The immediate wild card is renewed fighting in Libya but other supply problems are stacking up fast. Draconian new rules on shipping fuel to lower sulphur emissions imply a surge in demand for variants of diesel. Loading Bank of America says this will add 1.1m barrels a day in short-term crude demand over coming months. "We see a risk of $US100 Brent by year-end," it said. The options markets are not priced for this so the theatrics could be spectacular. Libya is again on the cusp of full-blown civil war after the fateful march on Tripoli by general Khalifa Haftar, the mercurial Nasserist of Benghazi. The National Oil Corporation warns that a free-for-all by rival militias could cause a near total collapse in crude exports. The world could lose another 700,000 barrels a day. Brent crude has risen to a six-month high of $US74.50, up 25 per cent from its average levels over the winter. It has not yet reached the pain threshold for Europe or emerging markets but it is getting close.

Oil has of course been much higher in the past - $US148 in 2008 - but the nominal price is not the macro-economic variable that matters. Trouble starts earlier if crude is rising because of a negative supply shock. That is what we face today. The market is tightening despite a global manufacturing slump. Bank of America says that oil prices could hit $US100 per barrel by year's end. Credit:Bloomberg "The trade data looks quite ugly," said David Fyfe, chief economist at Argus Media. Air freight is down 4.7 per cent (14 per cent in Asia). Container freight is down 0.5 per cent. Mr Fyfe says world industrial production has dropped to a growth rate of 2 per cent, typically a recession threshold. The market narrative is that a fresh mini-cycle of global growth - driven by central bank capitulation, and akin to 2016 - is now under way. But UBS's instant "nowcast" tracker of global GDP shows a deterioration over the last four weeks, driven by slippage in emerging markets. Brazil and South Africa have fizzled. So has Japan. Nomura says the transmission channel for an oil spike is through developing economies. They have a higher energy-to-GDP ratio. Among the losers are Cambodia, Turkey, the Philippines, Ukraine, India, Pakistan, but also China, as well as Romania, Poland and Portugal within the EU.

Some have subsidies built into their fiscal structure. Public accounts deteriorate as oil rises. So do current accounts. Governments have to jam on the breaks to defend their credit ratings and currencies. This is the amplification effect. Loading The collective austerity is big enough to blow Europe off course. It is one reason why Germany remains stuck in the doldrums. The IFO index of business expectations fell to a three-year low of 95.2 in April. "Reports of a rebound are greatly exaggerated," said Iaroslav Shelepko from Barclays. The other reason is that the Chinese comeback story is overblown. Korea's bellwether shipments to China are down 12 per cent (year-on-year) so far in April. Investor euphoria over recent weeks smacks of late-cycle mass delusion. China's economy may be stabilising - at (true) growth rates of around 4.5 per cent - but there will be a credit-driven V-shaped boom this time. Some combined fiscal/credit stimulus is feeding through but has less than half the macro-impulse of 2016. The People's Bank is stubbornly refusing to blow another bubble. What we have is an incipient oil squeeze in conditions of wilting global growth.

US petrol prices are nearing the neuralgic level of $US3 a gallon. It is therefore surprising that Mr Trump chose to push for zero "waivers" on Iranian oil exports. Helima Croft, from RBC, said this could eliminate 800,000 barrels a day of global supply in short order. She called it the "ultimate high wire act" for Trump to do this when he is also ratcheting up sanctions against Venezuela's Maduro regime. Secretary of State Mike Pompeo had wanted sequential action: crush Caracas first, then crush Tehran. US Secretary of State Mike Pompeo wanted to gradually put pressure on first Venezuela, then Iran. But he appears to have been overruled by the President. Credit:Bloomberg Doing both together could now go badly wrong. Maduro is digging in. The officer corps - stiffened by Russian troops - has not abandoned him as expected. Mr Trump faces a Syrian red line credibility problem if he lets the regime survive after calling for its overthrow. He is stuck with a long struggle and a de facto US blockade. RBC said exports could drop to zero by year-end. This is coming at a time when OECD inventories are back below their five-year average.

Mr Trump seems assured that OPEC will step into the breach quickly with extra supply. It may not do so. The Emirates oil minister, Suhail al Mazrouei, said OPEC was badly burned by Mr Trump's bluster and retreat on Iranian waivers in November. They flooded the market too soon. Prices collapsed. "We will not do that again," he said. "We have learned the lesson." Loading This time OPEC is going to wait until Mr Trump is irreversibly committed and the market is as tight as a drum. The fiscal break-even price of oil for the Saudi regime is $US88. That is the target. The deeper problem does not go away when OPEC does finally match lost Iranian barrels. The more the Saudis produce, the more they erode the world's safety buffer. Westbeck's Mr Le Mee says global spare capacity will fall to 1.2m barrels a day by the third quarter. This will not be enough to cover demand even if nothing goes wrong, and a great deal is likely to go wrong.

Mr Trump has taken the biggest economic gamble of his presidency. He has set in motion a potential oil crunch. The Chavistas and Ayatollahs may yet get the last laugh. Telegraph, London