An oil price spike doesn’t mean a recession is on the way

An oil price surge from $60 to $72 per barrel, as happened after the drone attack on Saudi Arabia’s Abqaiq refinery caused a sudden 6 per cent cut to global supply, would once have been taken as a sure signal of economic troubles ahead.

A 1990s study of postwar oil prices plotted against employment and other data by Professor Andrew Oswald of Warwick University showed that every spike in energy costs had shortly been followed by recession. The theory still held in 2008: even though the ‘Great Recession’ was attributed to financial mayhem, it came soon after a speculative oil peak of $147.

But today’s barrel price seems to be settling back and is anyway little more than half what it was earlier in this decade — while the developed world is far more energy-efficient, in factories, offices, homes and transport, than it was in the era of Oswald’s study. A seriously disruptive Middle East conflict would dent global growth but is far from the UK’s most crucial worry, which is the still-rising risk of a no-deal Brexit. And even that seems to have been taken in our stride, at least in July when the economy recorded 0.3 per cent growth after a 0.2 per cent contraction for the second quarter; if the result for the whole third quarter is zero or positive, we’re not in recession — yet.

Don’t let’s be complacent, however, because the aftermath of the Abqaiq attack highlights another risk: a significant blip in inflation. We rely on imported fuel and distributors are always swift to pass wholesale cost rises to consumers; meanwhile, Operation Yellowhammer’s ‘reasonable worst case’ tells us that traffic disruption (particularly at the Dartford Crossing) plus ‘consumer behaviour’ could lead to local fuel shortages that will inflate prices.