Un-Break the Global Economy

By Faisal Faeq

The global economy has been impacted by the recent downturn in oil prices, which have remained within a narrow range of $82-84/bbl for Brent crude over the course of May. This is partially due to the possibility that the US Federal Reserve is more likely to keep interest rate at high level in response to persistent inflation, which could reduce both industrial and consumer energy demand and create further uncertainty in the global oil market.

As a result of inflationary pressures, speculative activities have slowed down in the oil futures market amid continued fears of oil demand downturn, causing uncertainties and putting downward pressure on oil prices while according to oil outlook, oil market is already in a deficit – demand outstripping supplies. As a consequence, industries and commodities markets will be severely impacted by the interaction of these factors.

Post-pandemic, market dynamics have fundamentally changed. For instance, oil movement isn’t reflected in goods and services prices movement like in the pre-pandemic era, as well as the change in other commodities prices have been widely detached from oil price movement, while crude oil is the single most important commodity in the world. Therefore, the previously believed significant impact of oil price movement on the macroeconomic variables might need to be reconsidered

Blaming OPEC+ oil output strategy for the economic chaos is a superficial perspective, as there are many other factors at play. In particular, the US Federal Reserve has continued to print US$ banknotes during the pandemic, which has had a negative impact on the global economy despite warnings from scholars and economists. This suggests that the US Federal Reserve should collaborate more closely with other organizations and consider the global impact of its decisions regarding interest rates and inflation.

Although the US Federal Reserve primarily focuses on the internal US economy, it is important to recognize that its policies have global implications. This has caused disagreements among economists regarding the management of inflation and economic priorities, leading many to call for a broad reform of the Federal Reserve and greater oversight for its decisions.

Regardless of who is in the White House, it is essential that the US Federal Reserve take steps to shift its paradigm and cooperate more effectively with other organizations. In an increasingly interconnected world, it is clear that the actions of any one nation or institution can have far-reaching effects on the global economy.

*Energy Adviser (former OPEC and Saudi Aramco)

Twitter: @FAISALFAEQ