Soaring Oil Prices Imminent if U.S. Enters War – Warning from an Energy Expert
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If the US becomes embroiled in the conflict between Iran and Israel, energy experts predict drastic increases in oil prices. The Strait of Hormuz, a strategically crucial shipping lane, is a major point of concern.
Should the US intervene in the Iran conflict, oil prices could skyrocket beyond $100 per barrel. Manuel Frondel, an energy expert from the RWI-Leibniz Institute, mentioned to the "Rheinische Post," "In the event of active US engagement in the war and escalating conflict, oil and gas prices could soar, as they already have since Israel's attacks on Iran last week. Prices reaching $100 per barrel and beyond are possible in the face of escalation. This, however, depends on the duration of the conflict and the status of the Strait of Hormuz during said conflict."
The Precious Role of the Strait of Hormuz
- The Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea, serving as a vital maritime route for global oil trade.
- Approximately one-third of the world's seaborne oil travels through this narrow waterway, making it crucial for energy security[1].
- A disruption in the Strait could significantly impact global oil supplies, as it plays host to a substantial proportion of oil exports from the Gulf region, including Iran, Saudi Arabia, and other key producers[1].
Potential Prices Consequences from Conflict
- In the event of increased tensions, both in the Israel-Iran conflict and potential US involvement, experts warn that shipping disturbances through the Strait of Hormuz could lead to oil prices surging as high as $120 per barrel[1].
- Present prices have already been elevated due to ongoing tensions, with Brent crude reaching five-month highs and West Texas Intermediate witnessing one-year peaks[1].
- A war between Iran and the US risks exacerbating supply risks, leading to higher risk premiums in oil prices and pushing prices past $100 per barrel[3].
- Prices have spiked initially but then dipped due to limited actual disruption thus far, as Iran has not yet shut down the Strait or directly targeted major Gulf oil facilities[2].
- However, escalating infrastructure attacks on both sides could result in significant supply disruptions if the conflict intensifies, supporting further price hikes[2][3].
Broader Economic Implications
- A oil price spike above $100 per barrel would likely intensify inflation worldwide, driving up the cost of living and fostering economic uncertainty globally[3].
- The far-reaching consequences of increased oil prices would influence various sectors beyond energy, including shipping, trade, and consumer goods.
In brief, a war involving US and Iran that jeopardizes the Strait of Hormuz carries a substantial risk of drastically higher oil prices, with possible surges nearing $120 per barrel. This is due to the strategic significance of the strait in global oil trafficking and the potential for severe supply disruptions, causing a large risk premium in prices[1][3].
[1] - Zawya, "Strait of Hormuz oil tanker attacks could trigger $120 oil prices - Rystad Energy," October 7, 2019[2] - Forbes, "Oil Prices Soar After Trump Authorizes Strikes On Iran," June 19, 2019[3] - Money Control, "Iran oil tanker attacks dent oil prices, but market relaxes as fears cool," June 16, 2019.
- In such a scenario where the US becomes involved in the Iran-Israel conflict, various employment policies within the energy sector could experience significant adjustments due to the rise in oil prices.
- Given the potential for oil prices to skyrocket beyond $100 per barrel, it's crucial for the community to focus on energy efficiency and alternative energy sources as part of a broader employment policy, aiming to mitigate the economic impact of these drastic price increases.
