Oil Prices Surge Amidst Potential Strikes on Iran: A Critical Juncture for Global Markets
The global price of oil spiked by 5% following remarks from U.S. President Joe Biden, hinting that the United States is in discussions about potential Israeli strikes on Iran’s oil infrastructure. When asked during a recent visit whether he would endorse Israel targeting Iran’s oil facilities, Biden responded, “We’re discussing that.”
Iran, the world’s seventh-largest oil producer, exports about half of its output, with China being a primary customer. Since Iran’s missile assault on Israel earlier this week, Brent crude oil prices have surged 10%, hitting $77 per barrel. However, this figure is still below highs reached earlier in the year.
A prolonged surge in oil prices could spell higher costs at the gas pump and steeper energy bills, potentially driving inflation upward once again. This year, weak demand from China and strong production from Saudi Arabia have helped keep oil prices relatively low. So far, the oil market’s reaction to recent events has been less volatile than during Russia’s invasion of Ukraine in 2022.
Still, the intensifying conflict in the Middle East, coupled with the possibility of further military action, has rattled the markets. One of the primary concerns is whether the conflict could disrupt the vital Straits of Hormuz, a chokepoint through which a third of the world’s oil and one-fifth of its liquefied natural gas (LNG) pass.
Since the start of the Ukraine war, the global reliance on LNG shipments has grown, particularly in Europe and Asia. Although Asian countries are more directly affected by oil and gas exports from the Persian Gulf, any disruption in supply would lead to immediate price shocks worldwide.
Andrew Bailey, governor of the Bank of England, expressed serious concern on Thursday, noting the “very serious” potential economic impact and stating that the central bank is closely monitoring the situation.
This volatility comes just as global central bankers were celebrating progress in curbing the inflationary pressures from the pandemic and the war in Ukraine. It might also explain the G7’s efforts to urge restraint in Israel’s potential military response to Iran’s actions.
