Oil Is the New Greece: HSBC Chief Economist

By Antonia van de Velde, CNBC.com Deputy News Editor

NEW YORK ( CNBC) -- Rising oil prices have displaced Greece as a source of investor anxiety, a new HSBC report says, warning that if the trend of rising oil prices persists, a fragile economic recovery in the developed world could quickly be derailed, and inflation could return to emerging markets.

Oil prices have risen to all-time highs in euro and sterling terms in recent days and are edging close to the $147 per barrel high seen in 2008, mainly as a result of rising tensions over Iran.

HSBC Chief Economist Stephen King said in the report that sanctions against Iran have already led to supply shortages which have doubtless lifted oil prices.

There are also plenty of other Iranian-related issues to worry about, he said.

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"Has Iran developed a nuclear capability, will there be a war with Israel or, indeed, the U.S., and, in a bizarre self-defeating act of retaliation, would Iran be tempted to seal the Straits of Hormuz?" he asked.

King pointed out that the rise in oil prices was not just a result of geopolitical tensions however.

One explanation for the latest increase is the impact of quantitative easing.

"If the supply of paper money is constantly being increased, its value will fall relative to alternative stores of value," he said.

"This argument has particular resonance given not only quantitative easing in the US and the UK but, in addition, the ECB's LTROs (Long Term Refinancing Operation) and the Bank of Japan's renewed enthusiasm for the printing press," the report said.

A shift in the balance of global growth toward the emerging world is also among the causes of the spike in oil prices, according to HSBC.

How High, How Long?

How long prices would stay high depended purely on Middle Eastern politics, HSBC said.

"We surely know from bitter previous experience, however, that major political upheaval within the region threatens a significant spike in oil prices.

"Think $150 or even $200 a barrel," the report said.

But even in the absence of political upheaval, it was worth thinking about the possibility of higher oil prices, it added.

HSBC does not expect prices to stay very high for very long however if the driver is purely geopolitical tensions in the Middle East.

"The bigger challenge, in our view, is the rotation in global growth from the developed world," it said.

Investors seeking protection from high oil prices would do well to buy oil stocks, the report added.

"Valuations are attractive and they offer a decent hedge in the event of a major deterioration in conditions in the Middle East," he said.

--Written by Antonia van de Velde at CNBC.
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