21/08/2026
๐ข๏ธ ๐ฏ๐๐ ๐น๐๐๐๐๐ ๐ถ๐๐ ๐ท๐๐๐๐๐ ๐ช๐๐๐๐
๐ป๐๐๐๐๐๐ ๐ ๐ต๐๐ ๐ฎ๐๐๐๐๐ ๐ฐ๐๐๐๐๐๐๐๐ ๐พ๐๐๐
What would happen if oil prices started to rise constantly above $90โor even move toward $100 per barrel?
Not only would the price of gasoline at the pump be affected, but Oil prices have a direct impact on transportation, manufacturing, farming, electricity, food, and international trade. This means that a prolonged period of oil-price shock can lead to an inflationary, interest-rate, currency, and credit crisis.
As a Banking & Finance Professional, I believe that the question is not only how high oil prices can rise. The more relevant question is: how long will prices be high?
๐ด 1. Higher oil prices can lead to cost-push inflation
The mechanism is relatively straightforward. Higher oil prices lead to higher transportation costs, which in turn lead to higher production costs, which lead to higher prices of goods. For example, if a companyโs transportation and energy costs rise, it has three options:
1. Bear the additional costs and reduce its profits
2. Pass on the costs to the consumers and raise the prices
3. Reduce production and cut costs
None of the options are particularly appealing.
๐ 2. The inflationary expectations can lead to second-round effects
If companies and workers start to expect prices to remain high, wages and prices will spiral upwards. Workers will demand higher wages, companies will raise their prices, and consumers will feel the need to buy more while prices are still low. This will lead to second-round effects, which will prolong the inflationary period.
๐ฆ 3. The inflationary pressure will affect central banks
The dilemma for monetary policymakers will be whether to raise interest rates to combat inflation, thus slowing down the economic growth, or not. Higher interest rates will lead to reduced consumer spending, business investment, housing, and credit growth. This will negatively affect the business cycle. Monetary policymakers are going to have to make a trade-off, because if they don't, then the world economy is headed for stagflation
๐ต 4. Why should bankers care?
An oil shock is a concern to bankers because it can turn into a credit-risk problem. A company with large working-capital borrowings, narrow margins, and imported inputs paid for by floating-rate loans is especially vulnerable to increases in the price of oil because higher transportation costs increase operating expenses, interest payments, and working-capital needs, while simultaneously decreasing profit and cash flow from operations. Cash flow from operations is a key determinant of a companyโs ability to repay debt, and so these companies are vulnerable to having their debt-service capabilities constrained by higher oil prices and narrowed profit margins. Thus, a credit analyst should be more concerned with โif the borrower can maintain profitability given persistently high prices of its inputsโฆโ rather than โis the borrower profitable?โ
๐ต 5. The hidden risk: Exchange rate
The price of oil is generally expressed in terms of the U.S. dollar, meaning that an increase in the price of oil is often inflationary for oil-importing developing countries. Higher oil prices in local-currency terms can occur when a depreciating local currency meets higher oil prices in dollar terms. This is another reason why higher oil prices can often lead to inflation, as well as depreciation of the local currency.
๐ง๐ฉ 6. Why should Bangladesh be concerned?
An increased price of oil has various direct and indirect effects on Bangladeshโs economy: Global Oil Price Increase, Higher Import Cost, Higher Demand for FX, Pressure on Exchange Rate, Higher Fuel & Transportation Cost, Higher Food & Production Cost, Higher Inflation, Higher Policy Interest Rate, and Pressure on Business Cash Flow & Credit Risk.
Therefore, oil prices need to be analysed in conjunction with inflation, foreign exchange, monetary policy, corporate profits, and credit risk.
๐ 7. What should investors and bankers watch out for?
As a risk manager, I would be inclined to look closely at a set of factors that signal a possible transition of spiking oil prices into a significant financial problem. First of all, I would try to evaluate whether the jump in Brent crude oil prices is a temporary event or something that will persist in the long run. In parallel, I would keep a close eye on the situation with inflation expectations, as rampant speculation about further price increases may cause companies and consumers to alter their behavior. Another crucial indicator for me would be the reaction of policy makers, who may be forced to tighten monetary policy due to surging inflation. I think that increases in bond yields and a currency war waged by countries with large trade deficits in oil may also be worth monitoring. These factors could serve as warning signs for investors, bankers, and risk managers that oil price jumps will trigger a full-scale financial crisis, not just a temporary price spike.
๐ My assessment
A temporary jump in global oil prices is not necessarily a sign of impending global inflation. If, however, oil prices rise sharply and persistently due to significant supply disruptions and geopolitical tensions, the situation can change radically. I think that rising oil prices are a risk factor, but a serious confluence of several financial stresses is more worrying. Rather than just โ$90 or $100โ, I think that the combination of Higher Oil Prices, Inflation, Interest Rates, Currency Depreciation, and Lower Economic Growth is worrisome. Thus, not only governments, central banks, businesses, investors, and ordinary citizens should be on alert, but also bankers. A jump in oil prices can turn into a credit crisis, constraining corporate cash flows, increasing operating expenses, affecting working capital, and deteriorating debt-service capacity, especially for borrowers with narrow margins and large floating-rate liabilities.
From a bankerโs perspective, a jump in oil prices is a risk factor that should be considered in assessing credit risk, especially for borrowers with significant exposure to commodities (direct or indirect), foreign exchange exposure, and weak cash flow dynamics. It is important to remember that an oil price shock can lead to a credit crisis that affects not only the banking sector but also the broader economy.
