The last major economic shock caused by rising oil prices occurred four years ago, when Russia launched its full-scale invasion of Ukraine.

At that time, the economic growth forecast by the Ministry of Finance fell from 4 percent to -1 percent. In reality, the economy contracted by 1.3 percent in 2022.

Analysts also missed the mark with inflation. That spring, the Bank of Estonia estimated annual inflation of 10 percent, but it was almost twice as high.

Whether the situation repeats itself depends on the price of oil, which has now risen above $100 a barrel.

Triinu Tapver, macro analyst at LHV, said: "If the assumption is that by the end of the year it remains around $70 per barrel and is above $90 in the first half of the year, then inflation could be about 3.5 percent on average for the whole year. But at the same time, we cannot say that this forecast should be taken very seriously right now, because unfortunately, today inflation is still driven by the United States, Donald Trump and Iran."

Estonia's economic growth has been forecast at between 2 and 3 percent this year, down from 5 percent last year.

Tapver said the worst-case scenario is that price growth remains above 4 percent.

"Which would mean that the volumes of our economy would also be lower because of it. Whether this would completely eliminate hopes for economic growth is already a broader question that is not so easy to answer, because we also depend to a very large extent on what is done in trade policy. If that part remains stable, then we may still see some small growth," she explained.

"But we should not set very high expectations for this year, because if we look at what is happening in oil markets and with inflation, then unfortunately we are in very changeable waters," the LHV analyst added. 

The government could help improve the economic situation, for example, by canceling the excise duty increases that have already been discussed or by lowering the value-added tax. However, Tapver is doubtful these measures would work.

There are also hints in the past about what could happen next with oil prices on the global market. The current shock has been compared to the oil embargo of the 1970s, said Juhan Lang, head of the investment department at newspaper Äripäev.

"If we look at those historical crises when the oil price has made a very sharp jump upward, then the best cure against rising fuel and oil prices is usually that same high price itself — at some point we simply cannot afford to consume it. Our purchasing power cannot keep up with it, which in turn means that it begins to affect economic activity and can also lead to an economic downturn," Lang said.

"Meaning that purely because of that the oil price also comes down, and if we look at historical oil shocks, then generally they have been followed either by an equally rapid or often even longer downward movement in oil prices. In general, we have not seen periods where oil prices have remained very high for a very long time," he added.

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