Publications: Notes at the Margin

This Crisis Is Different (April 27, 2026)

 

Oil traders quoted at the recent FT Global Commodities Summit warned that the impact of the current oil shortage has only begun to be felt. Consumption must be cut further, and a “harsh adjustment” is coming, even for industrialized nations. Some even project prices of $200 per barrel.

The oil traders are wrong. Their thinking is mired in a 1970s mentality when oil shocks had large impacts on industrialized nations. This crisis will be different for two reasons. First, the impact will be heavily concentrated in East Asia. A prolonged disruption of shipments from the Persian Gulf could depress East Asian GDPs by as much as three percentage points.

Second, developed nations will see only modest impacts because their economies are much less dependent on oil. Also, the leading OECD nation, the United States, is now an oil and natural gas exporter. Thus, its overall economy will remain strong, lifting the economies of other OECD countries through trade despite the Trump tariffs. The impact on the United States and other OECD nations is further reduced by the decline in the auto industry’s significance in their economies compared with fifty years ago. A decline in auto sales will not be much of an economic drag on them, as strong spending on AI and AI data centers will bolster growth.

 

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