The financial market “death spiral” means we should all fear an “oilmaggedon”, which could herald a “‘significant and synchronised’ global recession”, according to a particularly gloomy note from analysts at investment bank Citigroup.
Tumbling commodity prices, the resilient US dollar, weak trade, capital flows and slowing emerging market growth have created a “negative feedback loop”. And if this unfavourable scenario worsens, it risks plunging the global economy into another recession.
"It appears that four inter-linked phenomena are driving a negative feedback loop in the global economy and across financial markets," the analysts, led by strategist Jonathan Stubbs, wrote in a note, Bloomberg reported.
"It seems reasonable to assume that another year of extreme moves in the US dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policymakers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks."
"Corporate profits and equity markets would also likely suffer further downside risk in this scenario of Oilmageddon."
Citi outlines two scenarios. Firstly, the negative feedback loop is alleviated slightly, with the trade-weighted US dollars strengthening four per cent and oil prices recovering to $50 per barrel, leading markets to respond positively.
On the flip side, falling oil prices and an appreciating US dollar could make the negative feedback loop more acute, culminating in a dreaded global recession.
"We should all fear oilmageddon. Global recession, as we define it, would leave nowhere to hide in equities.," Citi said. Cheer up, guys. It might never happen…