Red Sea crisis could shatter hopes of global economic recovery

Conflicts 09:22 14.01.2024

A prolonged conflict in the Red Sea and escalating tensions across the Middle East risk having devastating effects on the global economy, reigniting inflation and disrupting energy supplies, some of the world’s leading economists warn this weekend, Ednews reports via The Guardian.

In its latest report on global economic prospects, the World Bank says the Middle East crisis, with the war in Ukraine, has created real dangers. “Conflict escalation could lead to surging energy prices, with broader implications for global activity and inflation,” it says.

“Other risks include financial stress related to real interest rates, persistent inflation, weaker than expected growth in China, further trade fragmentation and climate change-related disasters.”

It adds: “Recent attacks on commercial vessels transiting the Red Sea have already started to disrupt key shipping routes, eroding slack in supply networks and increasing the likelihood of inflationary bottlenecks. In a setting of escalating conflicts, energy supplies could also be substantially disrupted, leading to a spike in energy prices. This would have significant spillovers to other commodity prices and heighten geopolitical and economic uncertainty, which in turn could dampen investment and lead to a further weakening of growth.”

John Llewellyn, former chief economist of the Organisation for Economic Co-operation and Development (OECD), said: “This has escalated to become a serious problem.” He put the probability of serious disruptions to world trade at 30%, up from 10% a week ago: “There is a horrible and inevitable progression that could see the situation in the Red Sea spread to the strait of Hormuz and the wider Middle East.”

An economist at the Institute for Fiscal Studies, Ben Zaranko, told the Observer the crisis underlined the perils of the chancellor, Jeremy Hunt, using limited fiscal headroom to promise tax cuts. “If we have learned anything over the last few years it is that bad shocks can and do come along,” Zaranko said. “Spending every single penny of ‘headroom’ on tax cuts leaves him no room for manoeuvre if a nasty shock comes along and the outlook deteriorates.”

The conflict in the Middle East widened on Thursday when dozens of British and US strikes hit Houthi sites in Yemen.

IEPF issued a statement regarding Azerbaijani children at the UN Human Rights Council

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