|Iran oil embargo raises threat of new global recession||
Tightened sanctions by the West against Iran have triggered oil price spikes that could spark a global recession.
Oil prices hit a record in euro terms this month and analysts say they may have dragged the euro zone into recession.
New sanctions by the U.S. and European Union (EU) — still SA’s biggest trading partner — against Iran have ratcheted up tension and the price of oil as traders worry about the risk of hostilities, including an attack by Israel on Iranian nuclear facilities. SA will be hard hit both by the price increase and as it sources a substantial part of its oil from Iran and will have to find an alternative, possibly more costly, oil supplier.
U.S. President Barack Obama has conceded that tension over Iran is "adding a $20 or $30 premium to oil prices", which have risen about 20% since December.
International Monetary Fund chief Christine Lagarde warned recently that any interruption in oil supplies from Iran could raise oil prices by a further 20%-30% and cause an economic shock.
"A sudden and brutal rise" from Brent crude’s levels of $125 a barrel "would have serious consequences on the global economy", she said.
Iran has threatened retaliation against the sanctions, including a possible disruption of shipping through the Strait of Hormuz, a Persian Gulf choke point for oil shipments.
Ernst & Young’s Eurozone Forecast warns that a spike in oil prices to a sustained level of $150 a barrel would cause a contraction of 1% in the EU this year, double the milder 0.5 % contraction forecast.
"A new oil shock would hit an already fragile economy," says Marie Diron, senior economic adviser to the Eurozone Forecast.
The International Air Transport Association warned an increase to $150 a barrel could push some airlines into bankruptcy.
Euro-zone private sector activity fell more sharply than expected this month, indicating the 17-nation bloc had slid back into recession, according to Markit research firm’s purchasing managers’ index (PMI). The composite PMI fell to 48.7 points in March after reaching 49,3 points in February. Any score below 50 indicates contraction.
The price of Brent crude hit $128.40 on March 1, the highest since a peak of $147,50 in July 2008. But with the euro having slid against the dollar, it reached a record of €94.65 a barrel.
"Given the major debt issues (in) euro-zone economies, the latest jump in oil prices adds unwelcome inflationary and balance of payments costs with imports of dollar-denominated oil," the International Energy Agency says in its latest monthly report.
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