Global oil prices soared by more than 10% after Israel launched an attack on Iran, marking a sharp escalation in tensions in the Middle East. The spike in prices of Brent Crude and Nymex light sweet crude reflects market fears that the conflict could disrupt oil supplies from one of the world’s most energy-rich regions.
The Middle East plays a pivotal role in global energy markets, and any sign of instability quickly sends shockwaves through commodity markets. The Strait of Hormuz through which about 20% of the world’s oil flows is of particular concern. Situated between Iran to the north and Oman and the UAE to the south, this narrow waterway is a key chokepoint for global oil shipments. Disruption here could potentially take millions of barrels of oil per day off the market.
Energy analysts warn that further retaliation from Iran could exacerbate the situation. Vandana Hari of Vandana Insights noted, “It’s an explosive situation, albeit one that could be defused quickly as we saw in April and October last year.” However, she cautioned that it could also “spiral out into a bigger war that disrupts Mideast oil supply.”
Oil prices influence a broad spectrum of economic activities. Higher crude prices drive up transportation and manufacturing costs, which in turn raise the prices of food and other consumer goods. Consumers worldwide could soon feel the impact at petrol stations and supermarkets if tensions persist.
According to Saul Kavonic, head of energy research at MST Financial, the current spike represents an “initial risk-on reaction.” He added that markets will closely watch developments over the next few days to gauge the extent of escalation.
The conflict comes at a time when global inflation remains a concern in many economies. Any prolonged rise in energy prices could further complicate monetary policies and economic recovery efforts. As the world watches, the hope is that diplomacy will prevail before economic damage becomes widespread.
