Oil crisis puts property slump on back-burner
Crumbling house prices may have been our undoing, but soaring oil prices, if they go unchecked, could cripple the global economy.
Oil prices have more than doubled over the past year, driven by rising demand in fast-growing economies such as China and India.
Supply disruptions in the Middle East and Nigeria add to the pressure while some critics accuse speculators of causing the oil price havoc.
This week, Barack Obama pledged that if elected US president, he would bring in a new law to prevent speculation in the oil markets in an effort to keep some lid on the soaring cost of what is now a dwindling resource.
Internationally, analysts believe oil’s rapid climb is down to speculative buying, as traders purchase oil futures as a safe haven against the falling dollar.
Speculators are only a part of the emerging oil story internationally.
On Thursday, the price of a barrel of crude briefly hit $140 as the unprecedented surge in prices continued, raising fears the graph is going to continue rising, with forecasters warning the next level is $150.
OPEC has already said the price will hit $170 by the year end, while food analyst John O’Reilly pointed out in a review for Davy Stockbrokers that the 130-year era of rising farm output in conjunction with falling farm prices was gone forever — in other words we are facing an era of food price rises that could last a long time, unless we hit a protracted global recession.
Soaring food prices have already caused riots around the world, while the oil question is changing how the citizens of the United States of America live.
Those involved in the transport and fishing sectors have been blocking roads and harbours recently in clear manifestations of their frustrations at the impossible situation the soaring cost of fuel has put them in.
This is an oil crisis, not just a temporary supply glitch, and it will not offer up any easy solutions.
Solar power, biofuels and wind energy will help, but the globe is in the grip of an energy crisis and that has major implications in both economic and social terms.
Before the ESRI hit the streets on Tuesday and delivered its depressing verdict about the economy being in recession for the first time in 25 years, the twin issues of rising oil and food prices have been simmering away in the background.
The ESRI’s assessment has already triggered an internal government spending review, raising fears this year’s Budget will be one of the toughest in a long time.
Even before the ESRI wake-up call, it was already clear that tax revenues in 2008 would be about €3.5 billion off target, thanks to the housing slump and future revenues would also suffer, as the building sector delivers modest housing output.
In general, the hope is that 2008 will see off the slump and growth will return in 2009. Nobody knows if this will turn out to be the case and much will depend on how interest rates, house prices and consumer confidence evolve.
There are reasons to hope the economy will recover, provided the external factors of rising oil and food prices do not worsen.
Without doubt dearer fuel and food costs are having an impact internationally and that, according to William De Vijlder of Fortis Investments, may cause global economic growth to go into a phase of slow growth for some time.
While the property slump is our immediate challenge, the real threat globally is the uncertain state of oil and food prices and the damage they are doing to international confidence.
De Vijlder believes the fall in housing prices and the credit crunch is fast becoming yesterday’s story.
