According to an analysis published by The Guardian, oil prices exceeded $100 per barrel due to the US-Israeli war with Iran, fueling fears about the consequences for the global economy and rising inflation.
Economists warn that a prolonged conflict in the key energy-exporting region could seriously affect living standards globally.
How high can oil prices go?
On Monday, the price of oil reached $119 per barrel, the highest level since Russia's invasion of Ukraine in February 2022. Analysts warn that the continued closure of the Strait of Hormuz could push the price closer to $150 per barrel, above the 2008 record of $145.29.
This narrow channel transports a fifth of the world's oil and liquefied gas and a third of the world's most used fertilizers. Goldman Sachs says an effective blockade of Iran has an impact 17 times greater than the peak hit to Russian oil production in April 2022.
Analysts say how high prices will go depends on the duration of the blockade and the ability to divert exports. Saudi Arabia has begun to direct oil to Red Sea ports, but most exporters remain blocked. Oil depots in the Persian Gulf are filling up, risking shutting down major oil fields and prolonging the energy crisis.
Consequences for inflation
The high oil price comes at a sensitive time for the global economy. Central banks were finishing normalizing interest rates after the most aggressive cycle in recent years, but the conflict with Iran could force lending rates to rise.
Rising energy costs will impact consumer prices, household energy bills, and costs for businesses that will be transmitted through global supply chains. However, experts hope to avoid high inflation like in the 1970s.
Jim Reid of Deutsche Bank points out: “The global economy is less vulnerable to energy shocks than it was 50 years ago. Economies are less energy-dependent and labor markets are more flexible.”
The risk of global recession
The surge in inflation following the Covid pandemic and Russia's invasion of Ukraine has stretched households and businesses to their limits. A new surge in inflation could dampen consumer demand and economic activity, raising the risk of stagflation - rising prices without economic growth.
Ian Stewart, Deloitte's chief economist in the UK, warns: "High oil and gas prices are signs of economic trouble. Historically, energy surges have caused recessions in the West."
How can governments respond?
G7 nations have said they are ready to release emergency oil reserves to ease supply concerns. The US and China have increased their reserves, while European countries, more dependent on energy imports, are expected to feel the brunt of the crisis.
Governments will be under pressure to improve energy security, accelerating the transition to a low-carbon economy and investing in renewable energy. Much of the focus will also be on emergency financial support for households and businesses hit by high energy bills, while debt levels limit governments' ability to finance new schemes.
Experts warn: “This is perhaps the largest energy supply and logistics crisis in modern history,” the analysis concludes. The Guardian./TCH
t7 live
