Oil inventories are low, and it is far from clear that other producers will increase output enough to compensate for the supply shock. In the long term Saudi Arabia and other OPEC members have an incentive to avoid sky-high prices, which would lead to a new wave of capital pouring into American shale production. But the last time the Saudis complied with a request from the White House to pump more—after Mr Trump scrapped the Iran deal—they were then stung by his granting of the waivers. In public they have pledged to keep the market in balance, but they also say there is no need for immediate action.
Working out what pricier oil means for the world economy is more complex than it used to be. In America gas-guzzling consumers will have to pay more to fill up their cars. But ever since the shale revolution, there has been an offsetting benefit to American GDP because higher prices stimulate investment in the Permian and other shale basins. Other producer countries are also more likely to spend any oil windfall than they used to be, supporting global demand. And more expensive oil should bring the benefit of lower carbon emissions (so long as it does not prompt the discovery of vast new oil fields).
Yet right now, pricier oil would be bad news for the global economy. It would hit its weaker spots. Europe, whose economy is in worse shape than America’s, has no shale industry to compensate for a hit to its consumers. China, which imports vast quantities of the black stuff, was the source of much of the recent global growth scare. And economic crises in Turkey, Argentina and Pakistan would be made worse by the higher inflation and larger current-account deficits that a rising oil price would bring.
Higher oil prices could also reduce central bankers’ leeway to see off any downturn. After oil prices rose in 2018, several central banks in emerging markets subsequently raised rates, fearing inflation. In America and Europe policymakers have this year been able to loosen the stance of monetary policy, providing economies with a much-needed boost to growth, because they can point to muted inflation expectations. Higher oil prices could start to put that trend into reverse. With many labour markets tight, central bankers are more likely to be spooked by oil-driven inflationary pressure.