Oil could break $200 a barrel if war with Iran continues in June, says report – National
Another three months of war in Iran could send Brent crude oil prices soaring, pushing past US$200 a barrel, a global commodity regulator warned in a report on Friday.
The ongoing “Gulf War 3” is an important factor in determining the direction of the global economy, Macquire Group Ltd. said. writing to clients.
The report shows two scenarios, the first one with the war ending at the end of March and the second one with the war continuing until the end of June.
In the first case, the group’s analysts expect oil prices to drop quickly, “even if they are higher than those seen before the conflict.”
“If the war begins to slow down soon, the economic costs will be small, and global GDP growth will slow down compared to last year. It will take some time for energy markets to balance,” the note said.
The oil shock of the war “is already larger than the peak of any oil shock of the 1970s, or the first two Gulf Wars,” the note said.
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“With the Strait of Hormuz largely blocked, we estimate that around 13% of global oil production will be blocked by the end of March,” it added.
Amidst the instability of the ceasefire proposal negotiations and Iran’s rejection of the American proposal on Wednesday, the price continued to fluctuate but hovered around $90 as of this week, the price breaking $100 some days.
The global economy may be able to weather the storm with 1.2 billion barrels of oil in reserves in member countries of the International Energy Agency, which includes Canada, and China’s largest oil reserves, he said.
A prolonged conflict, however, could send oil prices soaring past US$200 a barrel, the report said, adding that would translate to a price of US$7 per litre. Currently, the average price of gasoline at US pumps is US$3.9 per liter.
“If the Strait is to remain closed for long, prices will need to rise enough to destroy a historically large amount of global oil demand,” the report added.
If the war continues for another three months, “that will see the talk turn to a global recession, as the world experiences a major market risk.”
The warning echoes that of Iran’s military command, which said earlier this month that the world should prepare for oil to hit US$200 a barrel, as several ships were attacked in the blockaded Gulf.
While “the market still expects President Trump to declare victory soon,” Macquire’s report said, “there is no uncertainty about what victory looks like.”
Given recent attacks on energy infrastructure across the region, “there is a risk that prices may need to rise significantly first to encourage a close deal,” the report said.
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