The war in the Middle East is unlikely to trigger a collapse of the world economy on the scale of the 2008 global financial crisis, Nobel prize-winning economist Philippe Aghion said Monday.

"If the war lasts longer than several weeks, if the price of oil shoots higher than US$150 per barrel and we see inflation picks up a lot, then well see a situation similar to the 1973 oil shock," Aghion said.

An oil embargo by Arab members of the OPEC oil cartel on nations supporting Israel in the 1973 Yom Kippur war caused prices to shoot dramatically higher, causing a surge in inflation and economic stagnation.

Such a shock would require a coordinated policy response from European countries, the United States and other developed countries, he said.

G7 finance ministers are expected to discuss a possible release of strategic oil reserves on Monday to calm markets after oil prices briefly shot more than 30 percent higher.

"A prolonged, widening conflict will reduce global growth," said Aghion, who shared the 2025 Nobel prize in economics for his work on sustained growth through creative destruction.

"I see a possible slowdown" but "I don't see a collapse. I don't see anything like the 2008 financial crisis, for example," he said.

The 2008 global financial crisis was triggered by the collapse of the US housing bubble, with the failure of mortgage-backed securities causing the collapse of lenders and a severe credit crunch that caused the deepest economic downturn since the 1930s Great Depression. (AFP)


Edited by Priscilla Ng