War between US and Iran would plunge world into recession
A WAR between the US and Iran would send oil prices surging to record levels and prompt a global economic recession, experts have warned.
Iran could retaliate to the killing of General Qassem Soleimani by attacking oil tankers or refineries in the Middle East, it was said.
The Iranians could even choose to block the Strait of Hormuz, a critical shipping route between the Persian Gulf and the Gulf of Oman.
About a fifth of the global oil supply flows through the narrow route between Oman and Iran, with around 21 million barrels of crude and refined oil passing through the strait every day.
Spooked
Iran has a long history of targeting ships in the Strait of Hormuz, including the seizure of two British tankers in July.
Six tankers were also attacked in the waters last year.
All-out war between Iran and the US could see oil prices soar as high as $150 (£114) a barrel. Last night, the price of a barrel had already increased four per cent to $69 (£52). Traders were clearly spooked yesterday.
The Dow Jones Industrial Average fell 315.47 points, or 1.09 per cent, at the open to 28,553.33.
Europe’s stock markets fell 0.5 per cent in early trading as hopes for a lengthy New Year rally vanished.
The last five US economic recessions were preceded by rising oil prices.
Analysts at Capital Economics predicted a conflict could shave at least 0.5 per cent off global GDP as Iran’s economy collapses and oil prices surge. Economist Caroline Bain said: “Iran’s oil exports are already severely curtailed as a result of US sanctions.
“While it appears that Iraq is being caught in the crosshairs of the US-Iran tensions, it is unlikely to affect Iraq’s oil production directly.
“That said, Tehran has promised ‘tough revenge’ and this would probably involve disruption to regional oil supplies.
“The country has a long history of threatening to block the Strait of Hormuz, the world’s busiest oil shipping channel.”
But Ms Bain said the price rally is “likely to be short-lived” as demand falls due to high prices.
Mriganka Jaipuriyar, of market analysts S&P Global Platts, said: “If
Iran does something as drastic as the shutdown of the Strait of Hormuz, that will disrupt 20 per cent of the world oil supply.
“It will definitely have a severe impact on oil prices going forward.
“This is obviously not the first time that we saw such a significant disruption in the Middle East.
“We could call it a proper disruption or a material disruption if Iran shuts down the Strait of Hormuz, which is an extremely important trade route.”
The US has tried to get allies’ support to help it step up surveillance of shipping lanes on the Strait to stop Iran from attacking commercial vessels in the region.
The Strait of Hormuz is “the world’s most important choke point”, according to the US Energy
Information Administration. John Tirman, executive director at the Massachusetts Institute of Technology Centre for International Studies, said: “Certainly, Iran is going to retaliate in some way.
“Retaliations will come, as they have in the past, in what we call an asymmetrical way.
“They’re not going to confront the US directly but they will perhaps attack Saudi tankers again, maybe Saudi oil refineries again.”
The price spike pushed oil stocks on the London stock exchange higher, with BP up 2.7 per cent and Royal Dutch Shell nearly 1.9 per cent higher.
Fuel prices in Britain could escalate “very quickly” if oil prices surge amid heightened tension.
RAC fuel spokesman Simon
Williams said: “Increasing tension between Washington and Tehran will cause the oil price to go up as traders worry about availability of supply.
“This will inevitably spell bad news for drivers at the pumps in the UK.
“It also comes at a time when the oil price was already on the rise due to a further OPEC production cut and the cooling of the US’s 17-month trade war with China, which has led to increased demand.
“If the situation doesn’t calm down, this could lead to around 2p a litre being very quickly added to the price of both petrol and diesel.”
Worse
The average price of a litre of petrol rose by nearly a quarter of 1p in December to 126.1p, the RAC said.
This was the first monthly increase since July.
Mr Williams added: “While there was some positive news for drivers in December with an overdue fuel price cut from the supermarkets midmonth, after Christmas things unfortunately took a turn for the worse when oil began to go up as a result of the US’s trade war with China cooling down.
“This situation very clearly demonstrated the fact that UK drivers are at the mercy of global oil production issues when it comes to filling up their cars.”
Mr Williams warned that “it is difficult to see” 2020 being a good year for drivers in terms of fuel prices.
He added: “As it stands, we can’t see any reason for prices to come down significantly.”