Being naturally gloomy, economists often speculate that our world’s social and political fabric is fragile. This fragility is very obviously heightened as oil and other commodity prices approach historically high levels against a backdrop of pre-existing supply shocks.

Without an increase in oil production, it is all but guaranteed that stagflation will be the result and that demand destruction will be painful for both consumers and producers in the intermediate and longer terms.

We have been on this path for two years. Even before the Russian invasion of Ukraine, the US headline inflation rate — including food and energy — was trending toward its present high of 7.9 percent. The average rate of inflation in the euro area was groping its way toward 5.9 percent, with 28 of these countries experiencing inflation greater, sometimes much greater, than 6 percent.

What’s more, these rates are severely understated for large segments of the population, as three things dominate the household budgets of those on lower wages: housing, food, and petrol.

On international commodities markets over just the last six months, with much of the action taking place well before the recent Russian invasion, wheat prices have increased by 56 percent, corn prices by 44 percent, soybean prices by 42 percent, rice by 22 percent, non-fat dry milk by 28 percent, coffee by 13 percent, live cattle by 14 percent, and poultry by 23 percent.

Housing in America has also risen in price dramatically since the pandemic-era began. Between 2018 and 2021, the average price of a home sold in America rose by 18 percent. In and around the urban centers of America, this increase often took place in a single year. Most of these price movements were a result, directly or indirectly, of our first supply shock.

During the current geopolitical conflict, we see that the initial supply shock is being compounded with energy prices in America that are also rising. The average gallon of regular, non-premium, petrol in America hit an all-time record of $4.32. This is 21 cents higher than the previous record, set in July 2008. Similarly, people in Europe are now paying over €2 a liter for the privilege of driving to work.

Spiking food prices, spiking energy prices, and spiking housing markets obviously do not historically foreshadow positive outcomes for anyone, but particularly not for oil markets and Gulf Cooperation Council countries. In fact, one might assert that GCC central banks are presently raising interest rates to fight inflation while governments simultaneously facilitate and profit from that inflation in the commodities sector.

This is quite similar to what we saw between 2004 and the oil price collapse in the fourth quarter of 2008. GCC production failed to control oil prices and a very hard landing was ensured for everyone by a broad economic collapse brought on by individual consumer demand destruction.

Action on the part of the Organization of the Petroleum Exporting Countries is even more important today as the current scenario is worse than in 2008. Most governments, and even the most independent central banks, are out of policy ammunition.

They have already spent incredible sums of money trying to ease the economic hardships of Covid-19 and built up trillions of additional dollars in national debt. Central bank balance sheets have swollen and real interest rates were pushed solidly into negative territory. At the precise moment central bankers might seek a much needed — though admittedly, very risky — policy reversal, we now have oil prices spiking and what might be termed a compound supply shock.

This input price spike will obviously boost food price inflation in an environment where a large portion of the western population is already paying historically high prices for housing, and will certainly see $10 per gallon petrol by the summer.

Without substantial increases in oil output, governments of the world — notably including GCC countries — will have few options. They can turn to fiscal policy and add trillions of dollars in national debt, they can lower interest rates further — perhaps toward negative nominal yields — in an effort to save jobs but make inflation worse, or they can continue to raise interest rates in the hope of taming rising prices but cause unemployment to spike and tear at the already fragile social fabric.

Should the conflict in Europe persist and perhaps escalate — militarily or economically — and should central banks fail to find a hypothetical magic policy bullet, eventually oil prices will collapse along with the prices of most things. The question now is, do GCC countries desire a soft landing or a catastrophic one?

• John W. Salevurakis is an associate professor of economics at the American University in Cairo and an author.