A deeper Middle East conflict could spike oil prices to $150: Bloomberg

January 16, 2024 (MLN): A direct war between Iran and Israel, although unlikely, could cause crude oil prices to skyrocket to $150 per barrel, according to Bloomberg economics.

This would reduce global GDP by about 1 percentage point and add 1.2 percentage points to global inflation.

A war between Iran and Israel, which Bloomberg termed as an extreme scenario, could put one-fifth of global crude supply, as well as important trade routes, at risk if it did materialize.

After more than three months, Israel’s war in Gaza has brought the region to the brink of a wider conflict with the potential to choke off oil flows, take a chunk out of global growth, and push inflation higher again.

That kind of energy-supply disruption has not happened yet, and markets are betting it will not, but the risk is rising, Bloomberg added.

Tensions have escalated in the Red Sea since the US and UK launched airstrikes in Yemen, a response to weeks of attacks by Houthi militants on vessels in a key gateway for global commerce.

Daily exchanges of fire along the Israel-Lebanon border, and the assassination of a Hamas leader in Beirut, risk drawing Hezbollah, and consequently Iran, deeper into the fighting.

Iraq and Syria increasingly look like flashpoints too.

Crude oil prices have fallen by $5.6 per barrel due to supply constraints.

However, it is crucial to acknowledge that this trend might reverse in 2024 if conflicts escalate, potentially leading to upward pressure on prices.

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