Khaberni - The ongoing war in Iran threatens to spark an unprecedented crisis in energy supplies, which is likely to reflect, sooner or later, on various aspects of the global economy.
However, the impact will not be equal, as some countries are more vulnerable to the ramifications of this crisis, while other countries lack sufficient capacity to contain it. Here are some of the key economies to watch:
Group of Seven
For Europe, any new shock in the energy sector brings back memories of the Russian war in Ukraine four years ago, which revealed the continent's significant dependence on energy imports and led to inflation rates reaching double-digit levels.
Germany, whose economy heavily depends on the industrial sector, making it one of the most vulnerable to rising energy costs. Despite the German manufacturing sector stopping its contraction for the first time since 2022, its reliance on exports increases its sensitivity to any slowdown in the global economy.
The massive stimulus program announced last year helps absorb part of the shock, but its ability to provide additional support remains limited, given the expected budget deficit in the coming years.
Italy also has a large industrial sector, and oil and gas account for a high percentage of its total primary energy (crude) consumption compared to other European countries, which increases its exposure to price fluctuations.
Electricity production in the UK increasingly depends on gas-fired plants compared to other major European economies. Often, the price of gas determines the cost of electricity, and gas prices have risen faster than oil since the war broke out.
Setting a cap on energy prices may mitigate the initial inflationary impact, but the risks lie in the potential increase in interest rates, which could keep borrowing costs - amidst rising unemployment - at their highest levels among the G7 countries for a longer period. Public financial pressures and bond markets also limit the government's ability to support families and businesses.
Japan, too, is in the danger zone, importing about 95% of its oil needs from the Middle East, with nearly 90% of these supplies passing through the Strait of Hormuz. This comes amid existing inflationary pressures due to a weak yen, which affects food prices and basic goods, given its significant reliance on imported raw materials.
Emerging Major Economies
India represents a major economic power at risk, importing about 90% of its crude oil needs and about half of its liquefied petroleum gas needs.
Nearly half of its oil imports and a larger share of its liquefied petroleum gas imports pass through the Strait of Hormuz.
Economists have already begun lowering their growth forecasts for the Indian economy, as the rupee has fallen to record lows. On the living standard front, restaurants and food stalls across the country have begun cutting back on serving hot foods and drinks, with rising gas prices and an informal trend towards rationing consumption.
As for Turkey, which shares borders with Iran, it is preparing for the possibility of refugee inflows and escalating geopolitical instability. However, the most significant economic impact focuses on the Central Bank of Turkey, amidst what resembles a return to previous inflation crises; it had to stop cutting interest rates for the second time within a year and injected up to 23 billion dollars from its reserves to support the lira.
Fragile Countries
There is a group of countries that appear to be more vulnerable, suffering, or approaching, severe economic crises recently:
Sri Lanka recently announced an official holiday for public sector employees, in addition to the weekend (Saturday and Sunday), to reduce energy consumption. The measures include closing schools, universities, public institutions, and suspending non-essential public transport services. Drivers are also required to register to obtain a national fuel card that limits purchasing quantities.
As for Pakistan, which was on the verge of an economic crisis two years ago, raised petrol prices this month, and closed schools for two weeks. It also reduced fuel allowances for ministries by half, banned them from purchasing new air conditioning units or furniture, and also ordered a significant reduction in the operation of its vehicles.
