THE IMPACT OF GEOPOLITICAL CHALLENGES ON PRICES AND INFLATIONARY PERIODS IN GEORGIA

Summary

The military conflict in Iran and the closure of the Strait of Hormuz, through which nearly 20% of global oil supplies pass, have placed the global oil market under unprecedented shock. While just a few months ago the market maintained relative stability, today Brent crude has long surpassed the $100 mark, and according to some experts, if the crisis deepens, prices could rise to as much as $150–200 per barrel. Experts are already warning that the global economy may be on the brink of a new and severe recession, since rising energy prices automatically trigger an inflationary chain reaction in production and transportation. At the same time, although the International Energy Agency is attempting to offset shortages by releasing strategic reserves, specialists acknowledge that there is no alternative to the Strait of Hormuz. These developments have, naturally, also affected Georgia — fuel prices have increased significantly: gasoline prices have risen by 15–30 tetri, while diesel prices have increased by 37–59 tetri. How far could these processes go, both globally and locally, and what impact will they have on prices and the economy in Georgia? Until the conflict involving Iran is resolved and the Strait of Hormuz is reopened, volatility in oil prices is inevitable. Moreover, this is a direct result of the free market and ongoing developments, making it difficult to predict how long the price increases will continue. However, major countries, OPEC members, and large oil producers, including the United States, possess the tools necessary to prevent prices from reaching $180–200 per barrel. According to expert assessments, such a dramatic increase in oil prices — or even significantly lower levels — could trigger a global economic crisis. Mathematical and economic models outlining these risks already exist, which is why the world’s leading powers will make every effort to manage and control the situation. At the same time, despite the seriousness of the situation and its direct connection to military operations, we should not expect prices to immediately return to previous levels even if the parties reach an agreement. The global economy will not allow oil prices to climb to $150–200 per barrel, because such a scenario would be catastrophic for any developed country. Major global players have response mechanisms at their disposal, therefore I would refrain from making extremely negative forecasts.