The ongoing conflict in the Middle East is unlikely to trigger a global economic collapse on the scale of the 2008 financial crisis, Nobel Prize-winning economist Philippe Aghion has said, even as he warned that a prolonged war and sharply rising oil prices could slow global growth, AFP reported.
“If the war lasts longer than several weeks, if the price of oil shoots higher than $150 per barrel and we see inflation picks up a lot, then well see a situation similar to the 1973 oil shock,” Aghion said on RTL radio.
The 1973 oil shock was triggered when Arab members of the OPEC oil cartel imposed an embargo on countries supporting Israel during the Yom Kippur war, causing oil prices to surge sharply and leading to high inflation and economic stagnation across many economies.
Aghion said such a scenario would require a coordinated policy response from Europe, the United States and other developed economies.
Meanwhile, G7 finance ministers are expected to discuss a possible release of strategic oil reserves in an attempt to calm markets after oil prices briefly surged by more than 30 per cent.
“A prolonged, widening conflict will reduce global growth,” Aghion said.
“I see a possible slowdown” but “I don’t see a collapse. I don’t see anything like the 2008 financial crisis, for example,” he added.
The 2008 global financial crisis was triggered by the collapse of the US housing bubble, when mortgage-backed securities failed, leading to the collapse of lenders and a severe credit crunch that resulted in the deepest economic downturn since the Great Depression of the 1930s.
