Share and Follow
Economists at Commonwealth Bank have projected that the price of Brent crude, the international oil benchmark, could escalate to a range of $US120 to $US150 per barrel ($168 to $210). Such a spike would likely dampen demand in developing nations, especially if a regional shortage arises.
The analysis further indicates that prices might climb even higher, surpassing $US150, should industrialized countries need to impose elevated prices to curb consumption.
The ongoing conflict in Iran has effectively disrupted the Strait of Hormuz, a vital artery for energy shipments linking the Persian Gulf and the Gulf of Oman. This strategic passageway handles approximately 19% of the world’s oil supply.
As of this morning, Brent crude prices have surged past the $US100 per barrel mark.
Commonwealth Bank notes that although some Gulf states can reroute oil exports through alternative pathways, the bulk of their oil exports remain heavily reliant on the compromised channel.
“Oil is the only energy commodity that has potential to bypass the Strait of Hormuz,” CBA commodities strategist Vivek Dhar wrote.
“We estimate that only three to five per cent of global supply can bypass the Strait of Hormuz.
“That means the effective disruption to global oil markets amounts to 14 to 16 per cent of global supply.”
CBA economists believe the war will last for months rather than weeks, which it said hadn’t been taken into account by global energy markets.
“Our view that energy markets are not fully pricing in the disruption posed by the Middle East conflict ultimately comes down to the expected length of the current disruption,” Dhar said.
“Our expectation that this crisis could last for months instead of weeks likely means that markets are underestimating the disruption to global energy markets.”
He added that, if the war isn’t ended soon, “oil and refined product prices are at risk of rising to levels not seen in history”.
“This would seem to make it intolerable for the world to remain unmoved. This helps explain why energy markets are so reluctant to fully price an extended closure of the Strait of Hormuz,” he wrote in his report.
“On the other hand, the US will not want to leave without achieving its strategic goals and risk emboldening Iran and its proxies.
“This is yet another example of geopolitics clashing with economics in this new era.
“This adds a wildcard element to the outlook.”
NEVER MISS A STORY: Get your breaking news and exclusive stories first by following us across all platforms.