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Roubini: world may see 1970s like oil shock

Tough times are once again looming for the global economy. Analysts predict all kinds of trouble for it. Nouriel Roubini, the man known as "Dr. Doom" after he predicted the 2008 crisis, is leading the gloomy forecast parade this time. The economist is warning that the US economy could face a 1970s like oil shock if the conflict in the Middle East escalates.

Roubini's alarming prediction has caused worries among many analysts and traders. According to the well-known economist, the biggest threat to the global economy comes from the Middle East, where the escalating conflict between Israel and Palestine could provoke a military response from Iran. Iran, he reminds us, is one of the world's largest oil producers.

If tensions between Israel and Iran boil over, the conflict may balloon into a full-scale war, which would severely disrupt Iranian oil exports and trigger a sharp rise in commodity prices. "If the war were to escalate into a full war between Israel and Iran, production and exports of oil from the Gulf would be blocked for weeks, maybe months, leading to a shock to oil prices like the 1973 Yom Kippur War, or the 1979 Iranian Revolution," Roubini emphasized.

Other industry experts are warning that if Iran gets drawn into the Israel-Palestine conflict, we could see significant volatility in the oil market. "And Israel’s response may include an attack on Iran’s oil supply and related infrastructure, which would put at risk 3 - 4% of global oil supply," Vivek Dhar, mining and energy commodities strategist at the Commonwealth Bank of Australia, said. Currency strategists believe that in such a scenario, Brent crude could hit $85 per barrel, which is almost 16% higher than current levels.

It is worth noting that Roubini often shares pessimistic views about the global economy and markets. Right now, he is particularly concerned about a potential oil shock. In his opinion, such a development could trigger a recession or a stagflationary crisis similar to the 1970s.

Lately, Roubini softened his stance when it came to the US economy. At the beginning of 2024, he revised his recession forecast. However, he is still warning investors about the risk of stagflation shocks.

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