By Daniel Costello

What caused the current global recession?

Untenable debt levels around the world and risky and under-regulated financial systems are surely to blame. But the rising price of oil in the months and years leading up the crisis has gotten little consideration so far. That's surprising since two major recessions in recent decades, in 1973 and 1979, have been widely attributed (at least partially) to preceding shocks in oil prices.

Now, a surprise finding by the Internal Energy Agency, which is expected to be published tomorrow, reportedly attributes more of the recent crisis on rising oil prices than previously understood.

According to the Financial Times, which got a draft summary of the report, the IEA concludes higher oil prices made oil-importing countries more vulnerable to the financial crisis.

According to the story:

The IEA concludes "the run-up in oil prices from 2003 to mid-2008 played "an important, albeit secondary" role in the global economic downturn that took hold last year.

The agency points out that it had warned in 2006 that the effect of high oil prices from the preceding four years had not yet worked their way through the world economy, and that further increases in prices would "pose a significant threat to the world economy, by causing a worsening of current account imbalances and by triggering abrupt exchange rate realignments, a rise in interest rates and a slump in house and other asset prices".

With crude futures topping $80 Monday, the fact that an authority like the IEA is attributing more of the recent recession on oil prices is all the more intriguing.

categories: News

2:54 - November 9, 2009

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