Another Global Economic Meltdown Seems Real As War Spreads To World’s Largest Gas Field

By Anjan Roy

The West Asia crisis has now morphed into a global economic challenge, with the latest strikes by Israel on the South Pars gas field and Iranian attacks on the Qatari gas facilities in the adjacent North Dome gas field of Qatar. Undoubtedly, the war has escalated and there is little control over it, at least for the United States.

South Pars gas fields of Iran and North Dome gas field of Qatar share the same land mass and are adjacent. These strikes have in effect decommissioned the largest gas reserves running into trillion of cubic feet. These fields met a good part of the world’s natural gas needs.

India has been one of the main buyers of Qatar natural gas production from these fields and as a result of the latest strikes, India would be denied its most stead supply source.

Following the strike and counter-strikes, the global oil and natural gas markets are reacting and Brent crude prices have touched $114 a barrel. It is feared the oil prices could scale higher peaks in the coming weeks if the fall-out are not quickly addressed.

In his characteristic manner, Donald Trump has denied all prior knowledge of Israel’s strikes on Iran South Pars field. Almost immediately, some top ranking Israeli defence personnel have stated that the strikes on South Pars were finalised in consultation with the United States.

Leaving aside the Trump lies, the strikes on gas fields and the decommissioning of all Qatari oil and gas facilities are casting long shadows on the entry situation. These direct strikes the natural gas supplies cannot be expected to get back to normal even if hostilities were stopped. These will take a far longer time to get back to normal operations.

In the light of the disastrous strikes on gas fields, the economic scene has drastically changed. All major stock markets witnessed steep loss of values. The central bankers are holding emergency meetings and reviewing their monetary policy framework.

Indeed, the central banks are re-doing their macro-economic models and their projected interest rate framework. While the major central banks were on a softer monetary policy regimes track, these shocks are resetting the parameters on a more conservative trajectory, if not on an outright firmer interest rate regime.

Both the US Federal Reserve and the Bank of England have held back their decisions on cuts in interests rates. Until the hostilities broke out, the major central banks were on a cue for continued interest rate cuts. The cuts were visualised in the light of softening prices in major economies, which have gone into reverse gear after the hostilities began.

Donald Trump, who had sworn by the stock market swings, found himself in a difficult spot. All major economic data were showing negative trends. Employment generation has shrunk, if not gone into negative zones. Prices were rising, calling for interest rate corrections, prospects were seen as negative.

The global shipping monitoring body, International Maritime Organisation (IMO), held its emergency meeting in London on Thursday to review the current situation. Scores of ships are trapped in the Gulf region, without being able to pass through the Strait of Hormuz. These idling ships have seafarers who are seeking to escape from the war zone.

IMO estimates some 20,000 seafarers were trapped in the Gulf region, amidst the hostilities and constant fears about their safety. These mariners need to be taken away. However, that will call for alternative marine crew in their place, which was difficult to get.

Major shipping lines are therefore in a dilemma how to handle the situation. All that the IMO could do in the situation was to express pious hopes of for calmer times so that the ships could sail into outside shipping channels. (IPA Service)