Since 1970, the oil price has doubled year-on-year six times and on four of those occasions the US and UK have gone into recession within the next two years. Everyone is waiting nervously to see if 2021 makes it five out of six.
AJ Bell Investment Director Russ Mould said: “Higher energy costs feed inflation, act as a tax on consumers and can pressure corporate margins too. Central banks may be wringing their hands as they admit they cannot do much about the inflation oil is spreading right now but Governments can, by permitting and encouraging more oil drilling and the construction of more pipelines.
“A weaker oil price would presumably make it harder for Vladimir Putin to fund his war in Ukraine, as well, so increased oil supply could bring economic and geopolitical benefits (even if it would take time to effect). Environmental campaigners would be understandably up in arms about such a policy shift but as the American economist and historian Thomas Sowell noted, ‘There are no solutions, only trade-offs.’
“The technical definition of a recession is two consecutive quarters of negative GDP growth, on a quarter-on-quarter basis. Oil doubled in price, year-on-year, in 1973, 1979, 1990, 1999 and 2008 and on four of those occasions the US and UK went into recession shortly after.
“The only exception was 1999. Even then US growth wobbled and stock markets crumbled as the technology, media and telecoms bubble popped when confronted by tighter Federal Reserve monetary policy, which was designed to rein in inflation.”