Curbs on Russian exports raise risk of an oil shock and recession in Europe

Curbs on Russian exports raise risk of an oil shock and recession in Europe

The spike in oil and gas prices triggered by the Ukraine conflict and western moves to punish Moscow has raised the threat of the worst stagflationary shock to hit energy importing economies since the 1970s.

Crude prices surged after Antony Blinken, US secretary of state, said at the weekend that Washington was discussing a ban on importing Russian oil. On Monday, US politicians were discussing bipartisan legislation while European officials were devising plans to reduce reliance on Russian fossil fuels.

Even without a ban on exports from Russia, the second-biggest crude producer, many experts doubted whether the global economy, and Europe’s in particular, was robust enough to escape a new oil crisis and recession.

“The post-Covid recovery will surely be significantly delayed with a clear risk that we could be heading into a period of stagflation — if not even a recession with inflation,” said Erik Nielsen, economic adviser to UniCredit.

The talk of stagflation, the combination of sluggish growth twinned with high inflation, raises memories of the two 1970s oil shocks, when prices surged after Arab states imposed an oil embargo in 1973 on countries that had supported Israel in the Yom Kippur war and in 1979 after the Iranian revolution.

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