Russia Could be Trigger for $200 Oil and Global Recession

"Two-hundred dollar oil would break the back of the global economy," Adam Sieminski, chief energy economist at Deutsche Bank AG ( DB ), said recently in an interview in Tokyo. "Next step after $200 would be global recession and bad news for everybody." Just a little over a year ago, $200 oil seemed out of the question. But the Deutsche Bank prediction of oil-fueled global recession follows a Goldman Sachs Group Inc. ( GS ) forecast that oil might climb as high as $200 per barrel in two years. Keith Fitz-Gerald, Money Morning's Investment Director - and one of the first global financial gurus to predict triple-digit oil prices - recently boosted his target price for crude oil from $187 to $225. "The math is really simple here," Fitz-Gerald said back in May, when oil futures were trading around $123 a barrel. "We are burning through supplies at a rate that's four times to five times faster than we're discovering new reserves," he said. "Throw in a few [surprises]… perhaps a terrorist event… and add in the accelerating use of oil and gasoline in Third World countries, and we have the recipe for far higher prices."

Since the time of Fitz-Gerald's prediction, oil has gone on to several new highs, nearly breaking through the $140 barrier on June 16, earlier this month. Exacerbating the high oil prices are production problems in Russia, the world's second largest oil exporter. Aging oil fields and a lack of infrastructure investment has led to the country's first annual production decline in 10 years. Output fell 0.9% to 9.76 million barrels a day in the first five months 2008, Bloomberg reported. "Growth last quarter fell on a year-on-year basis, and this has to do with the policies implemented over the prior year to raise taxes on oil industries," Deutsche Bank's Sieminski said, speaking of Russia's oil difficulties. "This made it difficult for foreign capital to come in."