Could the oil shock bring back inflation? EBC director on trading peace vs disruption

Transcript

Following on from our conversation with EBC’s Christopher Stiegeler about the war on Iran and its impact on the oil market, we zoom out to look at the ripple effects throughout the economy; what it means for inflation, consumer spending, and interest rates; and the importance of trading with a well-regulated broker when faced with such volatility.

World Finance: Chris, we’ve been talking about Iran and the impact on the oil market, but a crisis in oil has shockwaves throughout the economy.

Christopher Stiegeler: Exactly so Paul, I mean – the question is not simply what happens if oil becomes more expensive; it’s what expensive oil does to everything else.

As we know, I mean, oil is effectively an input into every modern economy. So if our oil prices rise, we see that in transportation costs, we see that on the supermarket shelves, we see that ultimately with inflation.

And that’s a big question that sort of, central banks are having to grapple with at the moment.

If the oil price stays higher for longer, central banks have to make a decision on whether to keep interest rates higher for longer, and wear, if you will, the associated inflationary spectre that’s going to come with that. Or if they accept that this is a temporary shock. And that’s a question we’ll just have to wait and see about.

World Finance: But as you were saying, the shock from oil isn’t just down to the supply drop, but traders’ reaction to that, and their fears or maybe hopes about the future.

Christopher Stiegeler: Yeah no, exactly that. At the end of last month, brent was trading around about sort of $90 a barrel, because there were hints at that time of possibilities of some de-escalation and so forth.

We now know that that optimism was seemingly unfounded, and we’re seeing brent currently trading north of $100 a barrel. So what’s happening here is that traders are effectively – they’re trading expectations of peace, versus expectations of disruption.

And that’s really interesting, because what it means is that, if this disruption continues, and the price of oil remains elevated for long enough, we’re looking at issues of inflation, consumer spending, interest rates, and economic shock. And that’s what the market’s grappling with today.

World Finance: In the context of such market-wide volatility, I suppose it’s more important than ever that traders are partnering with a broker that is trustworthy and well-regulated.

Christopher Stiegeler: Yeah, absolutely. In EBC’s case, the reason that clients choose to trade and execute through EBC in London, and use London as an execution venue, is our access to deep liquidity in London, almost institutional grade pricing, and a mature, developed regulatory umbrella, where our clients can trade in an environment that they’re comfortable and confident with.

Watch more from this interview with Chris Stiegeler:
Iran, oil, and the world economy: are we seeing history repeat itself?
Safe haven gold: what are investors and central banks seeking protection from?
EBC director: How the future of trade may be less efficient but more resilient