Soros: Oil prices, recession and the Middle East

But the implications for the Middle East are uncertain as both the timing and extent of the oil price downturn are open to question, and seem to be lagging well behind the other problems of the global economy.

Perhaps oil prices will be the last shoe to drop as the global economy wrestles its way out of stagflation.

That is certainly what hedge fund giant George Soros seems to be suggesting in his recent interviews.

Readers of AME Info may recall that Soros was warning about a US recession and house price collapse two years ago, and while a little early in his predictions, has been yet again been shown to be spot-on.

He told the Daily Telegraph that the 'oil bubble' will not burst until both the US and Britain were in recession, after which prices could fall sharply: 'You can also anticipate that the bubble will eventually correct but that is unlikely to happen before the recession actually reduces the demand.'

Stagflation

Before then he noted that: 'The rise in the price of oil and food is going to weigh and aggravate the recession.' Economists at the Bank of England have said energy and food will push inflation above its target range for the next 18 months.

Does this mean that high oil prices are likely to persist for 18 months or more? That would certainly align Soros with the Goldman Sach's view that $150-$200 oil is likely within that timeframe.

That would also place oil and energy prices as a late-cycle component of a global economic slowdown. This was the pattern in the late 1970s when energy and precious metal prices finally spiked to an all-time high in 1980 and then crashed into a 20-year bear market.

Soros said Britain is facing a worse economic downturn than in the early 1990s, the previous worst post-war recession, with the Bank of England having to maintain high interest rates to control inflation even while the economy was starting to plummet.

'You had the nice decade, now that is over and you are in a straitjacket,' he added.

Oil bubble

For oil producing countries the message from Soros is probably that the good times will continue for a quite a while longer. But there could be an equally nasty sting in the tail.

It is the old business rule about never bankrupting your best customers, although to be fair oil markets seem possessed by forces far beyond the control of mere governments.

'Speculation is increasingly affecting the price,' said Soros. 'The price has this parabolic shape which is characteristic of bubbles'.

In this environment a more cautious approach to Middle East investment is a wise counsel but not likely to be heard above the noise of the crowd.

See also:
Economists predict inflation, higher oil prices and lower dollar
Currency revaluation back on the agenda