Publications

Geopolitical risk has reached extreme levels in the Middle East and the US amid the ongoing conflict between Israel and Iran. The closure of the Strait of Hormuz has disrupted global oil markets, significantly increasing economic policy uncertainty and worsening economic sentiment in the Gulf countries.

The European Central Bank addresses the recent energy supply shock caused by the conflict in the Middle East by developing multiple economic scenarios. Given the volatility of oil and gas prices, the institution adopts a strict stance to anchor inflation expectations and prevent second-round effects.

The ECB kept interest rates unchanged, with the deposit rate at 2.00%. The war in the Middle East and the energy shock define current policy. Inflation is revised upwards and growth downwards for 2026, tilting the outlook towards a more hawkish stance focused on second-round effects.

The war between the United States, Israel, and Iran has caused a new energy shock. However, the prior strength of the global economy and the containment of financial markets point to a temporary slowdown, provided there is no prolonged interruption in the supply of oil and gas.

Oil prices will remain very low in 2Q20, but will recover in 2H20 as the worst of the pandemic is left behind. Even though the global economy will be boosted by fiscal and monetary support, prices will remain subdued.

Pemex should take advantage of the 100,000 barrels a day cutback to reduce capex in E&P in 2020. This policy action would boost its liquidity, improve chances of meeting its financial balance approved by Congress and avoid increasing its financial debt.

The headwinds from declining oil demand and increasing supply will delay the recovery of the Texas economy. Consequently, we expect Texas GDP to decline between -3.7% and -6.9% in 2020, that is, worse than the U.S. average. This would mark the worst recession since at least 1978.