The rise in oil prices caused by the impasse between Western powers and Iran due to the latter's nuclear programme has been a cause for concern not just for the European and North American markets, but also for economies that are currently less vulnerable, such as the Brazilian economy, for which the two oil crises of the 1970s had catastrophic consequences. Photo by Fábio Pinheiro on Flickr (CC BY-NC-ND 2.0) Four decades of oil flow The first oil crisis, in 1973 – a result of US support for the Israelis in the Yom Kippur War – and the second crisis, in 1979 – a consequence of the Iranian Revolution – bring back bad memories for the countries that import the commodity. In Brazil, the consequences of those crises were an inflationary spiral and an increase in foreign debt to stratospheric levels. Similar stories have recently been dominating the news and discussions in the blogosphere. For example, during the last week of February the price per barrel rose beyond US $120 with the announcement from the Israeli authorities that an attack on the Iranian nuclear complex was imminent, in addition to the embargo on Iranian trade imposed by the EU, to commence on the 1st July. In response, Iran made its move by freezing the sale of oil to France and the United Kingdom, promising to extend its retaliation to other European countries. Oil rig at Angra dos Reis. Photo from Programa de aceleração do crescimento (Growth acceleration programme) on Flickr (CC BY-NC-SA 2.0) Another more radical development is Iran's threat of closing the Strait of Hormuz, through which almost half of all oil used throughout the world passes. There are therefore real reasons to fear another crisis, especially considering the current events in the context of what already happened in the region decades earlier. Iran, as the world's fifth largest producer of oil, showed in 1979 that it has enough power to affect even the healthiest of economies if it freezes – or even slows – its oil exports. The dependency that modern societies have on the energy matrix goes far beyond use in motor vehicles. To have some idea, just read a few of the examples [pt] mentioned by Massimo De Maria in his “Informação Incorrecta” (“Incorrect Information”) blog. Uma camisa de poliéster, um dentífrico, um fertilizante, uma lata de tinta, uma caneta, um rimmel, um amaciador para roupa, um creme para as mãos secas, uma embalagem de cola, um par de sapatos, um móvel para a cozinha, um computador, um jogo para crianças, o adoçante para os bolos, a insulina, um frigorífico, um antibiótico: o que têm em comum todas estas coisas? O petróleo. It is therefore clear that another oil crisis would immediately affect not only the economies of importer nations, but also those countries, such as Brazil, that export to the affected countries. First of all, it would result in sharp inflation, followed by a recession. It is, in reality, a vicious circle, as even if a product is not made of oil, it will certainly be transported to its consumer via forms of transport that use petrol, kerosene or diesel. Solutions for Brazil For central banks such as Brazil's, there remains the difficult choice of combating inflation with a squeeze on monetary policy or through stimulating economic activity. On this subject, the “Sensor Econômico Brasil” (“Brazilian Economic Sensor”) Blog, by Economics professor José Álvaro de Lima Cardoso, published an article [pt] on the effect of fossil fuels on inflationary pressure in Brazil. Em um ano de choque de preços dos alimentos –principalmente no primeiro semestre–, disparada de serviços em decorrência da renda em alta e aumento de combustíveis e transportes, a inflação não suportou os focos de pressão e o IPCA [Índice Nacional de Preços ao Consumidor Amplo] fechou 2011 no teto da meta do governo, de 6,5% –mais do que os 5,91% de 2010–, informou o IBGE (Instituto Brasileiro de Geografia e Estatística) nesta sexta-feira. Esta é a maior taxa desde 2004, quando o indicador ficou em 7,6%. The Brazilian national oil company – Petrobrás – has been publicising the positive aspects of its most recent achievements – that is, the exploration of the pre-salt layer (an undersea strip that stretches between the Brazilian states of Espírito Santo and Santa Catarina, which looks promising for oil drilling). However, oil extraction is still in the very early stages, and so Brazil is forced to import oil from the Middle East due to the increase in domestic consumption and the fact that although the country already produces crude oil, it is not self-sufficient in the end-products. Furthermore, the hurry to no longer depend on imported oil products contributed to the leak at the Chevron rig last year, as Global Voices reported in December 2011.