Oil Prices: The Direst Scenario for the Global Economy

Oil Prices Surge Amidst Rising Tensions in the Middle East

Oil prices have seen a notable spike on Monday as the situation in the Middle East escalates toward a potential regional conflict, primarily involving Israel and Iran.
Last week, Israel confirmed that it would retaliate against Iran’s missile attack on October 1.

This attack was initiated in response to Israel’s elimination of Hezbollah leader Hassan Nasrallah, followed by an incursion into Lebanon.
The Iranian offensive resulted in the death of a Palestinian civilian, alongside injuries to two Israelis and two Jordanians.

Recent Price Changes

The digital trading platform showed Brent crude, the global oil benchmark, climbing by over 8% last week.
Meanwhile, West Texas Intermediate (WTI) registered an increase of more than 9.1%.

On Monday, Brent crude rose by another 3.36%, surpassing $80 per barrel.
WTI also experienced a surge, rising 3.50% on Monday to reach $77 per barrel.
Notably, current prices have yet to eclipse the highs seen in 2024 when Brent crossed the $90 mark following Iran’s attack on Israel last April.

However, in contrast to the current situation, Israel did not retaliate back in April, and oil prices eventually stabilized.
Analysts warn that if a full-blown war were to erupt between these two Middle Eastern nations, oil prices could rocket to $200 per barrel.

Potential Responses and Global Implications

“We really need to see what the Israelis will hit, and what Iran’s reaction mechanism will be,” Croft stated to CNBC.
“But we haven’t been closer to a regional war in a long time.”

Iran remains one of the leading oil producers globally.
Recently, U.S.
President Joe Biden mentioned discussions about potential strikes on Iranian oil facilities with Israeli Prime Minister Benjamin Netanyahu.

However, Biden later indicated that such options were off the table.
A strike against pivotal oil infrastructures, such as the Kharg Island—responsible for 90% of Iranian oil exports—could significantly disrupt the global crude market.

In retaliation, Iran is likely to respond forcefully, holding the power to block the Strait of Hormuz, through which much of the oil from the Persian Gulf traverses.
Crude oil extracted in Iran, Kuwait, Saudi Arabia, the United Arab Emirates, and other Gulf countries must pass through this critical waterway before reaching the world’s oceans.

This scenario, as outlined by Alan Gelder, Vice President of Oil Markets at Wood Mackenzie, would be the “worst-case scenario” for the global economy.

Impact on the Global Economy

The United States is just emerging from a three-year monetary tightening cycle, with the Federal Reserve having slashed interest rates by 50 basis points as inflation begins to subside in the nation’s largest economy.
Any disruptions to the global oil market could potentially cause prices to skyrocket again, exacerbating inflation worldwide.

As has occurred before, such upheavals could trigger wider cascading effects on global history, particularly significant during a U.S.
election year.

For more information, visit the original article on Money.it.