The nuclear deal will stimulate global economic growthby Anatole Kaletsky / August 20, 2015 / Leave a comment
Published in September 2015 issue of Prospect Magazine
The deal to end sanctions against Iran is an event of great importance. What is less widely recognised is that its effect on the world economy may turn out to be even more powerful than its geopolitical impact. While it is possible to speculate about Iran’s re-emergence as the dominant power in the Middle East and how this could affect the conflict between Sunni and Shia Islam, the prospects for nuclear proliferation or the security of Israel, the economic impact of the end of sanctions is already clear. World oil prices, which halved from $100 a barrel to $50 last autumn, fell sharply again after the Iran deal. The country’s re-admission into the global economy—if and when the sanctions are actually lifted—will all but eliminate the risk of oil prices returning to $100, or even bouncing back to the $65-70 level that most industry experts and ministers from the Organisation of the Petroleum Exporting Countries (Opec) still predict.
The economic effects of halving the oil price, if it persists, will be enormous. Since global oil consumption is 93m barrels daily, a $50 reduction in prices will redistribute $1.7 trillion from oil producers to consumers every year. And because oil consumers spend more of their incomes than oil producers, the net effect of this income redistribution is certain to stimulate global growth, as it did during the previous occasions when oil prices fell by comparable amounts: 1982-83, 1985-86, 1992-93, 1997-98 and 2001-02.
Why, then, does the world economy seem weaker today than a year ago, when oil was at $100? Part of th…