Recessions tend to follow oil price surges – will this time be different?

theguardian.com:

The signal from the White House was clear. Joe Biden is “very open” to the idea of adding oil and gas to the sanctions list as a way of escalating the west’s economic war against Vladimir Putin.

Surging oil prices suggest traders think the die has already been cast: whether because governments take action directly or whether through self-sanctioning from western companies, oil and gas supplies from Russia are going to dry up.

That will have serious consequences for Russia, but it will also add to cost of living pressures in the west. Even before this week’s rise in crude oil prices to more than $110 (£82) a barrel – the highest since 2014 – analysts were cutting growth forecasts and raising estimates for inflation. Including energy in the list of items targeted would mean oil and gas would be dearer for longer, increasing the risk of a slowdown turning into recession.

The world economy is less dependent on oil than it was at the time of the first postwar spike in 1973-4, and uses the fossil fuel more efficiently. Back then it took a little less than a barrel of oil to produce $1,000 of output. By 2019 global oil intensity was 0.43 of a barrel per $1,000 of output.

Even so, what happens to the oil price still matters and Russia – which is the second biggest exporter after Saudi Arabia – is a key player in the global market. So far, most economists think Russia’s invasion of Ukraine will merely dent the recovery they have pencilled in for this year.

But as the Warwick University academic Prof Andrew Oswald has noted, almost every postwar recession has been preceded by a rise in oil prices. The cost of crude rose sharply in 1973, in 1979, in 1990 and in 2007. All were followed by recessions, though sometimes dearer energy was