For a while now, the global economy has been beating the odds.<\/p>\n
The energy shock prompted by the American and Israeli attacks on Iran in February set off the largest disruption of worldwide energy flows in history. Yet despite jumps in oil prices, widening conflict in the Middle East, fuel shortages and inflation pressures, the feared crash never came and most economies managed to muddle through.<\/p>\n
But wiggle room is narrowing at the same time the outlook is darkening. Look at what has happened in just the last few days.<\/p>\n
Attacks forced Saudi Arabia to shut a vital pipeline<\/a>. Houthi militia seized a strategic Red Sea island<\/a> and a port city<\/a>, which could further restrict shipping in the region. And proposed negotiations among Gulf nations fell apart. Oil prices have shot toward $110 a barrel.<\/p>\n The price spike has caused<\/a> rolling blackouts, rationing and angry protests from Asia to Latin America. In the Philippines, fishermen docked their boats because they can\u2019t afford fuel. In Bangladesh, power outages caused hourslong work stoppages at factories. In Guatemala, protesters burned tires and cars<\/a>.<\/p>\n Until now, some key moves to ease demand and bolster oil supplies helped blunt extreme price increases and acute shortages.<\/p>\n \u201cThe No. 1 reason why crude oil prices and product prices have not been higher than they are is that China has cut its crude oil imports,\u201d said David L. Goldwyn, a former U.S. diplomat and Energy Department official.<\/p>\n The world\u2019s largest importer of oil, China stopped stockpiling oil and relied on its own inventories, easing pressure on the global oil market at a critical moment. It also reduced or withheld exports of products made from oil, like jet fuel, meaning it needed less crude oil.<\/p>\n At the same time, the United States, Japan and countries across Europe dipped into their own reserves to keep prices from rising further.<\/p>\n The measures helped. Even Asia \u2014 the destination for about 80 percent of Middle Eastern crude and liquefied natural gas exports \u2014 was largely able to procure supplies.<\/p>\n Such strategies can work for only so long, though.<\/p>\n Storage levels among the 38 members that make up the Organization for Economic Cooperation and Development have dropped<\/a> to their lowest levels in decades, according to the U.S. Energy Information Administration.<\/p>\n And in the Gulf, alternate delivery routes, like Saudi\u2019s East-West pipeline, are currently not operating.<\/p>\n \u201cWe\u2019re going to be dealing with prices in the $80 to $100 a barrel level at least through 2027,\u201d said Mr. Goldwyn. Higher prices for fuel and related products like fertilizer will further push up food and transportation costs.<\/p>\n The disruption in energy shipping routes in the Middle East will mean higher inflation. \u201cWhat\u2019s happening is that we\u2019ve got very low levels of inventories now, and there\u2019s still no sign that the straits can be reopened,\u201d said Neil Shearing, group chief economist at Capital Economics.<\/p>\n The Asian Development Bank projects that inflation in the region will accelerate to 5.2 percent this year from 3.0 percent last year. In Europe, Britain and the United States, inflation is likely to hover in the 3.5 to 4 percent range until at least the middle of next year, Mr. Shearing said.<\/p>\n Worries over prices are putting pressure on central bankers to raise rates, which will make borrowing more expensive and slow economies. That would be a blow for a country like Germany, which has already been teetering on the edge of recession.<\/p>\n Limited supplies of refined as well as crude petroleum from the Middle East are pushing up prices. Buffers are shrinking, the International Energy Agency warned<\/a> last week, and the global refining system is \u201cstretched to the limit.\u201d<\/p>\n Ukrainian attacks on Russian refineries have contributed to the squeeze, forcing a cut in its refining capacity by roughly 30 percent over the next 18 months, according to the agency. Russia has extended its ban on diesel exports to the end of this month.<\/p>\n Mr. Goldwyn worries that rising prices may push Mr. Trump to ban diesel exports before the midterm elections in November. That would temporarily tamp down the price of diesel at home. But without foreign customers, he said, oil refiners are likely to reduce production, tightening global supplies.<\/p>\n An export ban would be particularly painful for Latin America, which is a big importer of American diesel.<\/p>\n No region is immune.<\/p>\n Persian Gulf economies are already reeling from the fallout of the Iran war. Qatar, a leading exporter of liquefied natural gas, is expected to see its economy shrink by 8.6 percent this year, according to the International Monetary Fund. Saudi Arabia\u2019s economy shrank by 4.8 percent in the second quarter compared with the previous year.<\/p>\n Global shocks often cause the biggest tremors in the poorest countries. Countries across Africa rely heavily on energy and fertilizer imports. Those high costs may end up driving down harvest yields and further pushing up food prices.<\/p>\n Although most Asian countries have been able to avoid the kind of energy shortages and halts to production that were initially feared, they have had to pay much more for supplies.<\/p>\n Energy prices, of course, are not the only concern. Tariffs are raising costs for consumers and manufacturers. The World Food Program warned last month that weather conditions related to El Ni\u00f1o could push about 50 million people into acute hunger<\/a>. And government deficits have reached record highs.<\/p>\n Japan and Indonesia have spent billions of dollars on fuel subsidies to help consumers weather the price hikes. Concerns about countries\u2019 ability to pay back growing debt levels have seeped into the bond market. In Japan this month, yields on 10-year government bonds rose to a three-decade high.<\/p>\n