The recession in Romania could be prolonged due to the conflict in the Middle East, given that oil prices have risen considerably since Monday, and this is also reflected in pump prices, which are increasing inflation despite the efforts of the NBR.
The recession in Romania could be prolonged. Photo by Shutterstock
“Markets hate uncertainty, and right now investors are dealing with one of the most uncertain geopolitical contexts in recent years. The escalation of conflict in the Middle East over the weekend sent shock waves across asset classes. The conflict between the US and Iran has triggered a sharp rise in oil prices and a flight of capital to safe assets such as gold and the US dollar. Now, the critical question for traders and investors is how long this disruption will last. Although it is far from the conflict, the situation in the Middle East could bring some risks for the Romanian economy, which is already facing high inflation“, claims eToro analyst Bogdan Maioreanu.
According to him, oil became a hot topic immediately after the conflict broke out. The price of Brent crude rose above $84 on Tuesday morning on news of the closure of the Strait of Hormuz, through which about 20% of the world's crude oil and liquefied natural gas passes daily.
The effects were not long in coming: oil tanker traffic on this waterway has almost completely stopped and European natural gas futures prices have reached €60 per MWh and are also under pressure after Qatar stopped production. Last Friday, before the attacks, the price was almost 32 euros per MWh.
“Markets are trying to determine if what is happening is a price problem induced by a temporary geopolitical risk premium or a quantity problem due to a possible sustained outage that may affect energy supply. Each possibility determines how the shock is transmitted through asset classes”points out the analyst, listing the main scenarios that can be taken into account.
The main scenarios
If the global oil supply continues despite security risks and higher insurance costs, markets will likely treat the situation as temporary, Maioreanu argues, explaining that oil prices may rise sharply, but likely won't stay high for long unless inventories fall significantly.
According to the analyst, in this situation, any impact on inflation would be limited and short-lived, but if the supply of oil is severely disrupted – due to major transit delays, contract cancellations or credible security threats – the impact becomes economic, not just psychological. In this case, oil prices could quickly rise to $80-110 and stay high. Inflationary expectations would rise as higher energy costs are reflected in transportation, production and consumer prices.
On the other hand, the analyst believes, there are protection mechanisms that should immediately prevent the most pessimistic scenario from occurring. The world oil market entered this conflict in a position of relative oversupply. OPEC+ has announced a production increase of 220,000 barrels per day for April, and major consuming countries such as the US and China hold significant strategic reserves. Saudi Arabia also has the pipeline capacity to redirect some of its exports outside the Gulf. This provides a partial solution, but these are short-term buffers rather than long-term solutions, and if tensions persist, upward pressure on oil prices will be reflected directly in transport costs and ultimately inflation across the global economy.
The recession in Romania could be prolonged due to the conflict
Although it is relatively far from the conflict, Romania could also feel the impact of rising oil and natural gas prices in various areas of the economy: from pump prices to an increase in inflation due to fuel and energy prices, which spill over into transport costs and other categories of products and services, warns Maioreanu.
“Currently in a technical recession, Romania is vulnerable to the risk of external shocks, including the volatility of energy prices and trade policy disruptions affecting EU export channels, which could prolong the recessionary phase. In its latest report, the BNR already predicts that inflation in the second quarter of this year will exceed the initial projection, the main responsible factors being the base effects in the energy segment, as well as the increase in the prices of certain commodities and basic foods. The current effect of the crisis in the Middle East could further complicate the mission of the National Bank of Romania to keep inflation under control”points out the analyst.
As the situation in the Middle East is fluid, investors will need to keep a close eye on what is happening there and remain calm. Market volatility during times of conflict is both natural and expected. History shows that markets adjust, reassess risk, and ultimately can move forward. “Instead of focusing on what might happen tomorrow, investors should ask themselves if their strategy has been designed to deal with moments like these“, says the analyst, adding that discipline, diversification and rational decision-making remain the most effective tools to navigate uncertainty.
