In light of the IMF’s negative forecast for global economic growth of around 3% over the next five years, with interest rates, bank failures and geopolitical divisions in Europe weighing on concerns, and with the entry of global poverty looming, it is worth assessing the two recent events, which are likely to affect on the one hand the price level in the supply chain due to rampant inflation and on the other hand the operation of credit institutions in our country in view of the latest developments in the international banking environment: first, the doctrinal decision to reduce crude oil production by 1.16 million barrels per day is based on the worried economic forecasts of the OPEC members about the deterioration of the global economy and consequently the reduction of purchasing disposable income and demand.
However, this decision undermines and torpedoes efforts to control inflationary pressures in Europe and America, as the entire supply chain will be affected, with possible revaluations in basic industrial and consumer goods.
Brent prices are forecast to reach $95 a barrel in 2023 and around $100 a barrel in 2024. High prices represent a worsening economic climate with a risk of the economy falling into recession due to weak demand. It is certain that in the future there will also be a significant squeeze on refineries’ profits. The whole reasoning is also based on the large share held by OPEC, with production around 30% of the world’s crude oil (specifically, S. Arabia’s production is 10 million barrels per day).
Secondly, the concern over the collapse of the Credit Suisse stock and the collapse of Silicon Valley Bank with the massive withdrawal of deposits from start-ups, as well as Silver Gate, triggered a crisis of confidence and intensified a general reflection in Europe and the US regarding the followed monetary policies of the central banks. This reflection was on two levels: on the one hand, the necessity of either further tightening monetary policy with a rise in interest rates in order to compensate for credit costs and to tame inflationary expectations, and on the other hand, the necessity of stabilizing interest rates due to the risk of a rise in the cost of money.
The loss of confidence in the banking system, which entails the withdrawal of capital, leads to two options on the part of the banks: either to return loans that have been granted or to liquidate bonds, but at prices obviously lower than the nominal purchase price, if they are liquidated earlier. However, the primary requirement is to ensure liquidity to respond to increased customer demand. In this case from the difference between the purchase price and the sale price, such as e.g. Silicon Valley, which sold $21 billion in bonds, suffered a $1.8 billion loss.
If the attempt to cover the loss through a capital increase does not succeed, which is extremely difficult when bankruptcy is pending for potential new shareholders, then the options are necessarily limited to a forced sale and liquidation.
