With the oil price rising again today, as attacks between Israel and Iran continue, economists are warning that the global economy faces an adverse shock, at an already difficult time for growth.
Oil prices have risen this morning, up around 1%, as the conflict between the two countries enters a fourth day.
Fears of disruption to supplies – a risk, if the Strait of Hormuz was to be closed – are making the oil price volatile. After a 7% surge on Friday, Brent crude is up another 0.5% on Monday morning at $74.60 per barrel, towards the five-month high touched early last Friday.
Iran accounts for about 3% of global oil supplies, while roughly 20% of global oil and LNG flows through the Strait of Hormuz, making it a crucial artery for the global economy.
Traders have noted that an Iranian gas field in the Persian Gulf was hit on Saturday, prompting Iran’s foreign minister to accuse Israel of seeking to expand the war beyond Iran.
Mohamed El-Erian, economic advisor to insurance giant Allianz, says the conflict risks causing slower global growth, increased inflationary pressure, reduced “policy flexibility” for central banks, and “further gradual erosion of the global order”.
He warned yesterday: "Two days into intensifying hostilities, both the probability and potential severity of these four effects have risen, confirming the notion that, in economic terms, this constitutes an adverse shock to an already fragile global economy."
Stock markets are, so far, showing some resilience on Monday. Japan’s Nikkei 225 index has gained over 1% today, while China’s markets are a little hgher.
Wall Street is set to open a little higher too; Tony Sycamore, analyst at IG, says: "While the situation in the Middle East remains fluid, US S&P500 equity futures are trading about 0.95% higher this morning at 6036, likely buoyed by Israel’s early success in targeting Iran’s nuclear facilities, air defences, missile production, and military leaders to cripple strategic capabilities.
"Additionally, while Israel has targeted Iranian energy infrastructure used domestically, it has refrained from targeting key Iranian oil export infrastructure."
As things stand… the oil price rally remains “limited” today amid mounting Middle East tensions, reports Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
Ozkardeskaya says: "Headlines were busy over the weekend as hostilities between Iran and Israel continued. An Iranian gas field in the Persian Gulf was hit on Saturday, fueling concerns that the escalation could spill over into global energy markets. While the damage appears limited to Iran’s domestic supply, the targeted gas processing facilities are linked to offshore oil production sites, potentially threatening broader energy flows.
"US crude opened the week above $76 per barrel, and Brent crude briefly pushed above $84 per barrel. However, both benchmarks quickly gave back gains. Natural gas also spiked at the open, breaking above its 100-day moving average, before retreating. The US dollar edged higher on haven flows, while gold, which opened at record levels, is also paring gains.The early trading reaction points to a surprisingly muted response from markets despite intensifying Middle East tensions."
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