As more sectorally focused Russia sanctions loom as AFP reports Petroshenko is consider revoking the cease-fire over the helicopter downing (and Iraq appears set to light the blue touch paper and retire), we thought UBS analysis of the impacts (gains and losses) on the world's nations from sustained higher oil prices would be worthwhile. As Larry Hatheway notes, an increase of USD 10 in the price of a barrel of oil - driven by supply shocks - will shave around 0.2 to 0.3 percentage points from global growth. Every USD10 per barrel increase in the price of oil typically transfers around 0.5% of global GDP from oil consumers to oil producers. So who gains the most? (Spoiler Alert: ryhmes with usher) And is $115 the tipping point for global growth?
- *POROSHENKO SAYS UKRAINE CEASE-FIRE MAY END BEFORE DEADLINE
- *UKRAINE SAYS 9 PEOPLE DEAD IN HELICOPTER DOWNED BY REBELS
- *POROSHENKO: UKRAINE TRUCE MAY END EARLY OVER REBEL ATTACKS
- *POROSHENKO: UKRAINE FORCES TO RETURN FIRE `WITHOUT HESITATION'
So who gains the most if all hell breaks loose again and the West unveils targeted (energy) sanctions...
As UBS explains,
Investor attention is turning to the 'oil patch' and the risk of energy supply disruptions.
Oil prices have recently edged up on concerns about sectarian violence in Iraq and the associated risk of supply disruptions. Elevated energy prices may also reflect worries about possible western sanctions in the event tensions between Ukraine and Russia escalate further.
A Brent oil price of USD115 has shown to be a tipping point for the world economy. That is indicated by comparing our global growth surprise index and Brent prices (Figure 1, overleaf). Oil prices and global growth surprises are typically positively correlated, as stronger growth lifts crude prices. But there are limits to how far oil prices can rise without triggering a growth slowdown, particularly if unexpected supply shocks push prices up suddenly from already high levels.
Eyeballing the chart above suggests that whenever oil prices have breached USD115 in recent years, global growth has typically taken a turn for the worse.
Simulations on the Oxford Economic Forecasting (OEF) econometric model suggest that an increase of USD 10 in the price of a barrel of oil—driven by supply shocks—will shave around 0.2 to 0.3 percentage points from global growth.
Every USD10 per barrel increase in the price of oil typically transfers around 0.5% of global GDP from oil consumers to oil producers. The model assumes—correctly in our view—that the propensity to spend additional income in the oil-producing complex is lower than it is in the oil-consuming complex.
The same model simulations suggest that oil-intensive emerging countries that lack domestic energy production capacity are typically worse off in any scenario where oil prices are climbing (see Figure 2 below). For instance, East European economies such as Hungary, Czech Republic and Turkey, or Asian economies such as the Philippines, India and Thailand fare relatively poorly in oil shock scenarios. These economies would suffer a shortfall in growth of between 0.5 and 0.7 percentage points after one year should oil prices unexpectedly climb a further USD 10 from current levels.
Oil-producing economies such as Russia or Norway clearly benefit when oil prices rise, enjoying a boost to GDP of up to 0.6 percentage points (Russia) or 0.2 points (Norway). Among large developed economies, the US and Japan are least affected. Prior to the US shale revolution model simulations would have suggested a negative impact of 0.2 to 0.3 percentage points off US growth for every USD 10 increase in the price of Brent. The estimate has dipped to 0.1% according to the most recent estimates. European economies, with higher oil import intensity, are more exposed than the US according to our model-driven estimates.
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Theatrics? as we wondered earlier. With Russian stocks now green YTD and massively outperforming US equities since the sanctions, it seems Obama's only move is energy targeted sanctions.. or did Ukraine just shoot itself in the foot (and help Putin?). It seems he is not impressed either:
- *PUTIN SAYS NOT ENOUGH ACHIEVED IN UKRAINE TO OVERCOME CRISIS