If the closure of the Straits of Hormuz continues Ireland could face a serious recession, with the Government having to borrow money next year.
That is according to adjunct professor at Trinity College Dublin and research affiliate with the ERSI John FitzGerald, who outlined possible impacts of a continuing energy crisis to TDs and Senators on Tuesday.
FitzGerald told the Oireachtas Committee on Budgetary Oversight that if oil prices reached $140 (€120) a barrel, Ireland would be worse off by €7.5 billion, or 2.5 per cent of national income.
“If oil prices rose to over $200 a barrel, the hit to Ireland would approach €15 billion or 5 per cent of national income,” he said.
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He also predicted that if the effect of the energy crisis reduced world output by 3 per cent, “Irish national income and consumption would fall by at least 3 per cent in real terms, adding significantly to unemployment, with inflation rising well above 5 per cent”.
In protecting those on low incomes, he said, “the welfare bill in the next budget would balloon. In real terms, tax revenue would fall, with lower consumption and employment. Depending on how high oil prices go, this could necessitate Government borrowing next year.”
While he acknowledged the numbers were as yet crude, he said that in the most serious case, where Ireland was worse off by up to 5 per cent, “there is no way that the Government could protect the bulk of the population from the consequences”.
Fitzgerald told the Committee that the Economist magazine had recently reviewed the academic research on how high oil prices might rise and had suggested the range would be from 150 per cent to 500 per cent.
The most negative scenario in the Department of Finance’s recent Spring Statement looked at what could turn out to be a moderate increase in oil prices of just over 100 per cent, Fitzgerald said.
Claire Keane, associate research professor at the ESRI, told the committee the energy crisis appeared likely to last longer, and the price shock was likely to be bigger and more durable, than built into earlier forecasts that suggested inflation would rise to more than 3 per cent.
She said Government supports should be “targeted, tailored and proportionate” and “measures must be used to ensure the public finances remain on an even keel”.
