Fears Iran could disrupt world’s oil supplies if Israel conflict escalates
An intensified conflict between Iran and Israel would have a negative impact on the global economy and threaten a spike in oil, fuel and energy prices, experts have warned.
Oil and stock markets appeared to shrug off fears of a full-blown war in the Middle East yesterday, with the benchmark price for crude oil falling slightly to $89.20 (£71.67) per barrel after a sharp increase last week in anticipation of Tehran’s onslaught.
But analysts warned that Iran could still threaten the world’s oil and gas supplies by disrupting the Strait of Hormuz – the channel controlling access to the Gulf through which more than a fifth of global oil production passes each day.
Experts said significant disruption to tanker traffic would be likely to rapidly feed through to increased prices at the pump in an already tight oil market, with potential implications for inflation. It could also put pressure on energy supplies.
Container shipping brokers warned of upward pressures on the cost of bringing consumer goods from Asia to Europe as shipping companies contemplate increased insurance costs and freight rates.
The commander of the naval arm of Iran’s Islamic Revolutionary Guard Corps reiterated threats last week to close off the 30-mile channel, which is transited daily by dozens of oil and liquefied natural gas tankers as well as container vessels.
Shipping brokers said they expected a rise in the “war risk” insurance premium charged for vessels passing through the Gulf. The shipping industry is already facing added costs as a result of attacks from Houthi rebels in the Red Sea.
Investment bank Goldman Sachs warned of a 20 per cent rise in crude oil prices if the Hormuz passage was interrupted, with the cost of oil doubling if this lasted several months.
Citigroup warned its clients yesterday that a wider Middle East conflict could raise oil prices above $100 per barrel, while an energy analyst warned that shutting off the 21 million barrels passing through the strait each day could cause oil prices to reach $250 per barrel – almost triple the current level.
According to a Bank of America analysis last year, an oil price of $200 per barrel would knock two percentage points off economic growth, potentially throwing many countries into recession. Economists estimate that every 10 per cent increase in oil prices adds up to 0.2 per cent to inflation rates in leading economies.
Marco Forgione, director general of the Institute of Export and International Trade, warned: “The global economy already faces a delicate situation. Any further deterioration in the situation in the Middle East will have a considerable impact on fragile and disrupted supply chains.
“A direct attack on Iran would have an immediate effect on fuel prices because of its position as both a producer and its control of the Hormuz Strait. But even if there is no deterioration, we are talking about renewed uncertainty which brings with it increased costs and inflationary pressures.”