Political turmoil in the Middle East has powerful economic and financial implications, particularly as it increases the risk of stagflation, a lethal combination of slowing growth and sharply rising inflation. Should stagflation emerge, there is a serious risk of a double-dip recession for a global economy that has barely emerged from its worst crisis in decades.
Severe unrest in the Middle East has historically been a source of oil-price spikes, which in turn have triggered three of the past five global recessions. The Yom Kippur war in 1973 caused a sharp increase in oil prices, leading to the global stagflation of 1974- 75. The Iranian revolution in 1979 led to a similar stagflationary increase in oil prices, which culminated in the recession of 1980- 81. And Iraq’s invasion of Kuwait in August 1990 led to a spike in oil prices at a time when a US banking crisis was already tipping America into recession. - in Business Day
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