decline in Russian exports will put inflationary pressure.

“Unless the shortage of Russian oil is controlled, it seems necessary to increase the price of oil significantly and remain high for a long time to eliminate excess oil demand,” they wrote. “This devastation of demand is likely to be helped by the effects of the recession and higher prices for natural gas and other commodities, especially in Europe,” the authors said.

Meanwhile, the IMF still believes that the global economy will grow this year. International Monetary Fund Managing Director Kristalina Georgieva said on Tuesday that while there is a “possible risk of recession” in some economies, others are recovering rapidly from the pandemic and are in a better position to deal with the effects of the war in Ukraine.

The head of Deutsche Bank warned of an imminent recession in Germany if the import of Russian energy is stopped

Germany is facing an imminent recession if Russia’s energy supplies are cut off. This was stated by the CEO of Deutsche Bank Christian Zeving during a briefing during which he spoke in his role as head of the German banking lobby, Bloomberg reported.

Zeving’s name is another on a growing list of German managers and politicians warning of severe economic consequences if measures are taken against Russia’s energy imports.

Fighting rising inflation, Germany will face “further deterioration if it stops importing or supplying Russian oil and natural gas,” Zeving said.

“A recession in Germany would probably be inevitable,” he added.

The warning comes after photos allegedly of Ukrainian civilians killed by Russian soldiers surfaced. They have called for tougher sanctions across the European Union – including a halt to oil and gas imports from Russia. Germany and several other EU member states that depend on Russian gas have so far opposed sanctioning the energy sector.

Over the weekend, other German politicians and CEOs, including Finance Minister Christian Lindner and ThyssenKrupp CEO Martina Merz, made similar comments to Zeving before allegations of atrocities in Ukraine went public.

“If there is an embargo on imports, and this is something to keep in mind, we could talk about inflation, which is at least temporarily going to be in double digits,” Zeving said. “However, there will also be a permanent phenomenon that we have not seen in the last 30 years – long-term inflation,” he added.

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