The sense of pessimism that hung over the world economy early this year has begun to lift in recent weeks. Trade flows are picking up in Asia, America’s retail sales have been strong, and even Europe’s beleaguered manufacturing industry has shown flickers of life. But it would not take much bad news to reinstate the gloom. One threat is that oil prices continue their upward march—on April 23rd the price of a barrel of Brent crude exceeded $74, the highest level for nearly six months. Though the dynamics of the oil market have changed over the past decade, dearer oil still acts as a drag on global growth.
The latest jump in oil prices has resulted from anticipation of a shock to supply, rather than surging demand (see article). On April 22nd America said that it would end waivers granted to a number of big economies, including China, India and Turkey, which allowed them to import Iranian oil, bypassing America’s sanctions regime. These waivers were put in place after President Donald Trump pulled out of a nuclear deal with Iran in 2018. Their expiry on May 2nd could reduce the global supply of oil by more than 1m barrels per day (about 1% of the total).