Three more months of war in Iran could cause Brent crude oil prices to skyrocket, soaring past US$200 a barrel, a report by a worldwide asset management firm warned on Friday.
The continuing “Gulf War 3” is the important thing consider deciding what direction the worldwide economy will head in, the Macquire Group Ltd. said in a note to clients.
The report outlines two scenarios, the primary with the war ending at the top of March and the second with the war continuing until the top of June.
In the primary scenario, the group’s analysts expect oil prices to fall quickly, “albeit to levels still above those seen pre conflict.”
“If the war begins to wind down soon, the economic costs will likely be relatively small, with global GDP growth to slow only somewhat relative to last 12 months. It is going to take some time for energy markets to rebalance,” the note says.
The oil shock from the war is “already greater than the height in either of the Nineteen Seventies oil shocks, or the primary two Gulf Wars,” the note said.
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“With the Strait of Hormuz mostly closed, we estimate that around 13% of worldwide oil production can be shut in by the top of March,” it added.
Amid the volatility of ceasefire proposal talks and Iran’s rejection of the U.S. proposal on Wednesday, the worth has continued to fluctuate but is hovering around $90 as of this week, with the worth breaching $100 on some days.
The worldwide economy may find a way to weather the storm with the 1.2 billion barrels of oil within the strategic reserves of the member countries of the International Energy Agency, which incorporates Canada, in addition to China’s own massive oil reserves, it said.
A protracted conflict, nonetheless, could send oil prices skyrocketing past US$200 a barrel, the report said, adding that it could translate to a price of $US7 per gallon. Currently, the average price of gasoline at U.S. pumps is US$3.9 per gallon.
“If the Strait were to remain closed for an prolonged period, prices would wish to maneuver high enough to destroy an historically great amount of worldwide oil demand,” the report added.
If war continues for 3 more months, “that might see talk quickly turn to global recession, because the world experiences a considerable market risk off.”
This warning echoes one made by Iran’s military command, which said earlier this month that the world ought to be prepared for oil to hit US$200 a barrel, as more ships got here under attack within the blockaded Gulf.
While “the market continues to be expecting President Trump to soon declare victory,” the Macquire report said, there may be “uncertainty about what victory looks like.”
Given the recent attacks on energy infrastructure throughout the region, “there may be a risk that prices may have to maneuver significantly higher first to incentivise a near-term deal,” the report added.
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