(File photo: Orkhan Farmanli/Unsplash)
Stock markets tumbled and the price of oil soared as supply disruptions from the war in the Middle East fueled uncertainty and raised inflation fears.
Oil prices were higher than $100 per barrel on Monday for the first time since Russia’s invasion of Ukraine in 2022 – and at one stage even more than $120 per barrel – as Iran continued retaliatory attacks against oil-producing Gulf countries.
Pres. Last weekend, Donald Trump of the USA said that the sharp price increases were a “small price to pay” to get rid of Iran’s nuclear weapons threat, while at this stage there is no indication that the conflict is subsiding.
Iran followed up the appointment of Ayatollah Mojtaba Khamenei as supreme leader – after the death of his father, Ali Khamenei – with a new wave of missile attacks against Israel and Gulf countries.
The military escalation of the US, Israel and Iran is putting enormous pressure on energy markets and although no major supply disruption has been reported, the closure of the Strait of Hormuz poses a threat to the global economy if the conflict were to continue.
About 20% of all global oil is transported through the Strait of Hormuz.
“A conflict that is limited to a few days or weeks – at this stage the most likely scenario – should have a limited impact. However, if the conflict continues, the macroeconomic effects will be significant and extend beyond just energy prices,” says Ruben Nizard, head of sector research at Coface, a French trade credit insurer.
Coface warns that the risk lies mainly in the Strait of Hormuz. The ability to bypass the strait is limited and not sufficient to handle a major shock. Prolonged or repeated outages could push the price of Brent crude oil into triple digits and possibly hold it, with the possibility that it could surpass several previous record high prices.
Although Iran is not the region’s leading oil producer, a disruption of its supply could immediately have an effect on already vulnerable markets. With more than three million barrels produced per day and around 1.5 million barrels exported – mainly to China – an interruption could force buyers to turn to more expensive alternatives, which will again put upward pressure on oil prices.
However, the Strait of Hormuz also plays a major role in the transport of liquefied gas, fertiliser, industrial metals and petrochemicals, warns Coface.
The insurer warns that an extreme scenario – with oil prices remaining above $100 per barrel – could trigger a new wave of global inflation and possibly force central banks to reconsider their strategies.