Oil Near $100: Which Economy Would Feel the Strain First?

On September 9, Brent crude climbed as high as $99.60 intraday, putting the $100 threshold within reach. If oil prices keep rising, which economy would feel the strain first? The answer lies in two ledgers: one for oil, the other for money.

Why No One Can Contain Oil Prices This Time

There are only two tools for bringing oil prices down: releasing reserves or increasing production. The latest U.S. Department of Energy data show that the Strategic Petroleum Reserve, or SPR, has fallen to 285.4 million barrels, its lowest since 1982. Meanwhile, OPEC+ production fell rather than rose in August, with daily output declining by about 900,000 barrels. Even if Saudi Arabia wanted to produce more, shipping risks in the Strait of Hormuz and the Red Sea constrain exports, leaving limited practical room to act.

The First Yardstick: How Long Can Reserves Last?

So far, passage through Hormuz remains far from restored. According to Lloyd's List, August transits by oil tankers and gas carriers were only about one-fifth of their pre-conflict level. Kpler data show that, on a 10-day average through September 6, merchant-vessel transits were about 10 a day, the lowest since May. No very large crude carrier, or VLCC, had left the strait since September 2.

The Second Yardstick: Imported Inflation from Higher Prices

High oil prices are themselves a source of imported inflation: import bills grow, trade deficits worsen, and local currencies depreciate. A country's foreign-exchange reserves should cover at least three months of imports. That is the widely accepted international safety threshold.

Sri Lanka has $6.66 billion in foreign-exchange reserves, enough to cover only 2.7–3 months of imports; it experienced a sovereign default in 2022. Pakistan's reserves cover 3.1–3.4 months of imports, leaving it close to the warning line. Turkey has inflation of 30.9%, a lira that has lost 60% of its value over four years, and a policy rate of 37%, leaving almost no policy buffer.

Japan's position deserves particular attention. Its reserves are ample, but it relies on imports for almost all its energy. JPMorgan estimates that sustained $100 oil could pull Japan's growth towards zero this year. Reserves protect against an interruption in supply; they do not protect against the imported cost of high prices.

The Chain of Transmission Still Needs Watching

Higher oil prices lift the energy component of inflation and push up inflation expectations. With low inventories amplifying the shock, the September 11 CPI release will test the strength of this round of transmission.